NASAA: States Best Positioned to Oversee Small Business Capital Formation

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WASHINGTON (December 1, 2011) – In testimony before the Senate Banking Committee, the North American Securities Administrators Association (NASAA) today said state securities regulators are best positioned to provide an efficient regulatory framework to enable new and small businesses to raise investment capital and provide safeguards for investors.

“NASAA firmly believes that the states should be the primary regulator of small business capital formation, including crowdfunding offerings,” said Jack E. Herstein, NASAA President and Assistant Director of the Nebraska Department of Banking & Finance Bureau of Securities. Herstein’s testimony is available on the NASAA website here.

“Because we realize that small businesses are vital to job growth and improving the nation’s economy, state securities regulators have no interest in throwing up needless roadblocks for small businesses,” Herstein said. “Instead, we are interested in creating ways to spur economic development and job creation.”

Herstein’s testimony came during a hearing focused on legislation to spur job growth through capital formation. A package of related legislation recently passed the House of Representatives and companion bills have been introduced in the Senate.

Herstein’s testimony focused largely on H.R. 2930 and S. 1791, both of which would promote the use of Internet-based “crowdfunding” websites to allow individuals to invest in entrepreneurial start-ups and small businesses. Both bills would, among other provisions, prevent state securities regulators from reviewing investment opportunities made on these websites before they are offered for sale to the public.

“Instead of preempting states, as both bills would do, Congress should allow the states to take a leading role in implementing an appropriate regulatory framework for crowdfunding,” Herstein said.

Herstein told the committee that if regulatory authority is preserved for the states, NASAA will continue to pursue the development of a model exemption for crowdfunding that would allow “one-stop filing” in the state of the issuer’s principal place of businesses.

“This streamlined approach can be achieved without preempting state securities regulators and is consistent with the goals of both Congress and the Obama Administration to help small businesses access the capital they need in order to promote economic recovery and job growth,” Herstein said.

He also suggested that Congress direct the SEC to work with the states to develop a federal exemption in tandem with a state model rule. “Small business investment has the potential to be a very positive economic force and a major driver of wealth and jobs when done in the right way,” Herstein said. “But when done incorrectly and without appropriate oversight, these investments have the potential to become costly failures. The challenge for Congress today is to balance the legitimate interests of investors with the legitimate goals of entrepreneurs.”

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.

For more information:
Bob Webster, Director of Communications


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