The news that federal regulators have repealed an 80-year ban on advertising of private stock offerings has gotten a lot of attention in Boulder business circles this week.
After all, the ban dates back to the Securities Act of 1933, part of a slate of new regulations to protect consumers in the wake of the 1929 stock market crash. It sought to prevent unaccredited – perhaps unsophisticated – investors from being targeted by companies whose stock was not publicly traded.
Boulder County Business Report publisher Chris Wood says rescinding the longtime ban has come about because of new federal jobs legislation.
"The SEC’s hand was really forced by a law that we’ve talked about before, the Jumpstart Our Business Startups Act of 2012," Wood says. "One of the provisions of the JOBS Act was that the SEC would be forced to rescind the ban on advertising of private placements. The organization did that last week, and it will take effect in mid-September."
Now that advertising is permitted, local experts say it could put companies in front of a much broader pool of potential investors.
The move is not without controversy. One potential danger is that unscrupulous individuals will use the new rules to try to defraud inexperienced investors. Despite that, Wood says there’s lots of enthusiasm among Boulder Valley companies for the change.
Interview highlights:
Why was advertising of private stock offerings banned in the first place?
"We have to go back 80 years. The Securities Act of 1933 included a host of new regulations to protect consumers in the wake of the Stock Market Crash of 1929 and the many financial shenanigans that were common at the time. Essentially, the Act sought to ensure that offerings in private companies, as opposed to those whose stock is publicly traded, are only accredited individuals with a high net worth. So advertising was banned to prevent unaccredited — and unsophisticated — investors from being targeted."
What practical effect will the ruling have on companies trying to raise money?
"We write all the time about private companies in the Boulder Valley that are filing notices of offerings with the SEC under what’s known as Regulation D. Under Reg D, private companies can target accredited investors with at least $1 million dollars in net worth, or who have two consecutive years of annual income above $200,000 dollars. But companies have not been able to advertise to reach those individuals.
Now, advertising is permitted, so local experts say it could put companies in front of a much broader pool of potential investors, although anyone actually investing in a company still must be accredited. At the same time, advertising of offerings could make investors aware of more opportunities that might exist."
What’s been the reaction from Boulder-area companies that fall into this area?
"There’s a lot of enthusiasm. One example is Solbites Inc. of Lyons. The company produces cracker-and-spread snack packs and is attempting to finance expansion of the company. Solbites has so far raised $40,000 dollars out of its $300,000 goal. Founder Ann Hayden told us that the new ruling could be a huge benefit to the company as it tries to get the word out.
And Matt Stamski, an attorney with Faegre Baker Daniels in Boulder, told us that the firm’s phone started ringing as soon as the SEC ruling was announced. Calls were coming both from companies interested in offerings, and investors looking for opportunities."
