On Wednesday, June 22, the House Financial Services Committee is scheduled to mark up two bills that have the potential to weakenvital investor protections.
The first bill, H.R. 1082, the Small Business Capital Access and Job Preservation Act, would exempt private equity fund advisers from SEC registration requirements.
The second bill, H.R. 1070, the Small Company Capital Formation Act, would expand the Regulation A exemption by raising the dollar limit for that exemption from $5 million to $50 million and would preempt state authority to review Regulation A offerings.
State securities regulators have a number of concerns with both bills. On June 15, I wrote to the full committee to spotlight these concerns. (Read the NASAA letter here.)
At least two fundamental components of H.R. 1082 are so vague that they undermine any benefits the bill purports to confer on small business.
For example, the legislation does not define “private equity fund” but rather delegates this task to the SEC. It seems unwise to establish an exemption before defining what is covered by the exemption. The bill also gives the SEC six months to promulgate rules necessary to establish the record keeping and reporting obligations of these advisers.
The bill also is unclear as to what, if any, reporting requirements are required for private equity fund advisers. An exemption from all registration and reporting requirements would likely have the unintended consequence of depriving the SEC of important regulatory information critical for assessing risk and protecting investors.
Furthermore, unlike the exemption for advisers contained in Dodd-Frank, the language in H.R. 1082 is not limited to advisers who solely advise private equity funds.
Turning to H.R. 1070, we strongly object to the language in Section 6, which would preempt state authority over certain securities offerings. This language, if improperly construed, could seriously jeopardize the states’ ability to protect investors.