At the World Economic Forum 2013 in Davos, Switzerland, Rep. Patrick McHenry (R., N.C.) talks with Neil Lipschultz at Davos about “Crowdfunding” and the future of the JOBS Act, aimed to help small and emerging businesses attract financing.
On a warm Fall, October evening in New York, some of the securities crowdfunding industry pioneers, advocates, policy influencers and solution providers gathered at the Law offices of Pepper Hamilton for Dara Albright’s Regulation A+ event. David Weild, the founder of Issuworks and former ex-Vice Chairman of NASDAQ, closed the evening with an impassioned message about what steps are needed to spur capital formation that will start moving money into the hands on entrepreneurs and main street investors.
Unlocking the capital markets for small cap and mid cap businesses using the JOBS Act, Title IV (Regulation A+) is top of mind after 7 years of stagnant economy. This has become the mission for everyone in room such as Brian Korn (Pepper Hamilton), Peter Einstein (Crowdfund4All), Sara Hanks (CrowdCheck), Douglass Ellenoff (Ellenoff Grossman and Schole, Kim Wales (Wales Capital and CrowdBureau), and Sam Guzik (Guzik & Associates), Chris Tyrrell (OfferBoard) and Manolis Sfinarolakis (Crowd RealityTV) to name a few. However, Weild was very clear in his messaging, “NASAA is doing incredible harm to the economy and they need to stand down.”
The North American Securities Administrators Association (NASAA) is a special interest group that represents state securities regulators. Ironically they have taken an anti-business / anti-investor approach by attempting to block Title IV (Regulation A+) of the JOBS Act – otherwise known as Reg A+. Regulation A+ includes the biggest opportunity presented by the Securities and Exchange Commission’s (SEC) proposal for preemption of State Blue Sky in 40 years. In addition, qualified purchasers can invest up to 10 percent of their net worth. Finally, Title IV of the JOBS Act increases the offering limit from $5 million to $50 million in a 12 month period.
NASAA aggressively lobbies Congress and has hired high powered attorneys to stop state blue sky preemption for certain private placements. Small businesses creates 64% net new jobs for the economy which is the vast majority for U.S. and should be the engine for economic growth. However, at play is protecting revenue stream and power at NASSA; that is thwarting the opportunity for small and emerging business to thrive and survive.
In addressing NASAA’s concerns, Weild aptly points out that state regulators will continue to have anti-fraud laws which they can use but calls their present stance “laughable”. “If you want to stop all fraud lets just stop all business …We all know that is not the right answer,” says Weild.
While there are clearly members of NASAA that disagree with this anti-business policy for now the group has paradoxically taken a position that is to the detriment of the economy. Weild also tackles other issues that are in need of regulatory change, including tick size reform, that are bogging down small cap IPOs.
David Weild’s closing address is a must watch for Anyone who is pro-economy and pro-small business :
With the national election scheduled in two weeks, Congressman Patrick McHenry finds the time to continue advocating for small business and emerging growth companies in the changing markets under the JOBS Act for Title II, Title II and Title IV at Dara Albright’s New York Event held on October 21, 2014. Ultimately, Congressman McHenry’s delivered a keynote address that focussed on capital formation issues and offering a way forward.
In the keynote address, McHenry discusses: 1). the state of play in Washington; 2) outlines the three Titles of the JOBS Act that he is passionate about; 3) provides three leg stool for Regulation A+; 4) offers an explanation about why are we working through the question of Capital Formation?; 5) provides key take away; 6) Q&A:
State of Play: Gridlock in Washington, based on the work product witnessed or not witnessed by the American people. The JOBS Act is the most significant re-write of securities law in the last 80 years. There is greatest hope for capital formation and economic sustainability is built into Title III – Regulation Crowdfunding so long as Investor Protection and Capital Formation remain at the forefront of a developing robust marketplace.
Title II (Regulation D, Rule 506(c) and Rule 144A: Lifting the Ban on General Solicitation, which was a straight forward piece of legislation that went live on September 23, 2013. Working well while in it’s infancy.
Title III (Securities Based Crowdfuding): The ambition of Title III was to update outmoded securities law and merge technology with finance. Currently, the law remains deeply flawed and the rule has been pending for a substantially long time (over 700 days). What should have been structured at the Commissioner level has turned into a top priority at the SEC. Now Congress needs to fix the problem, and the SEC must work with Congress because things like cost structure does not work as laid out in the final proposed rules. To mention a few flaws that do not work: a). audited financial statements for offering $500K or greater; b). issuance capital raise limits up to $1 million; and c). prohibition on testing the water.
Title IV (Regulation A+) – The biggest opportunity presented by the SEC’s proposal is the preemption of state blue sky law. Regulation A, lifts the capital raise limits from $5 million to $50 million; in addition, a qualified purchaser can invest up to 10 percent of the net worth in an Reg. A offering. What is needed is a well written set of laws and rules for Regulation A. This is now become a top priority for McHenry! “We must get the rules right so that is not a dead letter upon arrival but rather it can be a lively opportunity.”
Further, by implementing Title IV, this will allow for us to fix the question of securities based crowdfunding, more specifically equity crowdfunding because of great opportunities afforded the main street entrepreneur, retail investor, and risk takers. “In order to get this right, there are 3 legs to the stool of this alliance”, says McHenry.
3 Legs to the stool of this alliance:
Congress and SEC getting this question of regulation of law correct and done.
Galvanize the democratization of finance: significant amount cultural shift in the marketplace must take place and we the people must be drivers of the shift; alongside helping to create useable public policy in Washington.
Open structure data on the market: we must have the best information on the markets and best market structure that can follow as a result of open structure data. This most importantly can help to move Congress and SEC in the right direction.
Why are we working through the question of Capital Formation? Entrepreneurs may not be connected to the right side of the tracks to get financing for their companies. Delivering the entrepreneur to the marketplace and connecting them to the world of capital so that we can all live better tomorrow and have real vibrant economic growth!
Take Away: Communicate and Build Relationships. Make sure that we have connection with policymakers in Washington. The SEC has an open door policy — go to Washington and introduce yourself. Go to Capital Hill and get to know your U.S. Representative. If you don’t have relationships, go an introduce yourself, to your State Ccongressman and Senator. Inform them about sound public policy. Build these relationships!
Congressman Patrick McHenry takes the final question: Kim Wales, crowdfunding industry pioneer and founder of Wales Capital and CrowdBureau ask Congressman McHenry the last question: “You talk about lobbying our Senators and Congressman, but there is a lobbying group called NASSA that is an influential body as it relates to small securities offerings across all of the states. How do we balance the discussion with that organization and their influence on all of the states in terms of pushing this bill forward (Title IV – Regulation A+)?”