May 27, 2015 FOCUS by greear

The top securities regulator in Massachusetts has filed a lawsuit against the Securities and Exchange Commission to stop a recently adopted rule he claims curtails state oversight of stock offerings by small and emerging companies.

In his suit in the U.S. Court of Appeals for the District of Columbia, Massachusetts Secretary of the Commonwealth William Galvin asserts that the SEC regulation is “arbitrary, capricious and otherwise not in accordance with” securities laws.

Under the rule, offerings of up to $20 million would have to be filed with the state and the SEC. Those between $20 million and $50 million would require SEC registration only.  State regulators strongly resisted the rule, arguing it pre-empted their oversight of a portion of the market they are best situated to oversee.

The SEC declined to comment on Mr. Galvin’s suit.

The SEC rule was vague in its definition of the kind of investor who qualifies to purchase the small offerings, Mr. Galvin said in an interview. It did not place net worth or salary restrictions, which means that local businesses could target retail investors in the area.

“It’s essentially saying everyone is a qualified purchaser,” Mr. Galvin said. “That’s where the states should definitely be involved.”

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