SEC considers raising exemption for small company deals

In a move that could raise the value of small-company private stock offerings under the JOBS Act by 10 times, the SEC on Wednesday voted to propose rules that would increase access to capital for small companies. The Securities and Exchange Commission’s proposal would build on Regulation A, which exempts small offerings of up to $5 million from registration for 12 months. Under the updated exemption, small companies would be able to offer and sell as much as $50 million of securities in 12 months. The SEC’s proposal will undergo a 60-day public comment period after it is published in the Federal Register. SEC’s proposal Once the SEC reviews the comments, it will determine whether to adopt the proposed rules. No comments have as yet been received, according to SEC spokeswoman Christina D’Amico. “This proposal is intended to help increase access of smaller companies to capital,” SEC chairman Mary Jo White said while attending a commission meeting in Washington on Wednesday. “In shaping this proposal, we sought to develop an effective, workable path to raising capital that, very importantly, also builds in necessary investor protections.” The Reg A changes are required by the 2012 Jumpstart Our Business Act. When Congress passed the JOBS Act, lawmakers sought to expand the exemption from registration under the Securities Act of 1933 to make if more useful for small companies. “It’s been a long time coming,” said Diahann Lassus, a certified financial planner who served on the White House Conference of Small Business under President Bill Clinton in 1995. “A lot of our discussions were around how this could be done and cut the red tape. We all know small business really drives the growth in our economy,” said Ms. Lassus, who is president of Lassus Wherley & Associates. At the same time, she applauded the SEC’s limitation of individual investors’ stake in such offerings to a maximum 10% of an individual’s annual income or net worth. The Reg A proposal also would pre-empt these small-stock deals from state oversight. This change was sought both by small businesses and Republican lawmakers who support the change. However, Andrea Seidt, president of the North American Securities Administrators Association and the Ohio securities commissioner, expressed displeasure with the SEC’s proposal, saying that NASAA in recent meetings with the SEC had urged members not to pre-empt the states. “Congress, when considering the Regulation A+ provisions of the JOBS Act, concluded that states should not be pre-empted from review of offerings under the exemption, citing both the ‘high-risk’ nature of these offerings and the ‘essential’ function that state review plays in discouraging fraud,” Ms. Seidt said in a statement. “The commission’s proposed rule ignores Congress’ recent judgment and defies Congress’ clear intent.” This is the third JOBS Act rule that the SEC has addressed. In addition to advancing Wednesday’s Reg A proposal, which received a unanimous 5-0 vote in favor of expansion, the SEC on Oct. 23 proposed rules to permit equity crowdfunding and July 10 lifted the ban on advertising hedge funds and private stock deals.