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Statement at Open Meeting on Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets

Nov. 2, 2020

Today, the SEC staff has put before us a recommendation to adopt several rule amendments that aim to facilitate capital formation, particularly for small and medium-sized businesses and entrepreneurs across the United States. This recommendation is the product of extensive study and outreach on the part of the Commission. This has been a topic of interest to the Commission for many years, and the Commission put forth a comprehensive concept release in June 2019.[1] Further informed by this release and commenters’ responses and outreach, the Commission proposed amendments to our rules in March 2020.[2] In total, we have received over 300 comment letters and met with many issuers, investors, crowdfunding portals, as well as many other advocates and groups on improving the functioning of our markets for investors and companies. The amendments we are considering today would streamline and tailor the exempt offering framework for businesses seeking to raise capital while preserving investor protections. For these reasons, I am supportive of the changes.

But, I hope today does not mark the end of the conversation on how the SEC can help improve the exempt offering framework. We vote today to make a lot of changes: some big, and some small. I am eager to see how market participants respond and where further changes or refinements might be helpful. For instance, if issuers avail themselves of the new rule that allows the use of generic solicitation of interest materials before the issuer decides which offering exemption to rely on, would it make sense to preempt state blue sky laws for these offers? On the other side of the coin, if issuers choose not to rely on the accommodation because there is no preemption of state law, should the Commission take action to provide for preemption to encourage use of the rule?

I am happy that we will vote to extend a portion of the temporary Regulation Crowdfunding relief that we initially approved this past May. I should mention that although not proposed, we requested comment on these potential revisions in the Proposing Release. A very unfortunate set of circumstances this past Spring required us to be nimble and think of what emergency relief we could provide to America’s struggling small businesses that were searching for a lifeline. Despite the situation that prompted us to act, I see a silver lining in that we were given a chance to see how successful these temporary rules have been at facilitating capital formation for small businesses. The feedback we have received has been overwhelmingly positive. How rare to see a unanimously approved temporary rule work out so well and have an opportunity shortly thereafter to adopt it permanently. While we do not make such change today, I would like to see us press forward to explore extending this relief to make it permanent, so that we could allow this positive change to continue. Crowdfunding offers an attractive avenue for businesses to raise capital early on in their life cycles. It also offers investors the opportunity to invest small amounts in businesses—often local ones—that they believe in and want to support. We should encourage this type of capital raising engagement. Doing so facilitates the entrance of companies to our capital markets and provides an opportunity for investors to support and purchase an interest in businesses that they do not see in our public markets.

Thank you very much to everyone on the staff who worked so hard on this proposal. A special thank you to Jennifer Zepralka and Tony Barone for their dedication to this project. Thank you also to Martha Miller, Sebastian Gomez, Jennifer Riegel, and everyone in the Office of the Advocate for Small Business Capital Formation. This group has pounded the pavement to help inform this proposal with input gained from the Small Business Capital Formation Advisory Committee, the Government-Business Forum on Small Business Capital Formation, and from meetings with entrepreneurs and small businesses across the country.

I am pleased to support the recommendation and look forward to continuing the conversation.

[1] See Concept Release on Harmonization of Securities Offering Exemptions, Release No. 33-10649 (June 18, 2019) [84 FR 30460 (June 26, 2019)].

[2] Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, Release No. 33-10763 (Mar. 4, 2020) [85 FR 17956 (Mar. 31, 2020)] (“Proposing Release”).

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