Facilitate Capital Formation
Through Federal-State Partnerships
- State Leadership in Innovation to Promote Capital Formation
- Implementation of the JOBS Act Consistent with Congressional Intent
- Review the Accredited Investor Definition
State securities regulators share Congress’ desire to improve the U.S. economy through improved access to capital for small and emerging businesses. The reality of new technologies, new modes of investing and a global, interconnected marketplace requires new ideas and creative solutions. It also requires the partnership of Congress, the SEC and state securities regulators.
Toward this shared goal, state securities regulators and NASAA have provided assistance in crafting “intrastate” crowdfunding laws in a growing number of states, and have successfully designed a modernized and simplified process—a Coordinated Review program—for Regulation A and Regulation A+ offerings. NASAA and the states also have implemented an electronic filing system called the Electronic Filing Depository (EFD), which interfaces with the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system, to allow private company issuers to electronically file their Form D in multiple states. This system is expected to expand to include other state securities filings.
State Leadership in Innovation to Promote Capital Formation
By virtue of our proximity and accessibility to local businesses and investors, state regulators are at the forefront of homegrown innovation. Since passage of the JOBS Act, sixteen states and the District of Columbia have enacted state-based crowdfunding laws or regulations and other forms of limited offering exemptions for small businesses, through exemptions and registrations. At least a dozen other states are actively considering similar exemptions and/or registrations.
State securities administrators understand that Congress is concerned about the utility of Title III of the JOBS Act for certain issuers. We encourage Congress and the SEC to work with NASAA and use our experience with intrastate crowdfunding to inform any new federal policymaking in this area. We also encourage Congress to evaluate the best use of the SEC’s resources, and the steps that states have taken to facilitate access to capital for small and emerging businesses, in considering any state preemption legislation. Further, to the extent that Congress continues to consider the needs of entrepreneurs and small and emerging companies, it should remove any impediments to state-driven capital formation initiatives.
Implementation of the JOBS Act Consistent with Congressional Intent
In 2012, Congress passed the Jumpstart Our Business Startups (JOBS) Act, a law designed to facilitate access to capital for small and emerging businesses, and to create job growth. The JOBS Act imposed complicated changes to the securities laws, and required the SEC to address new and untested issues in its rulemaking. We anticipate the finalization of those rules, and plan to work with the SEC to implement the rules, including Titles II, III and IV.
With regard to Title IV (commonly referred to as Regulation A+), we urge the SEC to implement the law consistent with legislative intent and pursuant to a Congressional directive to maintain state registration authority for those offerings. We strongly oppose the SEC’s proposed definition of “qualified purchaser,” which is contrary to the plain meaning of the term in the Securities Act of 1933, its legislative history and prior SEC pronouncements. The intent of Congress that the definition refer to purchaser qualification rather than the specified type of security is without question. Finally, we encourage Congress to review NASAA’s Coordinated Review program—a streamlined and simplified 21-day review process—which is designed to encompass both Regulation A and Regulation A+ filings.
In the 113th Congress, NASAA commented on additional legislative proposals commonly referred to as “JOBS Act 2.0.” We strongly encourage the 114th Congress to consider and evaluate the full impact of the JOBS Act, after implementation and rulemaking, before proposing additional changes to the federal securities laws. We believe the best approach to facilitate small business access to capital is smart regulation, and we hope to work with the 114th Congress to fulfill that mission.
Review the Accredited Investor Definition
Section 413 of the Dodd-Frank Act gave the SEC a clear mandate to undertake a review of the definition of accredited investor every four years, and to make adjustments or modifications for the protection of investors, in the public interest, and in light of the economy. In recent years the amount of capital invested in the private markets has significantly expanded. This trend, away from public offerings toward private placements, underscores the importance of examining this critically important definition to ensure that it is effective and reflects the current economy.
State securities regulators recommend that the 114th Congress use its oversight authority to encourage the SEC to review and evaluate the definition of accredited investor, and to obtain any data the SEC needs to assess the current definition, including the number and types of investors, and the amounts being raised, in the current private placement market. We further support the SEC’s proposed amendments to Regulation D and Form D filings in order to better evaluate market practices in Rule 506 offerings, which continue to be among the most common investment product or scheme involved in state enforcement efforts. We believe that a firm understanding of private offerings and microcap issuers will allow the SEC to make any necessary adjustments to the accredited investor definition.