SEC-Mandated Forum Issues 15 Recommendations to Facilitate Capital Formation for Small Businesses; Seeks Stronger Regulation of Finders Members of a Securities and Exchange Commission (SEC)-mandated Government-Business Forum on Small Business Capital have issued 15 collaborative recommendations that focus on eliminating or reducing impediments to capital formation for the nation’s small businesses. The recommendations come on the heels of a full-day, early April meeting at which members discussed, debated and explored rules and regulations governing capital formation and related secondary trading markets, and then provided suggestions for improving them The collective ideas were then sent to members for ranking, and from their votes emerged15 specific and detailed recommendations, some of which have already gained traction by the SEC and others that have been offered for follow-up consideration. Attorney Laura Anthony, the founding partner of Legal and Compliance, LLC, in West Palm Beach, was one of the forum’s participants and discussed the group’s activities and recommendations at the Securities Law Blog. The recommendations cover a range of topics, but they tend to fall into common categories involving reporting (especially for companies with public floats of less than $250 million or annual revenues of lesson than $100 million); threshold levels for accredited investors, and several critical issues surrounding finders. One of the finder-related suggestions, in fact, recommends SEC leadership of a joint effort between the North American Securities Administrators Association (NASAA) and Financial Industry Regulatory Authority (FINRA) to implement a private placement broker category. The forum suggests a workable timeline and plan to regulate and allow for finders and limited intermediary registration, regulation and exemptions. “The issue of finders has been at the forefront of small business capital formation during the 20-plus years I have been practicing securities law,” according to Anthony, “and it is a vitally important issue. Thousands of people act as unlicensed finders – and activity that, although it remains illegal, is common in the industry. “By failing to address and regulate finders in a workable and meaningful fashion,” she says, “the SEC and regulators perpetuate an unregulated fringe industry that attracts bad actors equally with good and honest efforts, resulting in improper activity such as misrepresentations in the fundraising process.” Anthony reiterated her intention to pursue the issue of finders, including recommendations such as those provided by the forum. Blue-sky exemptions and other issues The forum also encouraged the SEC to adopt rules that would create more state-to-state uniformity around blue-sky laws, which are state laws that regulate the sale of securities. Specifically, the forum urges the SEC to adopt rules that would pre-empt state registration for all primary and secondary trading of certain securities. Forum members also recommend SEC guidelines that: ·
more strictly define which types of securities can be offered by various types of companies
· provide clearer definitions around permissible media activities, disclosure requirements and the costs associated with offerings by different types and categories of issuers · support changes to a specific SEC regulation (Regulation CF) to allow small investors to group together into a single entity that can make a single investment in a company seeking capital · provide more clarity around alternative trading systems (ATS), including the types of documents that must be filed, and the types of registrations that are necessary for ATS activities “to be engaged in the business” of secondary trading transactions. For more information, or to find more detail on the forum’s 15 specific recommendations, contact attorney Laura Anthony, founding partner of Legal & Compliance, LLC, a national corporate and securities law firm, at 1-800-341-2684 or visit www.LegalandCompliance.com and www.LawCast.com.