SEC Proposes Amendment for Easier Fundraising
The latest SEC proposal would make fundraising easier for small companies. If implemented, the proposal would be particularly beneficial for crypto startups.
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The SEC announced a proposed set of amendments that would make it easier for companies to raise money. The amendments would increase the amount companies could raise through exemptions and expand who qualifies as an “accredited investor.”
Easing Securities Offerings
Companies that raise investments through crowdfunding could see the process become simpler and easier if new rules proposed by the SEC are passed. While increasing the limit to how much companies can raise without having to register with the SEC or file for an exemption is aimed at the entire market, the ones that would benefit most from it are cryptocurrency companies.
A commissioner with the SEC, Hester Pierce, announced that the SEC has proposed changes to its exempt offering framework yesterday. The proposal is the latest initiative to come out of the SEC’s efforts to remove unnecessary friction from the capital-rising process, Pierce said in an official statement.
Today we proposed some changes to our exempt offering framework, and I suggest some additional changes we might want to consider: https://t.co/alzKp6wxhI and https://t.co/Upo8gqSUQV
— Hester Peirce (@HesterPeirce) March 4, 2020
Jay Clayton, the Chairman of the SEC, said that the proposals will allow entrepreneurs to access capital while preserving and enhancing investor protection.
“The complexity of the current framework is confusing to many involved in the process, particularly for those smaller companies whose limited resources spent on navigating our overly complex rules are diverted from direct investments in the companies’ growth.”
What Can Crypto Companies Expect?
The SEC’s current Regulation D exemption allows companies to raise funds from accredited investors without having to go through a costly initial public offering process. However, getting through to such investors has been a problem for crypto companies.
Many conducted initial coin offerings without the SEC’s approval, claiming that the coins they were selling were considered utility tokens and not securities, and are exempt from the Commission’s oversight. This led to a series of lengthy and expensive legal battles between the SEC and companies in the crypto industry, the most notorious ones being the ongoing cases against Kik and Telegram.
Under the newly proposed changes to Regulation D, the maximum offering amount will be raised from $5 million to $10 million. An updated Regulation A would raise the maximum offering amount from $50 to $75 million, while the offering limit in Regulation Crowdfunding would be increased from $1 to $5 million.
The proposed rules would also waive the investment limits for accredited investors and revise the calculation methods applied to non-accredited investors, the SEC said.
However, the main benefit for cryptocurrency companies would be the expansion of the definition of an “accredited investor.” Currently, the term applies to an individual with a net worth of $1 million that had a net profit of $200,000 or more per year for the past two years. It also includes entities controlling over $5 million in assets.
The new rules would expand the definition to those with professional knowledge, experience, or qualifications that would allow them to make informed investments. While the rules were set in place to protect small investors from predatory behavior on the market, many believe it inadvertently created a wealth gap preventing ordinary people from participating in wealth formation.
The SEC’s proposal will remain open for public comments in the next 60 days, after which it will be put up for a vote.
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