NASAA Calls for State Authority to Disqualify "Bad Boys" from Rule 506 Offerings

In a statement issued yesterday, the North American Securities Administrators Association (NASAA) called upon the Senate to amend its proposed financial reform legislation to reinstitute the authority of the states to use their so-called "bad boy" provisions to disqualify recidivist securities violators from conducting private securities offerings under Rule 506 of federal Regulation D. Commenting on the most recent version of the Restoring American Financial Stability Act of 2010, NASAA President Denise Voigt Crawford expressed NASAA's belief that barring recidivists from conducting private placements would provide important investor protections against fraud, while not being detrimental to those legitimate issuers who use Rule 506 offerings almost exclusively to raise capital.

“The bill's current language offers an unworkable regulatory review process, which, contrary to those who have mischaracterized our position on Reg D Rule 506 offerings, has not been called for by NASAA," Crawford said. "Such a process would impede capital formation in the United States, especially in the small business community and would add little to protect investors."

NASAA also called upon the Senate to restore to the states the ability to request and obtain a copy of an issuer's private placement memorandum when there is reason to believe that investors might be defrauded. As with the states' bad boy provisions, state laws which required issuers to furnish these documents were preempted by the passage of the National Securities Markets Improvement Act of 1996 (NSMIA).

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