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Earlier this week, the SEC’s Small Business Capital Formation Advisory Committee held a meeting, and the agenda focused on the topics of IPO modernization and the 10-year anniversary of Regulation Crowdfunding.

In remarks to the Committee, SEC Chairman Paul Atkins focused on barriers that can arise during the IPO process, in particular the gun jumping regulations. He noted:

Among the most restrictive regulations are the gun-jumping prohibitions and exceptions contained in the Securities Act. Not only are these rules often confusing and difficult to navigate, but they can also chill issuers’ and underwriters’ communications with investors. Accordingly, I have directed the Commission staff to explore potential solutions, such as: first, re-evaluating limitations on the content of communications and the types of persons to whom communications can be made; second, providing brighter lines as to when communications constitute “offers” subject to the Securities Act’s gun-jumping restrictions; and third, reducing “foot fault” violations by issuers, including through cure provisions that are straightforward to apply. Time does fly, but I should note that the Commission has not completed a comprehensive review of its communication rules since 2005 when I served as a Commissioner. So, it is high time that the SEC modernized its approach in this area.

On the topic of Regulation Crowdfunding, Chairman Atkins indicated that he “asked Commission staff to evaluate which aspects of Regulation Crowdfunding can be amended to reduce compliance burdens and improve the rules’ attractiveness for issuers and investors.”

Commissioner Uyeda also provided remarks to the Committee, and he also focused on communications issues around IPOs. He noted:

This morning’s agenda addresses two areas where that friction can show up: the rules governing how companies communicate with investors before and during an IPO, and the thin or often times non-existent research coverage that many smaller companies face once they are public. These two areas are connected. A smaller company that cannot readily tell its story before the offering and that attracts little or no professional analyst coverage after it, may reasonably conclude that going public is simply not worth the cost. I welcome the Committee’s views on what steps might be taken to encourage more thoughtful and value-adding research on smaller companies. We made some choices a long time ago, such as the Global Research Analyst Settlement, which were intended to be short-term remedies and not intended to last twenty years or longer, and only applied to 12 firms. Since the settlement was announced, the SEC has adopted Regulation AC and FINRA has adopted rules to further improve these professional research coverage requirements.

On the topic of Regulation Crowdfunding, Commissioner Uyeda stated:

I was pleased with the changes made under former Chairman Jay Clayton, which were further fine-tuned based on negative feedback with respect to parts of the original rules. We should continually conduct a retrospective review of the effectiveness of these rules and whether they should be updated. But let me be clear: the anti-fraud provisions already apply to any statement made with respect to crowdfunded offerings. The SEC, criminal authorities, and state securities regulators can enforce the anti-fraud rules. The question, therefore, is how extensive of a prescriptive and prophylactic regime ought to be required given the relatively low-dollar amounts being raised.

At the Committee’s meeting, Brian Belley, who serves as President of the Crowdfunding Professional Association (CfPA), presented four priorities for modernizing Regulation Crowdfunding (Reg CF). These priorities are as follows:

Proportionate requirements for small offerings. CfPA recommends a streamlined tier for offerings up to $350,000, with self-certified financial statements and simpler forms. The approach would retain executive accountability and material disclosures while addressing fixed compliance costs that can make small raises impractical.

Greater capacity for larger and follow-on rounds. CfPA recommends increasing the Reg CF offering limit from $5 million to $20 million in a 12-month period, with compatible treatment under Section 12(g) of the Securities Exchange Act. The proposal would retain meaningful disclosure, investor limits and intermediary safeguards while giving growing businesses another option for continued retail participation.

Simpler investor limits and issuer communications. CfPA recommends a Regulation A-style approach to investor limits and clearer rules for issuer communications. The presentation calls for guidance on the factual business information that may accompany offering terms in notices, together with targeted amendments to Rule 204.

Information investors can find and use. CfPA recommends clearer disclosure of ownership rights, investment structures, fees and tax obligations before investment, together with simpler annual-report filing and reminders afterward. The goal is to make both investment terms and ongoing reporting responsibilities easier to understand.

These reform goals echo potential reforms raised in rulemaking petitions submitted by BLPN-Building Legendary Professional Networks and Crowdfund Capital Advisors earlier this year.

– Dave Lynn