SEC Advisory Committee Reviews Regulation A+ and Crowdfunding
Commentary by Steven Lofchie
The SEC Advisory Committee on Small and Emerging Companies met to consider (i) developments during the first year of Regulation A+, (ii) recommendations concerning the current definition of an "accredited investor," and (iii) a recent proposal to amend the definition of a "smaller reporting company," or "SRC." Regulation A+ enabled smaller companies to offer and sell up to $50 million in securities within a 12-month period, subject to eligibility, disclosure and reporting requirements.
SEC Chair Mary Jo White observed that the SEC received over 100 offering statement filings that concern Regulation A+, nearly fifty of which have been qualified by the SEC since the effective date of the final rules. Chair White emphasized that the increase of financial thresholds in the proposed amendments to the definition of "smaller reporting company" would "promote capital formation and reduce compliance costs for smaller companies while maintaining important investor protections, such as those provided by Section 404(b) of Sarbanes-Oxley." She encouraged the SEC, investors, issuers and other affected market participants to provide input that would inform future changes to the scaled disclosure system for SRCs or to other disclosure requirements.
Chair White reported on developments under Regulation Crowdfunding:
[A] very diverse range of companies are using the crowdfunding exemption . . . . [A]s of July 18th, there [were] over 60 offerings with a total of $4.4 million in funds committed by investors. Twelve funding portals have registered with the [SEC] and become members of FINRA.
Commentary
It is unclear why anyone would want to register as a funding portal, since there are no obvious economic advantages to that aspect of the crowdfunding business. Perhaps there is some non-economic benefit driving registrations. Undoubtedly, raising $4.4 million in funds is a nice development for the 60 businesses that have done so, but it is a non-event as far as the economy is concerned. Perhaps that sum will become more meaningful in the business pages of newspapers at some point, but right now, it's only a human interest story.