Friday, May 13, 2016

White describes initiatives for smaller company capital formation at IOSCO meeting

By Jacquelyn Lumb

Chair Mary Jo White addressed a panel at IOSCO’s meeting in Lima, Peru, on the SEC’s initiatives to facilitate capital formation for small and emerging companies, including the crowdfunding rules that go into effect on May 16, 2016. The option to use crowdfunding as a capital raising tool has been anxiously awaited, she advised. While the SEC wants to streamline capital raising, it also seeks to maintain strong investor protections, which she described to the panel.

Crowdfunding. In order to protect investors in crowdfunding offers, they must be conducted through SEC-registered funding portals, White explained. There are also both offering and investing limitations and initial and ongoing disclosure requirements. White expects to receive feedback from investors and companies about how the rules can be improved as these offerings get underway.

The SEC has now completed all of the statutory requirements under the JOBS Act that promote capital raising, according to White, including the addition of a new exemption to permit companies to engage in general solicitation for certain unregistered offerings as long as the purchasers are accredited investors.

Reg. A+. Under Regulation A+, companies can raise up to $50 million over a 12-month period without incurring the full cost of registration and reporting. White reported that since Regulation A+ became effective in March 2015, issuers have publicly filed 85 offering statements. Others have taken advantage of the nonpublic staff review of draft offering statements before publicly filing. The SEC has qualified over 30 offering statements from companies seeking to raise approximately $500 million, she advised.

EGCs. White also reported that emerging growth companies, which may confidentially submit draft registration statements for initial public offerings and are subject to scaled disclosures, now constitute about 85 percent of companies doing IPOs since the statute was enacted. She said about 1,000 EGCs have taken advantage of the confidential staff reviews of their registration statements.

Intrastate offerings. The SEC also proposed updates to the rules for companies engaged in local and regional offerings to give states more flexibility (Release No. 33-9973). The proposal would provide a new exemption for those relying on the intrastate crowdfunding provisions under state securities laws. It also would increase the amount of securities that can be offered and sold in a 12-month period under Rule 504 of Regulation D from $1 million to $5 million. The comment period on the proposal closed January 11, 2016.

Disclosure effectiveness. White concluded her remarks with a review of the SEC’s disclosure effectiveness project, which includes a consideration of ways to improve capital formation for smaller companies. She said the goal is to comprehensively review the current disclosure requirements and consider how they can be updated to improve timely material disclosure and shareholders’ access to the information.

This initiative includes the consideration of a scaled disclosure system for smaller reporting companies. She expects that the public’s comments will help inform the SEC about possible changes it could make to the scaled disclosure system. White also noted that Congress last year enacted legislation that requires the SEC to further scale or eliminate disclosure requirements for smaller public companies. The work being done under the disclosure effectiveness project complements the work required under this statutory mandate, she said.