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SEC Chair Says SEC Should Meet Deadline for Crowdfunding Rules

Published June 28, 2012 at 3:21 pm
By Brian Dengler

 

House Committee on Oversight and Government Reform, June 28, 2012

Washington, D.C. (June 28, 2012) Mary Schapiro, Chair of the Securities and Exchange Commission, testified today before a House subcommittee that the SEC expects to meet the December 31, 2012 to implement crowdfunding rules under the Jumpstart Our Business Startups Act. Ms. Shapiro testified before the House Committee on Oversight and Government Reform. The Committee held two hearings during the week of June 25, 2012 to examine the implementation of portions of the JOBS Act to ensure the proper elimination of government barriers to small business capital formation and growth.

The Jumpstart Our Business Startups Act (JOBS Act) became law on April 5, 2012 and requires the SEC to implement rules within 270 days to allow entrepreneurs to raise up to $ 1 million in equity from small investors through crowdfunding platforms. Regarding the deadline, Ms. Schapiro told the Committee,   “I don’t for see not meeting this deadline. The staff is working hard on it, there are lots of rule as you know, we are working already on the issue disclosure requirements which are fairly straightforward, but also the intermediary and funding portal requirements of the statutory provision. It’s challenging, but I don’t have reason to tell you that we wont meet that deadline.”

Ms. Schapiro testified that the SEC is retaining an additional 16 Ph.D. economist to help with the cost benefit analysis and crafting rules for crowdfunding, and that the Commission has benefited from more than 80 comments already submitted to the SEC and meeting with representatives from the industry.

SEC Chair Mary Schapiro testifies before House Committee on Oversight and Government Reform. Photo Courtesy of C-SPAN.

Ms. Schapiro also assured the Committee that the SEC intends to conduct a cost benefit analysis to provide workable rules that would not price out small issuances. ”Our goal is to create a workable exemption,” she said. “Our approach is going to be to follow the language of the statute, but to create exemptions that will make crowdfunding work.”

The JOBS Act authorizes the use of “funding portals” or “intermediaries” to facilitate crowdfunding investments. Ms. Schapiro testified that such intermediaries should help investor and entrepreneur confidence with the crowdfunding process. “My personal belief is that the requirements to use an intermediary can be enormously helpful here because they can routinize a lot of the things that the people might be concerned that they may need to have lawyers to do for them, or accountants to do for them,” she said.   It will give people some confidence that there is a regulated entity in this process somewhere. It also will make it much easier for entrepreneurs to navigate this exemption and its requirements.” When pressed by the Committee about concerns that the rules may price out small issuances, Ms. Schapiro replied “We will be very sensitive about costs.”

Ms. Schapiro also told the Committee that the SEC will not meet the July 4 deadline to implement rules for lifting the general solicitation ban under Section D.  Ms. Schaprio said the SEC is expected to reveal within the next two days a timeline for the commission’s consideration and implementation of rules to lift the general solicitation ban.  The difficulty, according to Ms. Schapiro, is the JOBS Acts requirement that the SEC implements rules to assure that issuers who make a general solicitation, such as through advertisements, verify that they are accepting investments only from accredited investors. “We want to create something that is workable and usable,” she said. The SEC Chair expects that general solicitation rules will be issued “this summer.”

“Entrepreneurs are waiting and we urge you to move forward with that,” urged Representative Patrick McHenry (R-North Carolina) at the hearing.

Article by A. Brian Dengler, Leadership Team Member of Crowdfund Intermediary Regulatory Advocates and of counsel, Vorys, Sater, Seymour and Pease.

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