SEC commissioners argue for increase to monetary cap on Regulation A

Commissioners Michael Piwowar and Hester Peirce, Republicans on the Securities and Exchange Commission, are breaking ranks with others on the Commission over the monetary cap applied to Regulation A exemptions.

They voiced their dissent in letters this week to to the Senate Banking Committee and the House Financial Services Committee.

The Jumpstart Our Business Startups (JOBS) Act added a new section to the Securities Act of 1933, requiring the Commission to biannually review the total offering amount limitation set forth under Regulation A (the so-called Tier 2 limit).

That offering limit currently stands at $50 million, where it has remained since the Commission’s adoption of relevant rules in March 2015. The statute’s default is that the Commission will raise the offering limit, but “if it determines not to increase the amount,” it must inform the two Committees.

“Our colleagues have informed you that they have ‘determined not to propose to increase the $50 million offering limit at this time,’” Piwowar and Peirce wrote. “In our view, this decision of the majority of the Commission misses an opportunity.”

Sufficient time has passed “to warrant serious consideration of the dearth of Tier 2 activity since our adoption of the relevant rules,” they added. “Is the ‘relatively modest use’ of Tier 2—as the October 2017 report of the Department of the Treasury puts it—perhaps related to an overly restrictive $50 million cap, which artificially depresses interest in the exemption? Our colleagues are unwilling even to entertain an exploration of this question through a notice and comment proposal, at least, that is, until the next review cycle.”

The duo says they instead agree with the Treasury Report’s recommendation that the offering limit be increased to $75 million.

 “Indeed, we also share this perspective with the bipartisan group of 246 members of the House of Representatives that recently passed the Regulation A+ Improvement Act of 2017 (H.R. 4263), which similarly called for an increase of the limit to $75 million,” they wrote. “The history of Regulation A—a history of disuse—offers an unpleasant warning about the potential future of Regulation A+: an improperly crafted exemption is worth little to small businesses, whose ability to gain access to capital in turn enables the economy to grow.”

Legislators and regulators, they wrote, should “take another look at Regulation A+ to ensure that it can become a valuable tool for American companies.”

Calibrating an appropriate Tier 2 limit “is a matter for rigorous analysis via the standard notice and comment rulemaking process,” and “the time to commence that careful study is now, not when the kicked can comes to rest a couple of years down the road” the Commissioners wrote.