SEC Makes it Easier for Businesses to Raise Equity – Votes to End 80 Year Ban on Publicizing Unregistered Stock Offerings
The SEC has moved to end the 80 year ban on publicizing equity offerings that haven’t been registered with the SEC. On July 10, 2013, the SEC voted (4-1) to make it easier for small businesses to raise funds from accredited investors. Under the new rule, businesses raising funds can notify the SEC 15 days before publicizing it. The issuer must take reasonable steps to verify that sales are to only to “accredited investors” – generally investors with a net worth of over $1 million excluding the value of their primary residence. Hedge fund investors need to have at least $2 million in net worth, excluding their primary residence. New SEC safeguards to protect the public also have been issued. Muchow, an SEC counsel, points out, however, that critics are concerned that: 1) more misleading advertising could be generated by the rule; and 2) that the process is not actually easier because SEC is requiring that companies take additional steps to verify that investors are accredited. The new rules were effective on September 23, 2013. The SEC’s action implements Section 201(a)(1) of the JOBS Act (Jumpstart Our Business Startup Act) and continues the general trend toward breaking down the barriers between those raising and providing funds, such as crowd funding companies like Kickstarter and Indiegogo.