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September 26, 2019

The SEC Grants Industry Wish to Pitch Investors, Even When the Law Prohibits It

Thursday, September 26, 2019

Washington, D.C.  –  Dennis M. Kelleher, President and Chief Executive Officer of Better Markets, issued the following statement following the SEC’s adoption of its “Testing the Waters” rule:

“Today, at the request of — and with the full support of — the industry, the SEC finalized a rule that effectively repeals an express statutory requirement of the 1933 Securities Act.  In doing so, the SEC claims that generic exemptive authority gives it virtually unlimited and unilateral authority to re-write laws.

“The SEC approved a rule, known as ‘Testing the Waters,’ that would allow all companies to secretly communicate with selected potential investors about possible future public offerings of their securities without having to file a registration statement as required by the ’33 Act.  That means even penny stock issuers, blank check companies, asset-backed securities issuers, and others will be able to circumvent an 85-year-old statutory requirement that all material information must first be disclosed to potential investors. 

“It is noteworthy that this rule change was initiated in response to a long wish-list of de-regulatory measures sent to the SEC by the industry, including the U.S Chamber of Commerce, SIFMA, and other trade groups.  Once the SEC proposed their requested rule, the industry then stuffed the SEC file full of supportive comment letters with little more than self-serving, fact-free assertions.  Indeed, of the 20 organizations and individuals who filed comment letters, only Better Markets challenged the Commission’s legal authority to adopt such a sweeping exemption, and only Better Markets highlighted the utter lack of evidence in the record to justify its other provisions. 

“Indeed, by the SEC’s own admission, it proposed and adopted the rule without any concrete understanding of whether it will actually promote capital formation or pose a threat to investors.   Moreover, the SEC didn’t even see fit to include in the rule any investor protection measures or data-gathering provisions that might have better-informed the Commission’s actions.  Thus, not only is the rule legally baseless, it is also factually baseless and procedurally defective.”


Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit

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