Crowd pushing Walter on crowdfunding

As it installs a new chairman on Friday, the Securities and Exchange Commission has succeeded in doing something that's rare in Washington these days – generating bipartisan agreement. Both Democrats and Republicans are now calling on the agency to speed up rulemaking legislation – known as the Jobs Act – that passed earlier this year by strong majorities in the House and Senate. The measure was designed to ease securities registration rules for fledgling small businesses. Proponents say that the changes will promote economic growth and create jobs. Skeptics warn that they will make investors vulnerable to fraud. On Monday, Democratic Sens. Jeff Merkley of Oregon and Michael Bennet of Colorado nudged the SEC to propose a rule to implement a provision of the Jobs law that would allow start-up companies to raise capital online in a process called crowdfunding. President Barack Obama signed the law on April 5. Congress gave the SEC 270 days to promulgate the related rules. We're nearing that deadline now. Not only has the SEC failed to propose a crowdfunding regulation, it has not finalized a rule that would allow general advertising for private placement offerings – another controversial Jobs Act provision. The SEC's measured pace on the advertising rule drew a sharp rebuke recently from one of the authors of the bill, Rep. Patrick McHenry, R-N.C. One of Mr. McHenry's fears – that the SEC would not finalize the rule before current Chairman Mary Schapiro leaves on Friday – appears to be coming true. Given a federal law that requires transparency at government agencies, it's pretty safe to say that the SEC won't move forward with the Jobs Act rules until after Ms. Schapiro departs. Incoming chairman Elisse Walter must shepherd the highly politicized Jobs Act rules through a commission that is evenly split between two Republicans and two Democrats. What's interesting about the letter from Mr. Merkley is that he is one of the senators who was pushing for more investor protections in the Jobs Act when it was on the Senate floor. Now he wants the crowdfunding rules completed. “We understand the complexity in crafting the new rules,” Mr. Merkley and Mr. Bennet wrote in their Dec. 10 letter. “Yet time is of the essence. Market participants are eager to start providing crowdfunding services to entrepreneurs and investors alike, and small businesses and entrepreneurs are eager to raise money and create jobs.” On the other side, Ms. Walter will be getting pressure from state regulators, who say that crowdfunding has the potential to become the next Reg D in terms of causing investor harm. In a statement released last week, the North American Securities Administrators Association said that the number of Internet domains with “crowdfunding” in their title has grown from fewer than 900 in January to 8,800 at the end of November. While being urged by Republicans to speed up the Reg D advertising rule, Ms. Walter will have to decide whether to heed the guidance of the Investor Advisory Committee, a newly formed body with the mandate to represent the small retail investor before the commission. In its first formal recommendation to the SEC, the panel called for more investor protections in the advertising rule. “Adopt a safe harbor that provides clear and enforceable standard for verification, as opposed to reasonable belief, of accredited investor status, including standard to promote reliance on reliable third parties, such as broker-dealers, bands, and licensed accounts,” the Investor Advisory Committee wrote. “The Commission should amend the natural persons prong of the definition of accredited investors to better reflect a population that has the financial sophistication to analyze the risks in private offerings and/or the wealth to withstand potential losses.” Taking those two steps would put the SEC at odds with congressional Republicans, who are telling the commission that Congress did not give it the leeway to change the accredited investor policies. Welcome to the top, Ms. Walter.