September 15, 2009
September 14, 2009
Subject: File No. S7-18-09
Dear SEC Chairman and Commissioners:
I am submitting my comments primarily in response to the SEC proposed rule, 206 (4) - 5, which would broadly ban any third party from marketing investment products to public entities. For disclosure purposes, I am not involved with any marketing firm nor do I do business with any public pension funds.
The goal of adopting regulations and procedures which eliminate the opportunity for pay-to-play abuses within the securities and public pension industry is admirable, necessary and long overdue. There is no place for this activity in the public investment world (nor anywhere else) and steps should have been taken by the SEC and other regulatory bodies to curb the opportunities for these types of activities long ago.
However, SEC proposed rule, 206 (4)-5, which would ban any third party from marketing investment products to public entities is yet another example of regulations gone awry. Not only is it overreaching and will cause significant harm to the investment community and the public pension funds and their beneficiaries, but the nation as a whole, particularly in these times of reduced liquidity.
I do not understand how the SEC can conclude that the inclusion of rules that preclude any third party from marketing investment products to public entities is consistent with the stated mission of the SEC:
The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair orderly, and efficient markets, and facilitate capital formation.
The proposed rule 206 (4) - 5 will in fact have the opposite effect of acheiving the goal of maintaining fair, orderly and efficient markets, and will certainly have a negative impact on facilitating capital formation.
Further, adoption of any such rules that eliminate the vital role of third party placement agents will not only favor the large investment firms that have the resources (and political clout) to the detriment of the many smaller firms that provide significant value to the industry and our economy at large, but reduce competition and a significant source of investment capital for those firms that cannot support the cost and burden of an in house marketing staff. These third party firms provide a valuable role in enabling capital formation on an efficient basis.
The right approach is to set up a system that adequately and directly regulates the issues of corruption and "pay to play", which many public funds and states have or are already addressing, identify the violators and strengthen and enforce the penalties,particularly on those who are the receipients of such payments.
Accordingly, I strongly urge the SEC to eliminate the ban on placement agents and instead provide strong regulatory oversight and enforcement. After all, oversight and enforcement are the primary jobs that the SEC is supposed to be doing, as opposed to adopting a poorly conceived ban that will create far more damage to the public and the markets than even the abuses of "pay for play". It is critical to maintain the integrity of the system, but it is foolish to do so by destroying an entire segment of the industry.
Thank you for your consideration.
Sincerely,
John Balestra