CFIRA

SEC Chair Predicts Equity Crowdfunding Rules For Fall 2013

 

By A. Brian Dengler

SEC Commission Chair Mary Jo White. Courtesy Senate Banking, Housing and Urban Affairs Committee.

SEC Commission Chair Mary Jo White. Courtesy Senate Banking, Housing and Urban Affairs Committee.

Washington, D.C. — SEC Chair Mary Jo White told a Senate committee that proposed rules for equity crowdfunding may be revealed this fall among other “front burners” before the commission.  Ms. White made her comments during questioning by members of the Senate Banking, Housing and Urban Affairs Committee on July 31, 2013.

Ms. White’s testimony before the committee initially focused on reducing systematic risks in capital markets under the Dodd-Frank Act.  Ms. White told the committee that regulations under the Dodd-Frank Act was among the “front burners” in a series of regulations being considered by the Securities and Exchange Commission.  Senator Pat Toomey (R-PA) turned the conversation to the SEC’s progress in formulating regulations under the Jumpstart Our Business Startups Act.  Senator Toomey said he continued to be frustrated by the lack of progress in such regulations by the SEC. He then pressed Chair White on whether rules for the JOBS Act were among the “front burners.” “It certainly is very among those front burners,” Ms. White responded. She said proposals for such front burner regulations should come out this fall.

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The JOBS Act relaxes existing securities laws by making the following changes:

  • Creating a transitional “on-ramp” for emerging growth companies by reducing the disclosure requirements in their IPO registration statement and reduces compliance and disclosure requirements following the completion of an emerging growth company’s IPO;
  • Easing prohibitions on general solicitation and general advertising, allowing communication about an offering prior to any filings being made with the SEC;
  • Raising the threshold at which a private company must report with the SEC, from the current threshold of 500 shareholders of record to either (i) 2,000 shareholders of record or (ii) 500 shareholders of record who are not accredited investors, with higher thresholds for banks and bank holding companies;
  • Adopting exemptions for certain “crowdfunding” transactions, including preempting state securities laws by making securities offered under exempt offerings “covered securities;” and
  • Permiting companies to conduct offerings to raise up to $50 million through a process similar to current Regulation A.
Sen. Mark Warner. (D-VA) Courtesy Senate Banking, Housing and Urban Affairs Commitee.

Sen. Mark Warner. (D-VA) Courtesy Senate Banking, Housing and Urban Affairs Commitee.

In response to questioning by Senator Mark Warner (D-VA),  Ms. White assured the committee that rules for crowdfunding likewise was among the front burner regulations under review by the SEC. “I’m hoping you’re going to say this [crowdfunding] is front burner as well, since it has been more than a year and we’re seeing other nations in the world moving into this space and take away any first mover potential advantage America has,” said Senator Warner. “How front burner issue is this? There are a lot of folks waiting for you to get these regulations out.”

“Again, I certainly am describing multiple front burners to some degree … but crowdfunding rulemaking is certainly on one of those front burners,” Chair White confirmed. “I’ve prioritized as many [rules] as I can.”

Chair White also told the committee that the SEC was working in parallel with the Financial Industry Regulatory Authority to implement self-regulatory rules for funding portals that will facilitate equity crowdfunding online. “We’re trying to land that at the same time so that it does not build in other delays.”

Senator Warner noted that “mistakes will be made” during the initial implementation of equity crowdfunding, but the concern for such mistakes should not be a detraction from the potential upside of equity crowdfunding. “The potential upside is connecting capital to entrepreneurs that otherwise was not going to exist,” Senator Warner told Chair White. “There is a nascent industry waiting for the regulations to come out.”

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