Commissioner Cautions Congress: Investor Protection Still Warranted

Heath Abshure already was concerned that federal legislation designed to stimulate small-business growth would go beyond expanding opportunities for companies and investors.

His concerns as the Arkansas Securities Commissioner heightened after the president announced on Sept. 9 plans “to cut away the red tape that prevents too many rapidly-growing startup companies from raising capital and going public.”

Abshure said the idea of rebuilding the economy on the back of small business sounds good, but it isn’t necessary to prune regulations that require full disclosure to investors and help guard against fraud.

“Tell me what I need to know and don’t lie to me,” Abshure said of the two fundamental investor rights his office protects.

“I can appreciate the struggles of small business, but I don’t think they can sell whatever they want to whomever they want to.”

Abshure visited Washington, D.C., in late September to testify about proposed changes to securities law envisioned to help small businesses attract investment capital. And some of those changes would override good state laws.

Abshure is worried that opening the door to more private funding sources will also open the door to more participation by less sophisticated investors who could be plundered.

In his testimony to the House Subcommittee on Capital Markets & Government Sponsored Enterprises, he noted that, historically, small start-up businesses obtain capital from a variety of sources.

That list of sources includes friends and family, credit cards, home equity loans, bank loans, nonbank loans, angel investors, venture capitalists, and private and government investors providing Small Business Administration-sponsored financing.

Abshure suggested that if small business is having difficulty accessing new capital, the problem might lie with impediments to connecting with those traditional sources.

“The critical questions are: Have these sources stopped funding small businesses? If so, why?” he testified. “The answers to these questions should dictate the universe of proposals Congress should entertain.”

But in the meantime, Abshure hopes any changes to securities law at the national level won’t override state law and hinder the safeguarding of investors. He sees how the hunger for greater returns has attracted more money to alternative investments such as promissory notes, real estate investment trusts, oil and gas ventures, variable rate annuities, commodities and foreign currencies

Abshure worries that proposed changes will make it easier for unscrupulous types to peddle questionable deals that offer great returns.

“People are going to run into it, run into it, and that’s my fear,” he said.

“These bills are taking the risk assessment from regulators and moving it over to mom and pop, and mom and pop don’t have the ability to make that assessment.

“Under one bill, investors won’t be able to verify the authenticity of an issuer and an offering because of less stringent filing requirements. I shudder to see what’s going to happen.”

Small Business Product

Lest anyone think that his regulatory concerns reflect a negative stance toward small business, Abshure points to his roots.

“No one owes more to small business than I do,” he said. “Small business put me through college and law school. Small business got me my first home.

“I don’t think it would be appropriate for my dad to get on the Internet and say, ‘Invest in my business.'”

His dad grew Arkansas Automatic Sprinklers of Cabot from four employees to 150 before selling.

His grandmother owned a thrift store that morphed into Audrey’s Western Wear in Austin (Lonoke County), which his mother inherited and operated.

His in-laws have owned and operated Pine Mountain Candy in Missoula, Mont., for 25 years.

 “She makes it, and he wraps it,” said Abshure, whose early work at a small law firm helped start his career path.

He said the focus on small business as the driving force behind an economic recovery could be misplaced. Authorities disagree on how big a part small business plays in the nation’s commerce equation, Abshure points out.

“It’s not cut and dried,” he said. “There is some validity to it, but we still need investor protection.”

Abshure also told the subcommittee: “The challenge for Congress today is to find policies that achieve the right balance between the competing objectives of promoting investment in real and valid business opportunities and protecting citizens from inappropriate risk and fraudulent schemes.”