It was a productive morning at the last meeting of its current term for the SEC Advisory Committee on Small and Emerging Companies. The Committee, which has been renewed for two more years, approved three recommendations to be sent to the SEC for consideration. During the opening remarks, the SEC acknowledged the need for rulemaking to promote capital formation by smaller companies. The SEC also expressed that efforts should be focused on developing secondary markets, including, for example, through the formation of venture exchanges. Additionally, SEC Commissioner Aguilar raised the topic of cybersecurity and how it affects smaller companies, warning that the threat is much greater for companies that do not have the resources to protect against attacks.
The first recommendation made was on Public Company Disclosure Effectiveness. The recommendation, which was discussed at the previous Committee meeting, focuses on revising the definition of "smaller reporting company" to include companies with a public float of up to $250 million, in order to broaden regulatory relief. The recommendation also includes revisions to rules in order to extend the disclosure accommodations available to EGCs to smaller reporting companies. The written recommendation was approved without discussion.
The Committee then moved on to its recommendation on Securities Act Rule 147. This recommendation proposes to modernize Rule 147 of the Securities Act of 1933, which regulates intrastate offerings. The Committee recommends allowing offers made pursuant to Rule 147 to be viewed by out-of-state residents, which would allow for promotion of the offering on social media, for example, which is currently not allowed under the rule. The recommendation also recommends removing the use of percentage thresholds for issuer eligibility , which currently requires that 80% of the proceeds be generated in-state, 80% of issuer assets to be in-state and that 80% of gross proceeds raised be deployed in-state. Finally, the recommendations calls for the elimination of the requirement that the issuer be incorporated in the same state where sales occur. Discussion surrounding the recommendation revolved around the interaction of Rule 147 with current state crowdfunding rules and with Title III of the JOBS Act. After other technical modifications, the written recommendation was approved as modified.
Last, the Committee discussed the recommendation on the Regulation of "Finders" and other intermediaries. The recommendation, which was also discussed at length in the previous Committee meeting, recommends the SEC take steps to clarify the ambiguity in broker-dealer regulation by identifying Finders as persons that receive transaction-based compensation for simply making introductions to prospective investors and exempting them from registration as a broker under the Securities Exchange Act. During the discussion, concern again turned to state level regulation, and the overlap between registration of brokers with FINRA. The designation of online based broker-dealers in the online space was also brought up as significant distinction to define. The written recommendation was approved by the Committee.
With these recommendations made, we hope to see continued progress of efforts to allow smaller companies increased access to capital formation. We will have updates on further developments regarding these recommendations on this blog. To access a recording of today's Committee meeting, click here.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
© Morrison & Foerster LLP. All rights reserved
