SEC Commissioner Peirce Urges Clarity on Capital Formation Rules

SEC Commissioner Hester M. Peirce suggested ways to reduce regulatory barriers in early-stage capital formation. 

At a meeting of the SEC's Small Business Capital Formation Advisory Committee, Commissioner Peirce argued that there was a lack of clarity on broker-dealer registration and that regulatory frameworks should "facilitate," rather than hinder, connections between founders and investors. She pointed to finders as essential intermediaries who often engage in a mix of "social behavior" and "economic behavior," yet risk being treated as broker-dealers subject to "an onerous regulatory framework ill-suited" to their informal role. She stressed that this regulatory ambiguity imposes unnecessary burdens on both individuals and the companies that seek their help. She criticized the Commission's failure to provide clear guidance and for forcing reliance on "highly fact-specific no-action letters." She acknowledged that the current Committee urged the Commission to adopt a sensible framework permitting finders to engage in limited capital raising with accredited investors.

Ms. Peirce also referred to a 2020 proposed Exemptive Order that would allow natural persons to engage in limited capital-raising without registering as brokers. She stated that public comments from that proposal led her to question a two-tier structure for finders. She urged the Committee to consider whether that proposal remains a viable starting point or should be revisited and whether a full rulemaking process would better clarify finders' roles.

She posed additional questions to the Committee regarding a blanket exemption for small offerings (Regulation A "Conditional Small Issues Exemption"), the inclusion of secondary sales and the restriction of relief to natural persons.