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Dear Secretary:
I am the founder and owner of Tobin & Company Securities LLC, a FINRA-registered broker-dealer headquartered in Charlotte, North Carolina. I have worked in investment banking for more than forty years, advising on mergers and acquisitions, equity offerings, debt financings, and private placements through multiple market cycles.
Throughout my career I have spent a great deal of time studying valuation, financial modeling, and the forward-looking assumptions that underlie capital formation transactions. Whether in the context of an acquisition, a public offering, a debt financing, or a private placement, investors always evaluate opportunities by examining expectations about future performance.
Today our firm serves as managing broker-dealer on private securities offerings, where we work directly with sponsors, issuers, and investors evaluating prospective investments. From that vantage point, we regularly see how financial models inform investor decision-making and how the current regulatory framework affects the information that can be shared in those conversations.
For that reason, I appreciate the opportunity to comment on FINRA’s proposed rule change regarding the use of projections and targeted returns.
FINRA’s current proposal acknowledges an obvious reality: the current regulatory posture surrounding projections in the alternative assets industry is increasingly disconnected from how investors actually evaluate investments. This proposal moves in the right direction, but it remains far too constrained to address the core problem.
FINRA’s proposal appears to create a narrowly tailored exception that would permit the use of projections in certain communications, subject to specified supervisory conditions, including policies and procedures, a reasonable basis for assumptions and accompanying disclosures. While this represents a Member FINRA/SIPC shift from prior practice, the conditions attached to the exception impose a level of supervisory responsibility and potential liability that does not provide broker-dealers with clear practical comfort to allow their registered representatives to communicate financial models and forward-looking assumptions in the ordinary course of an offering.
I understand what FINRA is trying to do, and in theory this creates a path. But the real question for a supervising broker-dealer is whether that path is actually usable in live investor conversations without creating unacceptable supervisory risk. That risk is not driven only by the rule itself, but by how it is applied in examinations and enforcement. In practice, broker-dealers are judged by regulators after the fact, often with the benefit of the regulator’s hindsight and interpretation of the facts, and the line between an explanation of assumptions and an impermissible projection is not always applied consistently by that staff member and her regulatory employer. That lack of consistency makes firms reluctant to rely on an exception that is, on paper, available in a limited form.
After four decades in finance, I can say without hesitation that investors consistently ask to see projections. Whether in buying a factory, acquiring a software business, purchasing a public stock or investing in private placements. Any investor wants to understand how an issuer of private placements (the seller) expects a project (an asset) to perform, what assumptions underpin that view, and how sensitive those projections are to changing conditions. These questions are the basic tools of investment analysis.
Yet the current, and proposed, regulatory framework places broker-dealers in a difficult position. Broker dealers and their registered representatives serve as the primary regulated conduit between Reg D issuers and investors, especially in our roles as managing broker-dealers. Our communications are subject to supervision, disclosure requirements, and accountability that are specifically designed to support informed investor decision-making. Issuers routinely develop financial models as part of their internal planning and capital formation efforts, and investors routinely request those models when evaluating opportunities. While the proposal introduces a narrowly tailored exception that would permit the use of projections under specified conditions, those conditions do not provide broker-dealers with clear practical comfort to allow their registered representatives to communicate financial models and forward ooking assumptions in the ordinary course of an offering.
The result is a system that suppresses information rather than encouraging transparency and disclosure.
Capital markets function most efficiently when participants have access to meaningful information about the assumptions underlying an investment opportunity. Full transparency allows investors to test those assumptions, compare opportunities across issuers, and allocate capital accordingly. When relevant information is withheld or discouraged from disclosure, the market becomes less efficient because investors are asked to make decisions without seeing the full analytical framework that sponsors themselves rely upon. This approach is consistent with the long-standing philosophy of U.S. securities regulation that investor protection is best achieved through full and fair disclosure, rather than by restricting the flow of information.
The current, and proposed, regulatory posture surrounding projections risks producing exactly that outcome. By discouraging the open sharing of financial models and forward-looking assumptions, the framework limits the transparency that normally allows investors to evaluate risk, challenge assumptions and differentiate among issuers.
1. Investors Benefit from Information, Not Paternalism
Of course, it’s important to acknowledge the intent behind the current restrictions around sharing projections with investors. The SEC and FINRA are clearly attempting to protect investors from misleading information. That objective is appropriate and necessary in functioning capital markets.
However, the current, and proposed, framework resembles a form of regulatory helicoptering – one that assumes investors cannot responsibly evaluate forward-looking information. Investors, like adults in any other domain of life, develop judgment through exposure to information and experience evaluating it. A system that does not provide a clear and workable path for investors to see the assumptions behind an investment opportunity does not strengthen their judgment; it simply makes that information difficult to access in practice.
Investors in private securities routinely ask to see how selling issuers and sponsors are thinking about an offering. Investors want to understand the seller’s assumptions about growth, timing, market conditions, operating costs, and valuation. It’s part of the buyer’s vetting process to ask the questions and to see how the questions are answered. That discourse can be incredibly illuminating to an investor. Restricting investors’ access to the information through the registered representative – the projections and the assumptions – does not eliminate risk. It merely prevents investors from evaluating risk thoroughly and head-on.
Capital markets function best when participants are given the tools to exercise judgment rather than being shielded from information altogether. Investors are best served when they have access to the full set of relevant information.
2. The Litigation Dynamic Regulators Are Trying to Avoid
There is also a second reality that regulators understandably observe. The United States has developed a litigation and arbitration environment in which investment losses frequently lead to claims against issuers and intermediaries, even where there is no credible allegation of fraud.
