WASHINGTON, D.C. (April 3, 2020) — The North American Securities Administrators Association (NASAA) yesterday told a Securities and Exchange Commission advisory committee that state securities regulators are maintaining essential regulatory and investor protection operations during the ongoing novel coronavirus (COVID-19) pandemic.
“The past few weeks have been challenging for investors, regulators, and the financial services industry. While state securities authorities are working to help financial professionals withstand current difficulties, we remain focused on our mission to protect investors,” Christopher W. Gerold, NASAA President and Chief of the New Jersey Bureau of Securities, said in remarks to the SEC’s Investor Advisory Committee.
In his remarks, Gerold also raised concerns among state securities regulators that some will take advantage of concerns with the regulated securities market to promote private offerings related to COVID-19.
“Because private securities transactions ostensibly sold pursuant to certain Rule 506 exemptions are not subject to review by federal or state regulators, these offerings are a vector for fraudulent offerings to masquerade as all types of investment opportunities,” Gerold said. “We are particularly concerned that people will be pitched on private placements because they appear more stable because there is no secondary market, and they are not being re-priced on a daily basis, the same way that public securities are. Further, while we have a clear understanding of what’s going on in the public markets, the Commission should be deeply concerned that we have no real picture of what is occurring in the private markets.”
In a comment letter to the SEC last month, NASAA urged the agency not to move forward with its proposal to expand access to high-risk private securities exempt offerings to individual investors, and particularly to seniors living on fixed incomes from retirement savings, without additional investor protections and oversight. Today, Gerold recommended that the SEC consider pausing significant rulemakings by 90 days amid the coronavirus crisis, particularly rulemaking related to the SEC’s Concept Release on Exempt Offerings.
Gerold told the committee that NASAA’s U.S. member regulators are operating through the present crisis to maintain essential regulatory operations, consistent with state and federal directives and guidance regarding social distancing. “Like our federal counterparts, our staffs are primarily working remotely and taking advantage of technology to carry out our statutory responsibilities,” he said.
He noted that NASAA’s Board of Directors has established a COVID-19 working group to help coordinate responses to COVID-19 related issues and engage with other regulators. Gerold said nearly all states are providing regulatory relief to licensees and registrants adversely impacted by COVID-19.
These actions include providing a variety of regulatory relief by, for instance, extending certain deadlines and registration requirements. NASAA has developed a COVID-19 Update Center on its website to serve as a resource to regulators and industry to monitor state orders and actions related to the financial services industry. The website is available here.