I have frequently commented on the fact that many so-called “investor protections” have the unintended consequence of increasing the risk of investor losses.  One example are limitations on resales.  An illiquid security is presents greater risk than a liquid security.  Investors understand this and will apply an illiquidity discount to the price of a security.  In this way, Government mandated illiquidity raises the cost of capital for investors.

Earlier this year, Representative Patrick T. McHenry of North Carolina introduced H.R. 1839, which bears the moniker of Reforming Access for Investments in Startup Enterprises Act of 2015.  This bill would amend Section 4 of the Securities Act of 1933 to add an exemption for secondary market sales to accredited investors by persons other than the issuer.  The bill would also preempt state qualification requirements for securities sold in transactions pursuant to the new exemption.

Expectedly, the North American Securities Administrators Association doesn’t like the bill and submitted this written testimony last April in which it malaprops:

Exemptions are based on the principal that securities registration is not necessary because of available and effective alternative oversight to ensure quality control, a pre-existing relationship between the company and potential investors (i.e., employees or current securities holders), or the offering is made to investors that meet minimum financial thresholds and are thus presumably capable to evaluate a private securities offering and do not need the full protection of the securities registration.

Obviously, NASAA intended to use the noun “principle” in the sense of a fundamental rule or proposition.  Unfortunately, NASAA repeats the solecism in this follow-up letter.  Both words are derived from the Latin word princeps, which is derived from two words meaning to take first.  The word “prince” shares the same Latin root.