Rep. Patrick McHenry of North Carolina, the top Republican on the House Financial Services Committee, in a March 12, 2021, letter urged the SEC to resist political pressure to follow a Biden Administration regulatory freeze and push forward with its Regulation Crowdfunding expansion finalized last year. Complying with the January executive order would undermine the SEC’s “status and structure” as an independent agency, McHenry wrote.
President Joe Biden issued the order, “Regulatory Freeze Pending Review,” on his first day in office, a move designed to pause the flurry of agency rulemakings undertaken at the end of the Trump Administration.
McHenry, in his letter, said he is “concerned about the effect of any regulatory freeze on necessary changes to the Regulation Crowdfunding rules.” The lawmaker has been pushing for years to ease restrictions on the exemption created under the JOBS Act, which allow private companies to raise capital from the public through broker-dealers or registered online portals.
The SEC in early November finalized a broad reworking of its patchwork of exemptions under the Securities Act of 1933 in Release No. 33-10884, Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets. The rules raise the dollar ceilings for offerings under Regulation D, Regulation A, and Reg CF , among other changes. The changes became effective on March 15.
(See “Divided SEC Adopts Broad Reforms for Exempt Offerings in the November 3, 2020, edition of Accounting & Compliance Alert.)
Release No. 33-10884 raised the previous Reg CF offering ceiling of $1.07 million to $5 million, and eased limits for investors and disclosure requirements for the issuers.
“As I have communicated with the Commission on multiple occasions, the burdensome and prescriptive nature of Regulation Crowdfunding has stalled capital formation and investment opportunities,” McHenry wrote. “This complexity has prevented small business from accessing much needed capital for too long and hindered the development of innovative products and services.”
He added that “further delaying these needed changes will only hurt market participants actively working to comply with the finalized amendments and will impede opportunities for small businesses.”
McHenry’s Democratic counterparts were skeptical of the SEC’s move. Before the SEC finalized Release No. 33-10884, Democratic lawmakers sought unsuccessfully to use budget language to block the rules unless the SEC strengthened filing requirements under Reg D.
The SEC’s Division of Corporation Finance on March 10 issued staff interpretive guidance to help smaller companies understand the changes in Release No. 33-10884.