SEC should relax capital raise rules: advisory group

WASHINGTON, DC (Reuters) - An advisory group representing small and emerging companies called on U.S. securities regulators on Friday to relax outdated regulations that ban general solicitations for private securities offerings.

In a 14-0 vote, members of the Advisory Committee on Small and Emerging Companies, specifically formed by the Securities and Exchange Commission, are recommending less stringent regulations.

The SEC last year launched a broad review of outdated securities regulations that have not kept pace with the evolution of social media sites such as LinkedIn and Facebook, and with the structure of fast-growing startups.

As part of the review, the SEC is looking at how private companies promote securities offerings.

"The advisory committee is of the view that the restrictions on general solicitation and general advertising prevent many privately held small businesses and smaller public companies from gaining sufficient access to sources of capital and thereby materially limit their ability to raise capital through private offerings of securities," the committee wrote in its formal recommendation to the SEC.

The committee called on the SEC to take "immediate action" to permit general advertising for private offerings in cases where the securities are sold to accredited investor that have a high net-worth and are considered to be more sophisticated.

The committee did not, however, suggest any specific ways to change the rules, saying it was leaving the details up to the SEC.

The small business advisory group was formed last year to help the SEC as it examines ways to help promote capital formation.

Congress is also considering legislation to ease rules that restrict private companies' capital raising efforts, but both Congress and the SEC are trying to carefully craft any reforms to ensure they do not erode investor protections.

The advisory group's vote comes just a few days after the SEC took enforcement action against an investment adviser for allegedly using LinkedIn and other social media sites to lure investors by offering more than $500 billion in fake securities.

As part of its announcement about the case, the SEC also released two alerts on social media usage that warned investors of fraud and also urged investment advisers to adopt more uniform policies to ensure they are in compliance with SEC regulations on general solicitation.

(Reporting By Sarah N. Lynch; Editing by Bernard Orr)