On Nov. 19 2001, Harvey Pitt?s Securities and Exchange Commission effectively answered an Aug. 22 letter from senior securities attorneys at the American Bar Association.
The letter suggested sweeping revisions to the Securities Act of 1933 and encouraged the SEC ?to purse a ?no holds barred? re-examination regime applicable to both public offerings and private placements.?
Just short of three months later, Pitt named Alan Beller, one of the letter?s 27 signers, as the director of the SEC?s division of corporation finance. Beller is a partner in Cleary, Gottlieb, Steen & Hamilton?s New York office.
Since receiving the ABA letter, Pitt has publicly said that he agrees with its sentiment, adding that its suggested reforms may not go far enough.
?This system has been showing cracks for years,? said Michael Littenberg, partner in the corporate practice at Schulte, Roth & Zabel LLP. Littenberg is not a member of the letter-writing group but called himself a detached observer.
People communicate and think about securities differently than they did in 1933 when Congress passed the Securities Act. The Act limits both who can purchase public offerings and private placements and how issuers can communicate offerings to the public.
The letter suggested that reforms in the regulation would ease the capital-raising process for companies without bringing undo danger to investors. The letter proposed eliminating prohibitions on communicating offerings but still limiting the types of investors who could buy the offered securities.
Under the proposed reforms, a venture fund may be able to take out a fund-raising advertisement in the Wall Street Journal, or a start-up could advertise in a trade publication for more backers.
Littenberg said the reforms could have the greatest impact on companies in the middle markets where venture cash is less plentiful than places like Silicon Valley, New York and Boston.
Littenberg called the letter a potentially very large development, particularly with one of its architects being named to the position to which it had originally been addressed. The SEC has still made no official action on the reforms.