The SEC has voted unanimously to propose a 10-fold increase in the amount of money companies can raise in simplified public offerings.
The commission has proposed increasing to $50 mn from $5 mn the amount companies can raise under the JOBS Act, which allows IPOs with fewer disclosure requirements. The proposal also exempts the offerings from state oversight.
‘This proposal is intended to help increase the access of smaller companies to capital,’ says SEC chair Mary Jo White in a press release. ‘In shaping this proposal, we sought to develop an effective, workable path to raising capital that, very importantly, also builds in necessary investor protections.’
But the North American Securities Administrators Association, which represents state regulators that will no longer be able to review the offerings, says the proposal will further hamper control of fraudulent offerings. ‘It is not clear why the commission would remove state oversight in a high-risk area where both federal and state resources should be fully leveraged to provide sufficient, regular review,’ says Andrea Seidt, president of the association, in a press statement. ‘It is not reasonable for the commission to expect the states to continue to clean up the mess left behind in the wake of pre-emptive measures like this.’
The SEC proposal, which is now open to a 60-day public comment period, would also create two tiers: under tier one, which applies to all offerings of $5 mn or under, companies would be subjected to non-public SEC reviews of offering statements. They would also be allowed to undertake a ‘testing the waters’ process of soliciting interest both before and after the filing.
Tier two, which includes additional requirements for companies raising more than $5 mn but no more than $50 mn, calls for mandatory audits of financial statements including in the offering circular. It also requires companies to file regular updates and current event reports that are ‘similar to the requirements for public company reporting’.
Investors in tier two companies would be prohibited from buying more than the equivalent of 10 percent of their annual income or net worth. Companies that seek to merge with an unidentified company, are already reporting under SEC regulations or seeking to sell asset-backed securities in oil, gas or mineral rights are not eligible.
