SEC Should Boost Capital Limits for Crowdfunding, Treasury Says

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By Andrew Ramonas

The SEC should allow small businesses to raise millions of dollars more through crowdfunding, according to a new Trump administration report on overhauling Wall Street regulations.

Increasing the capital-raising limit for crowdfunding offerings from $1 million to $5 million during a 12-month period could “potentially allow companies to lower the offering costs per dollar raised,” Secretary Steven Mnuchin’s Treasury Department said in the Oct. 6 report.

Mandated under the 2012 Jumpstart Our Business Startups (JOBS) Act, the Securities and Exchange Commission’s crowdfunding rules are intended for startups and other small businesses that are struggling to get bank loans or venture capital. Companies have been able to offer shares over the Internet since 2016 under the SEC’s model, which is based on fundraising websites like Kickstarter.com and Indiegogo.com.

The crowdfunding recommendation is one of many in the 220-page Treasury report, which is intended to give the SEC and Commodity Futures Trading Commission a guide for relaxing regulations affecting capital markets.

“Through creative funding tools such as crowdfunding, markets can help provide capital for these innovators to grow their businesses and create jobs,” the report said.

SEC Chairman Jay Clayton said in a statement that Treasury provided “a valuable framework for discussion among all market participants that will most certainly benefit the American people.” He didn’t comment specifically on the crowdfunding suggestion or other recommendations.

GOP Concerns

Republicans have pushed for looser crowdfunding regulations before.

SEC Commissioner Michael Piwowar, a Republican, was the only commission member to vote against adopting the rules in 2015. Earlier this year, he said he was concerned the regulations may be “too restrictive or too burdensome.”

A Republican-sponsored bill in 2016 also would have let a crowdfunding venture raise as much as $5 million. The language, however, was removed from the legislation in an effort to garner Democratic support. The measure passed the House, but stalled in the Senate.

Rep. Patrick McHenry (R-N.C.), author of the legislation, in May urged Clayton to use the SEC’s power to increase the $1 million cap, saying a hike “would attract more mature and thus less risky businesses that still need significant capital.”

Academics’ Reaction

J.W. Verret, a professor at George Mason University’s Antonin Scalia Law School, told Bloomberg BNA raising the amount is “essential.”

“It should embarrass us that New Zealand has a larger crowdfunding market than the U.S.,” said Verret, who also sits on the SEC’s Advisory Committee on Small and Emerging Companies.

Mercer Bullard, a professor at the University of Mississippi School of Law, told Bloomberg BNA he wasn’t sure why the report recommended increasing the cap to $5 million. He said half of the companies behind the first 348 crowdfunding offerings set out to raise up to $1 million, but fewer than 5 percent of them hit their limit.

“Secretary Mnuchin offers no empirical basis or analysis for his recommendation other than ‘more is better,’” Bullard said. “Why not simply raise the limit to $100 billion?”

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

For More Information

To view the report, visit http://src.bna.com/ta4.

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