North American Securities Administrators Association ("NASAA") President Mike Rothman testified before the House Committee on Financial Services, Capital Markets Subcommittee on the impact of the JOBS Act on U.S. capital markets. Mr. Rothman critiqued the JOBS Act and weighed in on future legislation.
Mr. Rothman asserted that while the JOBS Act was intended to lessen regulation governing capital formation (which was expected to benefit companies going public), a secondary goal was to provide ordinary investors an opportunity to directly participate in the private securities markets. He argued that since taking effect, the legislation supports these two contradictory priorities: (i) enabling companies to raise more money in the private markets and thus enabling them to stay private, and (ii) enabling companies to raise money that might eventually allow them to go public. Mr. Rothman noted the decline in the number of U.S. listed public companies. He posited that such decline might reflect a "fundamental and permanent shift" in the types of businesses being created (rather than over-regulation).
Mr. Rothman expressed concern over legislative proposals that would make it more difficult for states to police private securities offerings, and said that Congress has an obligation "when creating [new] markets" to provide regulatory agencies with the necessary tools to supervise market participants. On state exemptions, Mr. Rothman said:
"NASAA also questions the basis for proposals to establish certain new or overly broad securities registration exemptions, and to expand demand and liquidity for [certain] offerings through the regulatory engineering of certain small-sized exchanges, especially if such exchanges are to be exempted from state securities laws."
Mr. Rothman expressed skepticism about the value of the JOBS Act. He stated: "Main Street investors should not be treated as the easiest source of capital for the most speculative business ventures." He also reiterated NASAA's objections to the SEC's adoption of Regulation A+.
Finally, Mr. Rothman emphasized NASAA's support for the Senior$afe Act and told the Committee that NASAA remains dedicated to working with Congress to ensure that policies aimed at encouraging capital formation "promote fairness and efficiency, meet the legitimate and evolving needs of the marketplace, and maintain or expand investor protection."
Commentary / Steven Lofchie
How is it that a Congress that adopted Dodd-Frank and an administration that pushed for the DOL fiduciary rule (both very heavy regulatory measures) could also adopt the JOBS Act (which, in many ways, is extraordinarily deregulatory)? The contrast between the philosophies of the JOBS Act (buyer beware) and the DOL fiduciary rule (fiduciary mandate) is stark. Given the passage of time, and experience with the JOBS Act, there is certainly no reason that it should not be re-examined. As a practical matter, certain aspects of it have proved problematic and of limited use (for example, determination of "accredited investor" status); other aspects may require tightening up. Just as Dodd-Frank should be fair game for reconsideration of where it is working and where it is not, so should be the JOBS Act.
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