On Tuesday, March 5th, the U.S. House Financial Services Committee debated several bills that could have a significant impact on capital formation in private and public markets.  The bills reflect the ongoing push for deregulation under President Trump's administration, but also raise concerns about investor protections and the role of the SEC. 

One of the main themes of the hearing was the definition of an accredited investor, which determines who can participate in private offerings that are exempt from registration and disclosure requirements.  Currently, the definition as applied to individuals looks primarily to income and net worth thresholds, which some lawmakers and industry experts argue are outdated and exclude many potential investors who have the knowledge and experience to evaluate the risks and opportunities of private securities.  Several bills propose to expand the definition to include other criteria, such as professional credentials, investment advice, or waivers.  The proponents of these bills claim that this would increase access to capital for entrepreneurs, especially in regions that are underserved by traditional sources of funding.  Opponents warn that this would expose more investors to fraud and losses, especially in the absence of adequate SEC oversight and enforcement. 

Another topic of the hearing was the regulation of public offerings, which some lawmakers and industry experts contend is too costly and burdensome, especially smaller companies.  Several bills aim to extend or expand the benefits of the JOBS Act, which was enacted in 2012 to facilitate the IPO process and reduce the disclosure obligations for emerging growth companies (EGCs).  For example, one bill would raise the revenue threshold from $1.07 billion to $3 billion and the duration for qualifying as an EGC from five years to ten years.  Another bill would lower the public float requirement to qualify as a well-known seasoned issuer (WKSI) from $700 million to $75 million and allow many more public companies to conduct follow-on offerings with less regulatory review. The proponents of these bills argue that this would encourage more companies to go and stay public by enhancing their ability to raise capital quickly and efficiently. Opponents caution that these changes would undermine the confidence and protection of public investors. 

While the hearing did not result in any votes, it signaled the direction and intensity of the legislative debate on securities regulation. The outcome could have significant implications for companies, investors, and regulators in the capital markets. We will continue to monitor developments with the proposed legislation and will provide further updates regarding any changes to the regulatory environment.