Friday, July 21, 2017

Piwowar engages in Q&A session on capital formation initiatives

By Jacquelyn Lumb

Commissioner Michael Piwowar participated in a question-and-answer session hosted by the Heritage Foundation titled “SEC, Entrepreneurship and Economic Growth.” David Burton, a senior fellow in economic policy, asked Piwowar about a range of topics including Regulation A, crowdfunding, the SEC’s regulatory agenda and potential reforms. Burton opened by asking Piwowar about the Commission under new Chairman Jay Clayton.

New focus on capital formation. Piwowar said that working under the new chairman was “awesome,” because unlike the former chair who put enforcement first and “the death march of Dodd-Frank” second, the broad theme under the current chairman is capital formation. Some of the agenda does not require legislation, he noted, such as the recent expansion by the Division of Corporation Finance of confidential reviews of all draft registration statements, not just those of emerging growth companies. He reported that the staff is already seeing action under this initiative.

Regulation D. In response to Burton’s inquiry about potential improvements to Regulation D, Piwowar announced that the SEC does not plan to move forward with the additional amendments that were proposed in 2013. Those proposals have given people pause with respect to Reg D offerings, he said, and the SEC should issue a public statement about its intention not to move forward with the amendments. The proposal could be withdrawn, but that would require Commission action.

Burton noted that the SEC has never provided guidance about the level of sophistication necessary to be considered an accredited investor in private offerings under Regulation D. Piwowar has questioned the premise of having an accredited investor definition. It appears to be intended to somehow protect investors, he said, but high risk equals high returns and “mom and pop” investors are not sharing these returns. In his view, such investments could be part of an already diversified portfolio and could lead to higher returns.

Piwowar advised that he has been on a capital formation listening tour to see how to increase the geographic diversity of venture capital financing, which mostly occurs in Silicon Valley, New York and Boston. He added that Corporation Finance Director Bill Hinman wants to make the Division of Corporation Finance more efficient, transparent, and collaborative. In Piwowar’s view, the relationship between regulators and the regulated has become more confrontational over the past eight years and a change in the tone at the top was needed.

Burton asked about possible improvements to the SEC’s disclosure regime. Piwowar said that there are some rulemakings in progress that would clean up some of the redundancies, but added that some on the far left are fighting any reductions in disclosure.

Crowdfunding. Crowdfunding under the JOBS Act has been a disappointment, in Burton’s view, and he asked Piwowar how it could be improved. Piwowar agreed that it was a disappointment but added that it was not a surprise. He dissented to the passage of the rules, but added that a lot of it was statutory. The original House bill was reasonable, in his opinion, but the Senate added highly prescriptive language which did not leave the SEC with much flexibility. He said the SEC should revisit the rules, but the CHOICE Act also has some revisions that he supports.

Finders. Burton asked whether the SEC plans to revisit its position on finders—those that help small businesses identify potential investors. Piwowar said the Advisory Committee on Small and Emerging Companies brings the issue to the SEC’s attention every year. He believes the SEC should move forward, perhaps with a safe harbor to permit finders to do their jobs without registering as broker-dealers.

Mandatory arbitration clauses. In response to a question from the audience at the end, Piwowar said with respect to shareholder lawsuits, companies can ask for relief to put mandatory arbitration clauses in their charters. He noted that a company under the prior Administration thought about doing that but pulled it when the staff would not give the company comfort that it would accelerate the IPO filing. Piwowar encouraged companies to come and talk to the staff about that issue.