SEC chief says new stock rules must protect investors

By Marcy Gordon AP Business Writer WASHINGTON (AP) -- The Securities and Exchange Commission is open to easing rules for private companies that issue stock, the agency's chairman said Tuesday. But it must first weigh the benefits of those changes against a potential rise in fraudulent stock offerings. Private companies can keep their finances secret if they have fewer than 500 shareholders. SEC Chairman Mary Schapiro said the agency is trying to see if it makes sense to raise that threshold. A change would make it easier for Facebook, Twitter and others to raise money without meeting the reporting requirements for public companies. Schapiro said she's sympathetic to businesses' complaint that the current limit restricts their ability to raise capital. But she and her staff said looser requirements could also lead to more cases of phony companies scamming investors. The most important goal is "getting this balance right between protecting investors and making access to capital affordable and efficient," Schapiro told the panel. Some lawmakers say the current rules discourage investment and limit economic growth. "Efficiently raising capital to the best investment opportunities in the U.S. is critical to a widespread economic recovery and the long-term viability of our global market position," said Rep. Darrell Issa, R-Calif., chairman of the House Oversight and Government Reform Committee, After hearing Schapiro's testimony, Issa told his colleagues that she knows the SEC must ease the rules. Still, the current rules are designed to stop insiders from trading shares using information that is not available publicly. Meredith Cross, who heads the SEC's division of corporation finance, told the panel that the agency will review the issue and put a report out for public comment later this year. The staff review aims to develop ideas to reduce companies' cost of compliance without sacrificing investor protection. In addition to Facebook and Twitter, the rules would affect the daily discount site Groupon and Zynga, the maker the online game "FarmVille." Many of these companies are startups in name only. They have thousands of employees and estimated billions of dollars in yearly revenue. But they have put off going public. That's partly because they already have access to capital from deep-pocketed investors and venture capitalists. Sometimes groups of investors can bunch their holdings together to make it look as though there are fewer shareholders than actually exist in a company. Issa also wants the SEC to consider exempting company employees who own stock from being counted toward the limit. Cross said they are considering that change. Published: Thu, May 12, 2011