By Mark S. Nelson, J.D.
House Financial Services Committee Ranking Member Patrick McHenry (R-NC) issued a draft of what would likely be a key part of the House GOP’s capital markets agenda for the 118th Congress. Republicans would turn to a number of bills that have been previously introduced in an effort to expand Jumpstart Our Business Startups (JOBS) Act provisions governing how companies raise capital. It remains to be seen if the GOP would eventually push a more extensive capital markets agenda similar in scope to the defunct CHOICE Act.
“Democrats continue to pursue policies that increase regulatory and compliance costs. These costs restrict everyday Americans’ access to investment options, discourage early-stage companies from going public, and disproportionately burden small businesses and other job creators in need of capital,” said Rep. McHenry. “By building on the success of the bipartisan JOBS Act of 2012, we can rein in these onerous barriers and ensure U.S. capital markets remain the envy of the world.”
Make SEC offerings guidance permanent. A key aspect of the GOP agenda is to legislatively lock in SEC guidance and rules on testing-the-waters and the confidential submission of draft registration statements for SEC staff review. GOP lawmakers are concerned that these recent liberalizations in SEC procedures with respect to securities offerings could be rescinded by the current or a future Administration.
In June 2017, the SEC opened its process for confidentially submitting draft registration statements for SEC staff review to all issuers. The guidance issued by the SEC’s Division of Corporation Finance addressed questions regarding Securities Act IPOs, registrations Exchange Act Section 12(b), and foreign private issuers. In September 2019, the Commission adopted Securities Act Rue 163B to allow companies to communicate orally or in writing with investors before or after the filing of a registration statement in order to determine investor interest in contemplated offerings.
Other agenda items. The GOP agenda would further expand who may be deemed an accredited investor. The SEC in August 2020 expanded the definition to include, among other things, natural persons holding one or more professional certifications or designations or credentials from an accredited educational institution that the Commission has designated as qualifying an individual for accredited investor status. GOP legislation would expand “accredited investor” to include individuals who may invest up to 10 percent of their net assets or annual income, whichever is greater.
The GOP’s proposed capital markets agenda also would call for the creation of a safe harbor for finders from broker-dealer regulations. The legal status of finders has been a topic of controversy for many years because it can be difficult to define precisely when someone acting as a finder crosses the line and becomes a broker-dealer whose activities are subject to much more intensive SEC regulation.
Still other proposals in the GOP agenda would expand JOBS Act provisions for emerging growth companies, allow for micro-offerings, and expand the utility of venture capital funds.