Consistent securities laws would encourage investment. (Commentary).

MOST countries have just one set of securities laws, but the U.S. has 51 - one for each state, plus the federal legislation. That multiplicity of laws has long caused frustration for issuers and would-be issuers of securities, especially in California.

William Donaldson, the new chairman of the Securities and Exchange Commission, wants the SEC to rein in the powers of state regulators -- "to make sure they're stopping where they should stop," as he said at his confirmation hearing. If they don't, Mr. Donaldson plans to ask Congress to redefine the regulatory structure to avoid "balkanization."

Getting 50 states to approve a public offering already OK'd by the SEC is virtually automatic if the issuing company is listed on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market System.

But startups and early stage companies are left to the whims of state regulators when they seek to raise capital, either through nonexempt public offerings or private placements of their securities. And some states, especially California, have merit review, rather than the disclosure system adopted by the SEC -- which erects obstacles to obtaining capital.

The highest hurdle in California is a restriction on the way companies may approach prospective investors. The state permits companies to sell as much as $5 million through a private placement, but they may promote their offerings only through tombstone ads or by contacting qualified investors with whom they already have a relationship.

Very few entrepreneurs have a pre-existing relationship with enough qualified investors to raise the capital they're seeking. So it's not surprising that each year fewer than 100 companies take advantage of the limited opportunity offered by California's regulations.

Investment bankers rarely are willing to step into this void. Startup companies typically are seeking $500,000 to $1 million -- too little to be economical for even a boutique investment banking firm to undertake.

One way to escape this Catch-22 is to permit general dissemination of a company's private placement memorandum, the document describing the offering, as long as the securities are sold only to persons with a net worth of at least $1 million (or annual income of $200,000 if single or $300,000 if married).

This would enable a company to run the PPM in newspapers and magazines or on the Internet, TV and radio. Restricting such offerings to accredited investors is a good idea; securities of small, untested companies should not be sold to the general public.

As Mr. Donaldson either knows or undoubtedly will learn, in 1992, then-SEC Commission Chairman Richard Breeden found himself in sharp disagreement with representatives of the North American Securities Administrators Association, a politically powerful group comprised of state regulators of securities.

If Mr. Donaldson is to be successful in his drive to effect uniformity in our nation's securities laws, he will probably need grass roots support. Congress will almost certainly pay attention if business associations across the country, particularly those representing small businesses, come on loud and strong on this issue.

Lee Petillon is a partner of Petillon & Hansen, a Torrance law firm.