Shallow-End Jay treads water while Reg CF sinks, but is help on the way?
No one ever confused SEC Chairman Jay Clayton for a daredevil. He didn’t spend his youth bungee jumping, drag racing, or venturing to the deep end of the neighborhood pool. He is the staid, strait-laced embodiment of the Machine: the credential-and-prestige obsessed cabal of East Coast lawyers and fancy-degreed personages that land each year at name-brand federal agencies to pilot the American economy while disclaiming responsibility for the results.
Increasingly those who did jump (literally and figuratively) into the deep end — the risk-taking disruptors creating the new American economy — are complaining about Mr. Clayton’s stifling edicts. Circle founder and CEO Jeremy Allaire recently laid off 10% of his workers blaming “an increasingly restrictive regulatory climate in the United States.”
A more cautious group, those too scared to use their own names are also panning Shallow-End Jay. After quoting several anonymous sources, Crowdfund Insider recently declared, “Some people believe that Chair Clayton simply wants to dodge a bullet and exit before the next election cycle hits in full force. He would prefer to end his tenure at the SEC minus any major catastrophes, imaginary or not.”
So the future of the U.S. economy may be stalled so Shallow-End Jay can ensure he has the best possible post-SEC landing spot. Why settle for the sticky, dirty U. Penn when Harvard may call?
Reg CF, which crossed year three this month is one area where SEC paralysis is blatant.
Reg CF was supposed to revolutionize small-business capitalization. President Obama described it as a “game changer” when he signed the JOBS Act into law seven years ago. For the first time, the potential for massive returns would be available to everyone, not just a network of venture capitalists and investment bankers.
On the surface Reg CF seems to be performing swimmingly:
- Total Commitments: $217,383,649 raised since May 2016
- Total Investors: 234,883
- Total Campaigns: 1,640
- Average Raise: $219,382
- Jobs Supported: 8,690
But in reality, it’s sinking. And the weights limiting its buoyancy are manifest and known within the trade media, the SEC, and the broader government.
In March 2017, Edward Knight, Executive Vice President and General Counsel of NASDAQ testified:
From the outset the SEC’s view of [Reg CF] was they were not for this they and made it, shall I say, needlessly complicated and did not approach it except as this this was something where the public is going to get harmed and we need to narrow it as much as possible.
Six months later the U.S. Treasury recommended several improvements, thus far neither the SEC nor Congress has acted.
But help may be on the way. Corp Fin’s Bill Hinman recently acknowledged Reg CF’s shortcomings. Apparently, the SEC will soon publish its own Reg CF (and Reg A+) recommendations to increase their vitality and by doing so expand investment opportunity and brighten economic outlook. The SEC can juice Reg CF with little effort. According to Mr. Hinman some of these reforms are on the SEC’s radar:
- Raise the limit from the nonsensical $1.07M
- Increase individual limits
- Remove the limit for accredited investors
- Relax the solicitation rules
- Allow Special Purpose Vehicles
- Allow CEOs to sign off on financial statements
These fixes would have a tremendous impact on Reg CF and still provide Shallow-End Jay a soft landing at the Harvard of his choice.
