The SEC proposed rules Wednesday aimed at expanding opportunities for smaller firms to raise capital without going through the lengthy regulatory process to go public.
Also known as crowdfunding rules, the proposed changes prompted by the 2012 Jumpstart Our Business Startups Act would allow firms to raise $5 million online instead of the current $1 million before having to register the offerings. Smaller firms seeking a registration exemption could raise $70 million in one year, up from the current $50 million limit.
Along with "clear and consistent rules" for communications between investors and issuers, the proposed changes would ease prohibitions on general solicitations to allow issuers to gauge investor interest. A broader rule change would make it easier for issuers to move from one exemption to another and ultimately to a registered offering.
The harmonization proposal will be open for a 60-day public comment period.
SEC Chairman Jay Clayton said during the commission's meeting Wednesday that the changes for exempt offerings "would rationalize an overly complex, patchwork regulatory framework and thereby promote capital formation while preserving or enhancing important investor protections," and that they were "substantially informed" by public input in response to a 2019 concept release on the changes.
In a dissenting vote, the commission's lone Democrat, Allison Herren Lee, said that while revisiting the exempt offering framework to address an increasingly complex patchwork of rules makes sense as a concept, "the proposal goes far beyond what can rightly be called harmonization. If adopted, it would erode significant distinctions between the public and private markets that are well-grounded in law and policy," particularly when it comes to protecting retail investors in private markets. Citing a "data deficit" on capital raised through exempt offerings, Ms. Lee called for the SEC to first "enhance our limited visibility into these offerings."
