SEC Advisory Committee on Small Companies Considers Capital-Raising Issues

The SEC Advisory Committee on Small and Emerging Companies considered (i) recommendations related to intrastate crowdfunding; (ii) the treatment of so-called "finders" that assist companies in capital-raising activities; and (iii) improving public company disclosure.

In her remarks, Chair Mary Jo White noted the efforts of the SEC Division of Corporation Finance to actively consider ways to improve Securities Act Rule 147 ("'Part of An Issue,' 'Person Resident' and 'Doing Business within' for Purposes of Section 3(a)(11)"), which is the "safe harbor that issuers generally rely on for intrastate crowdfunding offerings." Chair White reassured the advisory committee that SEC staff "continues to be hard at work" on final JOBS Act crowdfunding rulemaking and enhanced effectiveness of public company disclosure.

Commissioner Luis A. Aguilar urged the advisory committee to "keep in mind the dual goals of a strong capital market environment for these companies and the needs of their investors" in determining future recommendations for regulations for small and mid-sized emerging companies. Commissioner Aguilar also called on the advisory committee to address cybersecurity as "an especially malicious threat to smaller businesses" due to their lesser resources.

Commissioner Daniel M. Gallagher praised the work of the Advisory Committee, but strongly criticized the SEC for imposing excessive regulatory burdens on small companies. In his view, such regulatory burdens discourage small companies from going public. Instead, they stay private as long as possible, and then, rather than go public, they sell out to larger competitors. In order to lessen regulatory burdens, Commissioner Gallagher urged the SEC to consider the regulatory burdens of its disclosure requirements and to focus on secondary markets for small business securities.