By Alexandra Alper
WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission should take its time before drafting a rule to relax a ban on companies advertising to investors before public offerings, a group of state securities regulators said on Thursday.
The North American Securities Administrators Association (NASAA) asked in an August 15 letter that the SEC to "resist pressure to act hastily" in drafting a rule to lift the ban on so-called "general solicitation".
Congress and President Barack Obama ordered the regulator to scale back the ban, a cornerstone of the SEC's foundation since it was created in 1933, as part of the bipartisan-supported Jumpstart Our Business Startups law, or JOBS Act. Enacted in April, it gave the regulator just 90 days to come up with a new rule.
The law included a 90-day deadline for the SEC to implement the rule lifting that ban, which it is belatedly slated to vote on August 22. Because it missed the deadline, the regulator is now considering adopting an interim resolution that would immediately lift the advertising ban, according to a source.
"Given the complexity of the issues involved in the changes to (the rule), plus the enormous impact those changes will have on how these risky investments will be offered, we strongly urge the Commission to follow its normal course of publishing the proposed rule for public comment before it becomes effective," Jack Herstein, president of the NASAA, wrote.
"We urge you to resist the pressure to act hastily, especially where ill-considered changes could have such devastating impacts on investors," he wrote.
A spokesman for the SEC was not immediately available for a comment.
Herstein asked the SEC to instead prioritize rule writing mandated by the 2010 Dodd-Frank Wall Street reform law, and concentrate on those that boost investor protection.
He also asked the agency to carefully weigh the benefits and costs of lifting the ban, including losses sustained by investors from fraudulent offerings.
The SEC has been juggling the implementation of new JOBS Act provisions along with its still massive workload from the 2010 Dodd-Frank Wall Street reform law.
NASAA is not alone in its criticism.
In a May letter to the agency, the AFL-CIO, the Consumer Federation of America and other investor advocates urged the commission not to simply lift the ban without first making "substantial additional amendments" to make sure investors are adequately protected.
The agency has implemented new rules before seeking comment in the past. But in most cases, the SEC first requests public comments before putting a new rule on the books.
(Reporting by Alexandra Alper; Editing by Leslie Gevirtz)