Broker-dealers and sponsors often settle these matters simply because the cost of defending them can exceed the cost of resolution. Regulators see this pattern in arbitration filings and enforcement matters, and it is understandable that they seek to reduce circumstances that may lead to disputes. It makes sense that they see how these cases often turn out and simply decide, to help protect members from this system, to just restrict them from sharing the information at all, rather than being found liable because the projections didn’t match the actual outcome.
However, limiting projections appears to be an indirect attempt to manage this litigation dynamic rather than addressing it directly. Suppressing forward-looking information does not eliminate disagreements about investment outcomes. It merely restricts the information available to investors at the outset.
Investors should be expected to exercise judgment in evaluating opportunities, just as issuers should be expected to present their assumptions responsibly and transparently.
3. Projections, Forecasting, and the Reality of Capital Markets
It is also important to distinguish clearly between a) projections that ultimately prove inaccurate and b) fraudulent statements. Financial models are tools for analyzing the future, not guarantees about it. Some will prove closer to reality than others. That is the nature of forecasting in every field – from business planning to economic policy to government budgeting. The fact that a projection later proves incorrect does not transform it into fraud.
I assure you that no projection model in the history of humankind has ever been exactly correct. Never. But that is not the point of a projection model. Its purpose is not to predict the future with precision. Its purpose is to communicate a thesis and explain the assumptions that led the sponsor to pursue the project in the first place.
A financial model provides a framework for understanding how the issuer is thinking about an investment opportunity: expected revenues, anticipated costs, timing of development, capital requirements, and the range of potential outcomes under different scenarios. Investors routinely want to examine those assumptions. Evaluating them is a central part of the investment decision-making process.
Financial models are also meant to evolve. They are updated as new information becomes available and as projects move through different stages of development. In that sense, a financial model is not a promise of an outcome. It is a planning and analytical tool that helps both issuers and investors understand the economic logic of a project.
In practice, every offering begins with some form of financial modeling. Sponsors evaluate whether a project is viable by analyzing forward-looking assumptions about revenues, costs, timing, and market conditions. Investors naturally want to understand that analytical framework before committing capital.
Yet under the current regulatory structure, broker-dealers supervising these offerings remain effectively constrained from sharing the very projections that underpin the investment thesis. This creates a fundamental tension. Securities are routinely offered and sold based on anticipated future outcomes, yet investors are prevented from seeing the assumptions that produced those expectations.
Investors recognize this gap immediately. In real-world conversations with investors, one of the first questions asked is straightforward: “What does the model look like?” Investors want to understand the issuer’s assumptions about pricing, costs, timing, market demand, and sensitivity to changing conditions. They want to examine how those assumptions interact and whether the resulting projections appear reasonable.
Preventing the open sharing of that information does not improve investor protection. It simply restricts the analytical tools investors typically rely upon when evaluating an opportunity.
Indeed, the absence of transparent projections can create its own risks. When financial models cannot be openly shared, discussions about expected performance inevitably become more informal and less structured. By contrast, when projections are documented and disclosed alongside clear assumptions, investors are better positioned to scrutinize those assumptions, challenge them, and compare them across issuers and projects.
It is also worth noting that the discipline of presenting projections publicly can improve the quality of those projections. When sponsors know their assumptions will be reviewed by investors, they tend to build more thoughtful models, test scenarios more rigorously, and document their reasoning more carefully. Investors benefit from that rigor. The market benefits from that rigor.
None of this suggests that projections should be presented without context. Assumptions should be clearly stated, limitations should be disclosed, and investors should understand that projections represent estimates rather than guarantees. But treating forward-looking analysis itself as inherently problematic overlooks the central role that such analysis plays in capital markets.
In short, forward-looking analyses are not a deviation from how investments are evaluated. They are the foundation of how investments are evaluated.
4. Encouraging Transparency and Innovation
The regulatory framework should also encourage innovation in how financial information is presented and evaluated. Sponsors and issuers already build sophisticated financial models to guide their own decision-making. Rather than discouraging their disclosure, regulators could encourage the development of more robust and transparent modeling practices.
Financial models can clearly display assumptions, sensitivities, and ranges of potential outcomes. Investors could evaluate not only the projections themselves but also the rigor of the modeling behind them.
At a time when markets are exploring tokenized securities and blockchain-based infrastructure, it is not difficult to imagine financial models that are dynamic, continuously updated, and visible to investors throughout the life of a project. Technology can allow models to evolve as new information becomes available, giving investors a clearer understanding of how the issuer’s assumptions change over time.
Regulators should be paving the way for this level of transparency, not holding it back.
Conclusion
FINRA’s proposal recognizes that the current framework surrounding projections is increasingly misaligned with how investors and issuers actually communicate, especially through their broker-dealer and registered representatives. While the proposal moves in the right direction, it does not fully resolve the underlying tension.
Capital markets are inherently forward-looking. Investors evaluate opportunities by examining assumptions about future performance, and issuers raise capital by presenting a vision of how a project may develop. A regulatory framework that discourages discussion of those expectations risks obscuring the very information investors most seek to evaluate.
The proposal, as drafted, technically permits the use of projections under specified conditions. However, from the perspective of a supervising broker-dealer, those conditions do not provide a workable path for registered representatives to discuss financial models and forward-looking assumptions in ordinary investor conversations. As a result, the proposal does not meaningfully change current practice and continues to limit investors’ ability to evaluate the assumptions underlying an offering through a broker dealer and its registered representatives.
For these reasons, the Commission should consider directing FINRA to adopt a clearer and more durable standard governing projections in private securities offerings. Specifically, the rules should permit issuers and broker-dealers to provide financial projections and models to investors, provided that the assumptions underlying those projections are disclosed and appropriate cautionary language explains their limitations. A framework that emphasizes transparency, disclosure of assumptions, and clear context would better serve investors than one that discourages the sharing of forward-looking information altogether.
Thank you for the opportunity to comment on this proposal.