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With all eyes on the lingering effects of the 2008 financial meltdown, federal policymakers are understandably anxious to find a formula that will revive the national economy and help bring unemployment levels down.
Last month, in an increasingly rare sign of bipartisanship, the House of Representatives quickly moved a package of bills designed to help small businesses and entrepreneurs raise money. The entire process from introduction to final approval took less than two months. That’s lightning fast in Washington.
This week, the Senate began taking a hard look at these measures, along with their companion bills in the Senate and I had the privilege of testifying before the Senate Banking Committee. My testimony raised NASAA’s concerns about the dangers of relaxing regulatory standards and outlined how states are best positioned to provide oversight and guidance to small businesses seeking to raise money.
Because we realize that small businesses are vital to job growth and improving the nation’s economy, state securities regulators have no interest in throwing up needless roadblocks for small businesses. Instead, we are interested in creating ways to spur economic development and job creation.
Small business investment has the potential to be a very positive economic force and major driver of wealth and jobs when done in the right way.
But when done incorrectly and without appropriate oversight, these investments have the potential to become costly failures.
The challenge for Congress today is to balance the legitimate interests of investors with the legitimate goals of entrepreneurs.
One proposal has attracted a lot of attention lately – the establishment of a registration exemption for “crowdfunded” securities as outlined in H.R. 2930 and S. 1791.
Crowdfunding began as a way for the public to donate small amounts of money, often through social networking websites, to help creative people finance their projects or causes. Think of it as passing the hat through the Internet. But investing is a very different matter.
Balancing the needs of small businesses and investors requires a degree of regulatory flexibility and creativity.
Instead of preempting states, as both bills would do, Congress should allow the states to take a leading role in implementing an appropriate regulatory framework for crowdfunding. In fact, states should be the primary regulator of small business capital formation, not just of crowdfunding offerings.
The best approach would be for Congress to direct the SEC to work with the states to fashion a federal exemption in tandem with a state model rule.
If regulatory authority is preserved for the states, NASAA will continue to pursue the development of a model exemption for crowdfunding. The model’s most novel feature is that it would allow “one-stop filing” in the state of the issuers principal place of businesses.
This streamlined approach can be achieved without preempting state securities regulators and is consistent with the goals of both Congress and the Obama Administration to help small businesses access the capital they need in order to promote economic recovery and job growth.