Subject: File No. Regulatory Review
From: David Pedley
Affiliation: Pedley Gordinier, PLLC

October 31, 2011

Obviously small business is the growth engine of our economy. The reality is that this engine has been starved of cash for decades largely through the overly restrictive regulations by Federal and State governments. While laws like Sarbannes-Oaxley have made larger companies rethink the wisdom of being public or listing their shares for trading in the United States the most serious damage to our economy comes from the inability of small companies to legally raise money on a cost-effective basis. It is simplyimpossible for many companies to raise funds from friends and family and other people with whom they have a pre-existing relationship and registered broker-dealers simply cannot profitably provide services to people desiring to raise only a few million dollars. I would encourage you to review the June 20, 2005 Report and Recommendations of the American Bar Association Task Force on Private Placement Broker-Dealers as the report clearly discusses what has been a long-standing problem.

In addition to hurting small companies, the existing regulatory environment hurts the ability of small investors to participate in the private market and make returns that are available to larger, more sophisticated investors. These people are in many cases unfairly barred from an entire asset class.

In short, the current system fails everyone, even in the stated desire to protect investors. It is too easy to point to instances where fraud occurs in the face of the protections offered by the system.

In the face of the foregoing, I would make a few suggestions:

#9679 Adopt a form of crowd funding and do so quickly.
A limit in total funding over any rolling 12 month period of $2.0 million and $5.0 million over any five year period would appear reasonable.

Investors should be limited to the smallest of 10% of annual gross income for the preceding year, 1.0% of net worth or $20,000 (indexed for inflation).

Those engaging in crowd funding should be subject to traditional bad boy limitations and anti-fraud rules, but compliance with most of the traditional rules of Regulation D should be waived.

Reports with respect to offerings (issuer, officers, directors, insiders, promoters, amount to be raised and other limited background information should be filed with the SEC (but not the states) including the number of purchasers in each State. States should be able to download the information from the SEC without duplicative reporting requirements.

Purchasers of securities (and their transferees) in a crowd funding investment should be excluded from the 500 stockholder rule for determining if an issuer is required to be registered under the Securities and Exchange Act of 1934.

Any crowd funding exemption should preempt Blue Sky laws.

#9679 Adopt for Crowd Funding and all Regulation D offerings a new class of Registered Finders.

Finders would need to be registered with the SEC, demonstrate a basic understanding of the rules governing private placements and be subject to bad boy rules. The services offered by finders should include not only introduction to potential investors but assistance in preparing offering documents and negotiating the terms of transactions. All compensation payable to finders (whether denominated as commissions, consulting fees or otherwise) would need to be clearly disclosed to potential investors, but the amount of such compensation should be unlimited.

Any registration, reporting and record keeping requirements would need to be kept simple and cost-effective. For most finders, their capital raising services would a side-line and the goal must be to make compliance easy and cost-effective.

Services provided by finders registered with the SEC should be exempt from regulation by any state so long as they are provided in connection with Crowd Funding transaction or any offering complying with an exemption under Regulation D. Of course, any Finder should remain subject to anti-fraud rules.

(Attached File #1: offerandsale-16.pdf)