On April 12, 2024, the Center for American Progress submitted comments to the U.S. Securities and Exchange Commission urging the agency not to approve an amended proposal of the Financial Industry Regulatory Authority (FINRA). Under the proposal, FINRA’s rule 2210 would be amended to allow regulated broker-dealers—financial businesses that buy and sell securities on behalf of clients, and occasionally for their own account—to make performance projections on nonpublic securities they are offering for sale, as long as those projections are only made to institutional investors or to certain individuals who own $5 million or more in investments.
Normally, broker-dealers communicating with any member of the public about private securities they offer for sale are prohibited from making projections about the future performance of a company or its stock. Such estimates are difficult for prospective purchasers to assess due to the lack of information on private companies—those that are not publicly registered and are thus exempt from complying with public disclosure rules.
Among other arguments against the proposal, CAP pointed out the lack of information in private markets, where companies are not required to disclose basic information about their operations, management, risks, or audited financials. Thus, potential purchasers of securities offered by these private companies often have little information about the company except what is provided to them by the broker-dealer, making it difficult to assess the veracity of the projections. Furthermore, CAP argued that even the most sophisticated investor cannot value securities without reliable, consistent, and comparable information about these fundamentals of the company whose shares are being offered for sale.
Click here to read CAP’s comment letter on the FINRA proposal.