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A top House Republican is urging new Securities and Exchange Commission Chairman Jay Clayton to begin overhauling a crowdfunding regulation adopted in 2015 that took effect last year, known as Regulation CF.
“Regulation CF is in desperate need of regulatory reform,” Rep. Patrick McHenry (R-N.C.), the vice chairman of the House Financial Services Committee, said in a May 15 letter to Clayton. He singled out several avenues for change, including looser limits for investments and eligible investors.
Regulation CF permits early-stage companies to raise money in small amounts from a wider variety of qualified investors than permitted with other SEC initiatives like Regulation A Plus.
McHenry has for years pushed legislation to expand the rule, which was spawned by the 2010 Jumpstart Our Business Startups Act.
The agency’s previous chairman, Mary Jo White, shepherded Regulation CF through, but McHenry and other lawmakers who want to broaden the rules might have a sympathetic ear in Clayton, who was sworn in May 4. During his confirmation process, Clayton promised to expand capital formation efforts.
A spokesman for Clayton declined to comment on the letter.
In the letter, McHenry advocated a rule change that would allow crowdfunding issuers to “test the waters” and see whether their startup could generate investor interest, without the effort being considered a formal offering.
An issuer may raise approximately $1million a year in a crowdfunded offering. Investors making less than $100,000 may invest no more than 5 percent of their annual income.
He also said the SEC should raise the $1 million cap and remove limits on crowdfunding investments for “accredited investors,” who meet qualifying income and net-worth thresholds.
The SEC should also relax disclosure requirements and advertising guidelines for crowdfunding startups, McHenry said.
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