I’m still surprised that the Jumpstart Our Business Startups Act flew through Congress two years ago. It’s surprising to see bi-partisan support for anything. Unfortunately, the law was flawed and has accomplished little that it set out to accomplish.
The Title III Crowdfunding law was wildly hailed as monumentally changing the way small businesses could raise capital. However, the law was deeply (fatally?) flawed. The law handed the Securities an impossible framework to craft regulatory control. The SEC has not produced the new regulations because of the deep flaws in the law. That fact is clearly acknowledged in a recent legislative cover memo. Plus there is a titanic clash between the consumer protection and capital formation goals of the the SEC.
Title II demanded a lifting of the ban on general solicitation. Congress added a caveat that the company raising the capital take reasonable steps to ascertain that the investor is an accredited investor. That’s a bad hurdle, but not insurmountable. However, the SEC’s consumer protection goal produced a nasty set of proposed regulations that has scared off many firms from taking advantage of the new possibilities for advertising and solicitation.
Congress is trying to fix the problem. There is a hearing today on three bills that offer technical fixes to the JOBS Act.
The first is rebuilding of the Crowdfunding platform. This bill repeals the old law and replaces it with a modified version of the original House bill proposed by Rep. McHenry.
The second is an improvement to the oft-forgotten Regulation A exempted offerings. The proposal would raise the offering amount to 10 million and makes a few other tweaks.
The third blows up the SEC’s proposed regulatory changes to Form D and otherwise makes advertising and solicitation more palatable for private offerings.
Hearing entitled “Legislative Proposals to Enhance Capital Formation for Small and Emerging Growth Companies, Part II”
Thursday, May 1, 2014 9:30 AM in 2128 Rayburn HOB
- Committee Memorandum.
- Equity Crowdfunding Improvement Act of 2014
- Startup Capital Modernization Act of 2014
- A bill to direct the Securities and Exchange Commission to revise its proposed amendments to Regulation D, Form D, and Rule 156.
Witnesses:
- Mr. Benjamin Miller, Co-Founder, Fundrise
- Ms. Annemarie Tierney, Executive Vice President and General Counsel, SecondMarket
- Mr. William Beatty, Director of Securities, Securities Division, Washington State Department of Financial Institutions
- Mr. Jeff Lynn, Chief Executive Officer, Seedrs Limited
These are well-thought out changes that would improve capital formation. I fear that the House Financial Services Committee has become too partisan to effectively legislate.
