The Competitive Enterprise Institute (CEI), a free market-focused think tank that supports innovation in financial services, has posted a comment letter forward to Senator Patrick Toomey, ranking member of the Senate Banking Committee and advocate of the JOBS Act 4.0.
Earlier this year on the 10th Anniversary of the JOBS Act of 2012, the legislation that legalized investment crowdfunding, Senator Toomey proposed the JOBS Act 4.0 – a series of policy initiatives designed to improve access to capital, boost entrepreneurship while creating more opportunities for all. Senator Toomey asked that interested parties submit their feedback on the proposal with the hope that at some point later this year (or maybe in 2023) the legislation will be signed into law.
Last month, CI published an article by David Burton wrote about the extensive legislative proposal providing an excellent synopsis of all the possible changes. Burton is a securities regulatory expert from the Heritage Foundation who frequently works with members of Congress to help craft legislation.
Regarding the comment letter posted by CEI, the organization focuses on three separate aspects of the draft bill.
Authored in partnership with John Berlau, Director of Finance Policy at CEI, Matthew Adams Government Affairs Coalitions & Manager at CEI, and Paul Jossey, an Attorney and Adjunct Fellow at CEI, the letter states:
“… we encourage bipartisan support of the legislation and hope to see the bill or similar legislation pass the full Congress and be signed by the president. We thank you for the opportunity to provide this feedback and look forward to working with you to advance policies that improve capital formation, encourage investor opportunities, support entrepreneurship, and reduce regulatory barriers and burdens.”
The first topic addressed is online capital formation and Reg CF which CEI says after a shaky start is now “bloomed.” But while Reg CF is going well more must be done:
“… additional lower-level exemption like the Small Entrepreneurs’ Empowerment and Development (SEED) Act of 2022 as proposed by Senators Tim Scott (R-SC) and Jerry Moran (R-KS) could also help. The SEED Act’s preemption of federal and state securities laws for issuers offering up to $500,000 per 12-month period would lessen the cost of capital, which Reg CF issuers often complain. Whether allowed to offer securities on the existing Reg CF portal infrastructure or through not- yet-created exchanges, the reduction in disclosure burdens would aid entrepreneurs outside existing capital-rich locales.”
The second topic is secondary trading of private securities should be pre-empted from state law – currently a significant hurdle for issuers.
“Preempting state-level restrictions on secondary trading has additional benefits. First, it acts as a form of investor protection by adding liquidity to investor holdings. As House Financial Services Committee Ranking Member Patrick McHenry (R-NC) stated, “The liquidity provided by a secondary market is an investor protection in and of itself, because it would allow individuals whose financial situation has changed to exit these investments in times of need.”
“Second, preemption may provide some clarity to the cryptocurrency market for tokens deemed as “securities” by the SEC.”
Finally, CEI says that several aspects of securities crowdfunding should be improved. Notably:
- Pre-empt state filing requirements and fees for Reg CF and Reg A+
- Boost the funding cap under Reg A+ to $100 million
- Boost the Reg CF funding cap to $20 million
- Simplify the individual investor limits for both Reg CF and Reg A+
CEI believes that if enacted into law, the JOBS Act 4.0 can be a catalyst for “economic resiliency and provide opportunity for entrepreneurs and investors alike.”
You may read the entire letter here.