| WASHINGTON, April 9
WASHINGTON, April 9 Lawmakers in the U.S. House
of Representatives are drafting measures to further ease
regulatory obstacles for small companies, but critics warn the
move will only reduce investor protections already eroded by a
The House Financial Services Committee on Wednesday vetted
seven legislative proposals aimed at loosening various federal
securities laws to help startups raise money and eventually go
Wednesday marked the latest public hearing to explore
numerous proposed changes to the Securities and Exchange
Commission's rules for both public and private companies.
Eventually, House Republicans hope to merge many of the
proposals into a larger "JOBS Act 2.0" bill, a follow on to the
2012 Jumpstart Our Business Startups Act.
Some measures in the original 2012 bill, such as a provision
allowing "emerging growth companies" with less than $1 billion
in annual revenue to file confidential draft IPO documents with
the SEC, went into effect automatically.
But other parts of the bill, such as permitting companies to
raise small amounts of money over the internet through
crowdfunding platforms, have not yet taken effect because the
SEC is still working to adopt final rules.
The delays have frustrated many in Congress, and helped
inspire a push for additional reforms to further reduce
regulatory costs for small businesses.
"America's startups and small businesses continue to
encounter difficulties accessing U.S. capital markets to finance
their operations," said New Jersey Republican Scott Garrett, who
chaired Wednesday's hearing.
"The costs to these companies of going and staying public
remains unacceptably high."
Whether a JOBS Act 2.0 bill has a prospect for becoming law
remains to be seen.
Little appetite for such a measure has been seen so far in
the Democratically-controlled U.S. Senate, and passage of
sweeping new legislation is generally difficult in an election
In addition, Democrats and Republicans are likely to be
divided on just how far Congress should scale back federal
securities rules amid concerns it may tip the balance against
"I am concerned the bills before the committee do not strike
fully the right balance and may end up doing serious damage to
investor protection," said Massachusetts Democrat Stephen Lynch.
"What we are talking about here is a zero-sum game. Reducing
regulatory requirements ... means that investors will have less
information on which to base investment decisions."
Some of the legislative proposals considered Wednesday are
more likely to have bipartisan support than others.
One measure with support from Democrats and Republicans
would correct what some say was an unintended error in the 2010
Dodd-Frank law by exempting advisers who provide investment
advice to both venture capital funds and small business
investment companies from SEC registration.
Currently, an adviser to one of these types of firms is
already exempt, but advisers who provide services to both kinds
of firms are not.
Today's current rules make little sense, New York Democrat
Carolyn Maloney said.
But other measures left lawmakers and outside experts who
testified sharply divided.
The most divisive bill discussed Wednesday involves a plan
to lower the threshold so that smaller public companies can be
deemed "well-known seasoned issuers."
This category affords companies certain regulatory benefits.
One such benefit permits them to qualify for automatic shelf
registration, a more relaxed and less costly process that allows
companies to immediately raise a certain amount of money from
securities deals and avoid an SEC review of the offering
documents before the sale.
John Coffee, a professor of law at Columbia University,
called this measure the "most radically deregulatory" plan of
the seven being discussed, and estimated it could effectively
block the SEC from reviewing the offerings of roughly two-thirds
of publicly-listed companies.
"It is a fairly radical step to deny the SEC's staff any
opportunity for a pre-offering review," Coffee said. "It both
invites misbehavior if an issuer knows it will not be subject to
prior review and encourages costly litigation if errors are
Tom Quaadman, a vice president at the U.S. Chamber of
Commerce's Center for Capital Market Competitiveness, disagreed
and said only companies with a solid compliance record are
generally eligible for special treatment as a well-known
"This would give businesses more flexibility to meet their
capital raising needs," he said.
(Reporting by Sarah N. Lynch; Editing by Meredith Mazzilli)