Mar. 15, 2023
March 15, 2023
I am writing to express my reservations regarding the proposed implementation of Section 27B of the Securities Act of 1933, which was added by Section 621 of the Dodd-Frank Act. Upon thoroughly examining the proposed rule, I am convinced that it poses a risk to household investors and could provide manipulative hedge funds with an opportunity to operate unchecked.
Under the proposed rule, an exemption from registration under the Securities Act would be created for certain securities offerings by non-reporting companies, provided that they are sold exclusively to accredited investors. Although this exemption may appear reasonable at first glance, it is flawed in several significant ways.
For one, the proposed rule fails to sufficiently safeguard household investors. By excluding certain offerings from registration, the rule would reduce the amount of information available to investors. As a result, household investors would not have access to the same information as accredited investors, which would make it more difficult for them to make informed investment decisions. This could lead to household investors investing in unsuitable securities, thereby incurring potential losses.
In addition, the proposed rule would provide manipulative hedge funds with an opportunity to exploit the exemption. Hedge funds have a track record of engaging in manipulative behavior in the securities market, and this proposed rule would give them a new avenue to do so. By creating an exemption that is exclusively available to accredited investors, the proposed rule would enable hedge funds to create fake accredited investor accounts and carry out manipulative behavior while evading regulatory scrutiny.
Given these concerns, I urge you to reconsider the proposed rule and take action to address the issues I have raised. It is crucial to safeguard household investors against potential losses and prevent manipulative hedge funds from taking advantage of regulatory loopholes.
Also, make the fines levied against hedge funds proportionate to the damage they inflict on household investors. This should be a method to actually discourage corrupt behavior, not just a cost of doing business.