Oct. 29, 2023
I am writing to strongly oppose the proposed rule to implement Section 27B of the Securities Act of 1933, which was added through Section 621 of the Dodd-Frank Act. As an experienced investor, I firmly believe that this rule will harm retail investors and open up opportunities for manipulative practices by hedge funds. One major issue with this proposed rule is that it significantly reduces transparency and protection for retail investors. The rule creates an exemption from registration for certain offerings by non-reporting companies, provided that the securities are sold exclusively to accredited investors. While this might seem like a simple way to reduce regulatory burden, it has severe implications for small investors. Firstly, without registration, there is less information readily available to investors, reducing their ability to evaluate whether the offering is suitable for them. Secondly, given the higher net worth requirement for accredited investors, many retail investors will be excluded from participating in these offerings altogether. This exclusion limits retail investors’ choices and reduces competition in the secondary market, potentially driving up prices for remaining shareholders. Another critical concern is that the proposed rule opens doors for manipulation by hedge funds. Historically, hedge funds have been associated with questionable practices aimed at boosting returns. For instance, some hedge funds use insider trading techniques to gain an edge over others, giving themselves preferential treatment while leaving retail investors behind. Under this proposed rule, hedge funds can now create fake accredited investor accounts to participate in private placements previously restricted to larger institutional buyers, thereby gaining access to better deals than retail investors. With limited oversight, these hedge funds could potentially abuse their position, further widening income inequality among different classes of investors. Given these serious drawbacks, I urge your authority to thoroughly reexamine this proposed rule. Protecting retail investors' interests must remain paramount in all decision making, and any rules implemented need to adhere strictly to that objective. To ensure fairness and avoid opportunities for misconduct, regulators must mandate greater disclosure and transparency across all investor categories, including sophisticated investors like hedge funds. If the exemptions offered here are deemed necessary, alternative mechanisms should be explored that maintain transparency standards and promote equality among various classes of investors. We cannot afford to ignore the potential dangers posed by this proposed rule and must work together towards finding solutions that benefit everyone equally. Thank you for taking the time to consider my feedback. Your prompt attention to this matter is greatly appreciated.