SEC Commissioner Stein Discusses Capital Formation and Regulation A+
SEC Commissioner Kara Stein delivered remarks before the Los Angeles County Bar Association, discussing how capital formation has changed in recent years, suggesting ways to simplify capital raising, and sharing thoughts about Regulation A+ ("Reg. A+").
According to Commissioner Stein, technology and creativity have been "massive disrupters" of many old methods of capital formation. She explained that changes in the law, including the JOBS Act, have also "disrupted" the old capital formation process, and exemptions and exclusions have built up to create "a jumble of overlapping and inconsistent options for both private and public capital-raising."
Commissioner Stein called for a comprehensive review of capital formation tools, including potential new options such as crowdfunding for small companies, "mini-offerings" through Reg. A+ serving mid-size companies, and an "IPO On-Ramp" for some very large companies. She said that the SEC is grappling with these new options, such as how a company progresses from crowdfunding to Reg. A+, and how to ensure that new regulations do not undermine the "simplicity and flexibility" of the old Rule 506 offerings relied upon by angel and venture firms.
Regarding how to make Reg. A+ and the JOBS Act "work smoothly," Commissioner Stein admitted that the old Regulation A "clearly hadn't worked". She stated that the debate around the new Reg. A+ centers around the role of state securities regulators. She explained that this controversy "puzzles" her, since Congress has already provided for federal preemption for Reg. A+ securities listed on a national securities exchange. Additionally, she stated that state regulators are the "best equipped and most logical overseers" for smaller, regional businesses and investments, and suggested using SEC preemptive authority to ensure that all states are participating in a new NASAA-streamlined review regime for Reg. A+. According to Commissioner Stein, this would result in exchange-listed offerings being subject to federal review, and OTC offerings being reviewed in a "fast, efficient state-coordinated process."