WASHINGTON (April 14, 2016)—In testimony before a House subcommittee today, the North American Securities Administrators Association (NASAA) reiterated its advocacy of a regulatory approach that promotes capital formation while maintaining investor protections.

“We have learned that efforts to spur successful capital formation must reflect a balanced regulatory approach that minimizes unnecessary costs and burdens on small businesses while maintaining robust investor protection,” Washington Securities Administrator and chair of NASAA’s Capital Formation Committee William Beatty testified during a hearing before the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises.

The hearing was called to examine the impact of the JOBS Act four years after its passage and to explore four legislative proposals intended to further enhance capital formation:

  • H.R. 4852, The Private Placement Improvement Act, which would alter the filing requirements under Regulation D and would foreclose certain actions that the SEC proposed in a 2013 release;
  • H.R. 4850, The Micro Offering Safe Harbor Act, which proposes three new exemptions from state and federal securities registration;
  • H.R. 4854, The Supporting Americas Innovators Act, which would amend the Investment Company Act to expand investment company registration for venture capital or angel investment syndicates; and
  • H.R. 4855, The Fix Crowdfunding Act, which would amend Title III of the JOBS Act, which is the basis for the federal crowdfunding regime that will start when the SEC’s Regulation CF takes effect in May, 2016.

Beatty testified that NASAA has “serious concerns” about H.R. 4852, which limits the SEC’s authority to revise the filing requirements of Regulation D. “We oppose any action by Congress to diminish the ability of the SEC to undertake prudent steps to limit the risks to investors resulting from the lifting of the ban on general solicitation,” he said. “Further, it would be a mistake for Congress to weaken the few existing investor protections in Rule 506, as this bill would in important ways.”

Regarding, H.R. 4850, Beatty testified that the legislation would make the policing of the unregistered securities marketplace much more difficult for state securities regulators and expose investors to new and more severe investment risk. Noting that the “safe harbors” created by H.R. 4850 likely would supplant Rule 506 given the similarities in the types of offerings, Beatty said “it is not hard to imagine that fraudsters would use these provisions to raise money from unsuspecting investors, ultimately eroding investor confidence and harming legitimate small businesses.” Beatty also noted that the safe harbors created would not provide the basic formation provided through Form D and available for all Rule 506 offerings.

Beatty said H.R. 4854 would undermine important investor protections afforded by the Dodd-Frank Act intended to bring more regulatory oversight to venture capital or angel investment syndicates. Expanding the exemptions as contemplated by this bill not only would allow yet another investment vehicle to operate without regulatory oversight, but also allow an investment adviser that is not licensed or examined to manage funds raised from a pool of investors that would be five times the size of that currently permitted, Beatty said.

With the United States on the verge of entering a new era in crowdfunding with the SEC’s Regulation CF due to take effect next month, Beatty urged the panel to refrain from recommending revisions to Title III of the JOBS Act as proposed by H.R. 4855.

“The critical point for Congress today is that there is no answer to the question of how to ‘fix’ federal crowdfunding because we do not yet know what will work, what won’t work, or what the new marketplace will look like,” Beatty said. “Once real information begins to emerge about federal crowdfunding, Congress can – and should – begin to seriously explore how it can be improved.” Beatty also noted that a majority of states have adopted intrastate crowdfunding exemptions, and that NASAA is monitoring the efficacy of these exemptions, as well as proposed SEC rules aimed at making it easier for states to craft more workable crowdfunding exemptions.

— NASAA —

For more information:
Bob Webster | Director of Communications
202-737-0900





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