TheCorporateCounsel.net

As the Jim Hamilton blog recently highlighted, Better Markets, the nonprofit organization focused on Wall Street reform, released a fact sheet last month arguing that the SEC needs to do a comprehensive analysis of the exempt offering framework, the expansion of which, it argues, has come at the expense of the public markets and investor protection. Citing the failed WeWork IPO versus a $100 million private placement by Theranos for which only a Form D was filed, the fact sheet suggests that “the public market framework has proven its merit, while exempt offerings pose major risks.” Here are the stats they cite regarding the relative size of public versus private capital raises:

More than two-thirds of new capital raising in the U.S. securities markets occurs in private markets that are largely unregulated, opaque, and inaccessible to the public. The SEC estimates that in 2019, “registered offerings accounted for $1.2 trillion (30.8 percent) of new capital, compared to approximately $2.7 trillion (69.2 percent) . . . raised through exempt offerings.” Over the past decade, there has been a steady increase in Regulation D offerings,” the most relied upon exemption under the Securities Act.

While the fact sheet calls for more action, it highlights the following “positive steps” on the SEC’s agenda:

The SEC has listed several proposed rules for consideration by the Commission in its Fall Agenda that could reevaluate the role exempt offerings play in our capital markets. They include amendments to Regulation D and improvements to Form D, the currently almost meaningless filing that accompanies offerings under rule 506 D; changes to the definition of shareholder of record that helps determine which companies must file periodic reports with the SEC about their operations and financial condition; and adjustments to the Rule 144 holding period, which governs the resale of restricted securities issued in private offerings.

– Meredith Ervine