SEC Commissioner Hester Peirce delivered a strong message advocating for smaller firms and private securities issuers during a recent meeting of the Investor Advisory Committee (IAC). The SEC is currently considering tightening the definition of an Accredited Investor, a move that could restrict the number of individuals in the US who can participate in exempt securities offerings under Reg D.
Reg D is a crucial securities exemption that helps raise trillions of dollars in private capital annually. It outshines public offerings, burdened with excessive regulations imposed by policymakers inexperienced in the business world. Becoming a public company has become financially burdensome, making staying private for as long as possible the new norm. The SEC’s intention to add even more complex and costly regulations for public firms is likely to worsen the situation.
While the SEC aims to increase the difficulty of becoming Accredited, it is also expected to propose more rigorous disclosure requirements for firms raising capital under Reg D. Currently, only a single-sheet document or notice filing is required, which contributes to the simplicity and value of Reg D in fueling economic activity, innovation, and capital formation in the US. Critics express concerns about fraud in Reg D, but there is limited data to support excessive fraud claims.
In her opening comments, Commissioner Peirce emphasized the importance of the private market as a primary source of capital and the need to balance the Commission’s mission of facilitating capital formation and protecting investors. She cautioned against applying public-market-style regulations to private markets and instead suggested reducing the costs companies face when going and staying public. Peirce also proposed increasing opportunities for retail funds to access private investments and expanding the definition of an accredited investor to address fundamental liberty concerns and protect investors’ right to invest.
However, as a minority voice on the Commission, it is expected that Commissioner Peirce’s insights will be overlooked.
During the IAC meeting, SEC Chair Gary Gensler did not express his specific opinion on Reg D and the definition of an Accredited Investor. However, it is evident that he intends to introduce more disclosure requirements for Reg D offerings and raise the qualification standards for Accredited Investors. Market speculation suggests that the proposal will be revealed soon, as this has been a priority for the Gensler Commission since he assumed office. Despite the IAC potentially supporting a “do no harm” approach with Reg D and recommending increased participation for investors, it is likely that the Commission will disregard the committee’s advice, following a historical pattern of acknowledging SEC Advisory Committees while disregarding their suggestions.
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