SEC Trims States' Purview on Stock Offerings Under $50 Million

SEC Trims States' Purview on Stock Offerings Under $50 Million

(Reuters) - U.S. regulators adopted a new rule Wednesday that will scale back the states' powers to police some public stock offerings, a move that advocates say will spur more capital-raising and critics claim could lead to more fraud.

In a public meeting, the Securities and Exchange Commission voted unanimously to revamp the rule set known as "Regulation A" for such small and mid-sized public stock deals.

The final rule automatically preempts state "blue sky laws" for stock deals valued at more than $20 million and up to $50 million, meaning those companies would not have to register their deals in every state before they can be sold.

However, companies using these larger "Reg A" deals will face heftier disclosure rules and be required to file audited financial statements and routine financial reports.

For deals under $20 million, companies can choose to register initially with the states and not face ongoing disclosure requirements, or they can opt out of state oversight and be subject to the same periodic filing requirements as the bigger deals.

"At this stage, concerns remain about the costs associated with state securities law registration," SEC Chair Mary Jo White said.

The SEC's rule aims to strike a compromise with the North American Securities Administrators Association, which lobbied fiercely to protect its oversight powers.

Originally, the SEC had proposed preempting deals larger than $5 million.

To address concerns, NASAA created a new streamlined review process that would let companies register deals in all the states through a single process.

NASAA President William Beatty said Wednesday he is disappointed in the final rule.

"We continue to have concerns that the rule does not maintain the important investor protection role of state securities regulators," he said.

Wednesday's rule was required by the Jumpstart Our Business Startups (JOBS) Act, a 2012 law that relaxed securities rules for smaller companies to help them raise capital.

Regulation A exempts companies from registering smaller-sized stock offerings. Unlike private deals, Regulation A offerings can be sold to the public, though they are typically not listed on exchanges.

Originally, Regulation A deals let companies raise up to $5 million in a year and be registered in every state where they were sold.

Experts say this low $5 million cap and the impediment of navigating differing state laws contributed to a sharp decline in its use.

The JOBS act required the SEC to raise the $5 million threshold up to $50 million. But the SEC feared this increase alone would not be enough to incentivize people to use Regulation A unless at least some of the deals were preempted.

White said the SEC is also exploring a program to collaborate with the states on the rule's implementation.

 

(Reporting by Sarah N. Lynch; Editing by Lisa Von Ahn and W Simon)

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