SEC Investor Advisory Committee to Discuss Impact of Reg D on Capital Raising
The Securities and Exchange Commission (SEC) Investor Advisory Committee is set to convene next week to discuss two crucial policy items that have a significant impact on capital raising for private firms. The first panel discussion will focus on exempt securities offerings under Regulation D (Reg D). This exemption, which is available only to accredited investors, plays a crucial role in the economy and is even larger than the IPO market in the United States. Annually, over $1 trillion is raised through Reg D, with the more recent version, Reg D 506c, enabling online capital formation or crowdfunding. Reg D is highly praised and widely utilized due to its streamlined approach to capital formation, requiring only a notice filing.
The panel’s agenda states that the discussion will examine the consequences for investors resulting from the expansion of exempt markets under Rule 506, explore potential changes that could enhance information symmetry and supervision in this vast landscape of exempt offerings, and seek to provide better investor protection for retail investors while allowing small issuers to raise capital responsibly and efficiently.
The definition of an accredited investor allows wealthier individuals to access private securities offerings issued under Reg D. To qualify as an accredited investor, an individual must earn over $200,000 annually or have a net worth exceeding $1 million (excluding primary residence). For married individuals, the income threshold increases to $300,000. However, critics argue that the current definition is discriminatory as it bases accreditation on wealth rather than sophistication, thereby excluding the majority of individuals in the US. This definition undermines the opportunity for wealth creation for those excluded from this market, particularly as the majority of successful firms start as private companies.
The panel’s agenda also highlights that the session will review the origins and intent of the “accredited investor” definition, considering whether it remains suitable for its purpose. The panel will explore whether updates to the rule may be necessary to ensure the SEC can effectively balance investor protection, fair markets, and facilitating capital formation as part of its tripartite mission.
Reforming Reg D has been consistently prioritized by the current leadership of the SEC, with the aim of introducing greater disclosure and investor restrictions. However, industry observers have expressed concerns about potential changes and how they may impact the currently regarded world-leading private capital markets. Some insiders have described the current Commission as “anti-capital formation.”
The Investor Advisory Committee was initially established to advocate on behalf of investors. However, it has been criticized for focusing more on regulatory interests rather than investor interests, with investor protection being its sole concern.
Scheduled for September 21, 2023, the meeting will commence at 10 AM with live-streaming available on the SEC website. The panelists for the meeting have been announced for both the Reg D and Accredited Investor discussions. The Reg D panel will be moderated by Leslie Van Buskirk, Administrator of the Division of Securities at the Wisconsin Department of Financial Institutions and Vice Chair of the Investor Advisory Committee. The panelists include Sara Hanks, CEO of Crowdcheck; Kenisha Nicholson, Special Counsel at the SEC’s Office of Small Business Policy; Craig McCann, Principal at SLCG Economic Consulting; Amanda Senn, Director of the Alabama Securities Commission and NASAA Enforcement Section Co-Chair; and Alexandra Thornton, Senior Director of Financial Regulation at The Center for American Progress.
The Accredited Investor panel, moderated by Cambria Allen-Ratzlaff, Managing Director and Head of Investor Strategies at JUST Capital and Investor-as-Owner Subcommittee Chair, will feature a discussion with various experts in the field.
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