Senate Republicans seek allowances for RIAs to manage pooled crowdfunding money

GOP lawmakers also ask SEC to increase number of investors who qualify to buy private placements

Jul 19, 2019 @ 4:47 pm

By Mark Schoeff Jr.

Senate Republicans are asking the Securities and Exchange Commission to expand the ability of small businesses to raise capital from ordinary investors by involving investment advisers.

In a letter to SEC chairman Jay Clayton on Thursday, Republican members of the Senate Banking Committee said the agency should make a priority of helping start-ups engage in crowdfunding, a method of gathering investments online in small amounts from a large number of people.

"An additional tool we encourage the commission to consider is allowing crowdfunding investors to pool their money into a fund advised by a registered investment adviser," wrote Senate Banking chairman Mike Crapo, R-Idaho, in a letter signed by his 12 GOP panel colleagues.

The idea of aggregating crowdfunding investments is one that could appeal to state regulators as well, according to Michael Pieciak, commissioner of the Vermont Department of Financial Regulation and president of the North American Securities Administrators Association Inc.

If investors put their money into a pool, it could relieve small businesses of having to deal with thousands of individual investors. It also could bolster investor protection by making a crowdfunding investment more diversified and liquid.

"We're interested in exploring it," Mr. Pieciak said on the sidelines of an Alternative and Direct Investment Securities Association conference in Washington on Friday. "The details, obviously, have to be played out."

Investor safeguards must go along with allowing them into the private pool, Mr. Pieciak said.

"If you create those exemptions, think about individual or aggregate investment limits for people that don't meet the financial standards but have some other way of qualifying through a license or educational credential," he said.

Other ways the GOP senators encouraged the SEC to allow more investors to participate in private offerings were by: expanding the definition of an accredited investor beyond income and net-worth thresholds to include qualifying education and expertise, enabling family offices meeting certain conditions to become accredited investors, and permitting more general solicitation and advertising surrounding Regulation D private placements.

The senators in part were responding to a recent SEC comment request on easing restrictions on participation by ordinary investors in private markets. They're nudging the SEC to propose new regulations, according to Anya Coverman, senior vice president for government relations and general counsel at the Institute for Portfolio Alternatives.

"It's the senators saying to the SEC we support the concept release and we urge you to bring that to the rulemaking process — sort of move this forward in an efficient way doing it through the regulatory process," Ms. Coverman said. "That's something the IPA and this industry supports."

Enabling more investors to qualify to buy private securities is a priority for IPA and ADISA.

"We are supportive of expanding the accredited investor definition to increase capital raise, which has a myriad of benefits for Main Street growth, with appropriate protections for the investor," said John Harrison, ADISA chief executive.

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