SEC Wants to Ease Access to Private Placements

Over the years, and particularly since the Jumpstart Our Business Startups Act of 2012, "several exemptions from registration have been introduced, expanded or otherwise revised," the SEC said.

As a result, the agency states, "the overall framework for exempt offerings has changed significantly. We believe our capital markets would benefit from a comprehensive review of the design and scope of our framework for offerings that are exempt from registration. More specifically, we also believe that issuers and investors could benefit from a framework that is more consistent and addresses gaps and complexities."

The concept release also considers, among other things, if:

• The limitations on who can invest in certain exempt offerings, or the amount they can invest, provide an appropriate level of investor protection or pose an undue obstacle to capital formation or investor access to investment opportunities;
• The commission should take steps to facilitate a company's ability to transition from one offering to another or to a registered offering;
• The commission should expand companies' ability to raise capital through pooled investment funds;
• Retail investors should be allowed greater exposure to growth-stage companies through pooled investment funds such as interval funds and other closed-end funds; and
• The commission should revise its exemptions governing the secondary trading of securities initially issued in exempt offerings.

Josh Lichtenstein, a partner at Ropes & Gray specializing in the Employee Retirement Income Security Act, said that the SEC's concept release "identifies several structural and legal restrictions on the ability of retail and retirement investors to access closed end and other exempt offerings."

The release, Lichtenstein said, "specifically asks for comments on whether retail investors should have broader access to these types of offerings, including either through a target-date fund or under the guidance of an investment advisor (including a roboadvisor) for retirement investors."

If the SEC decides to broaden investors' access to private funds, "this would have a dramatic impact on the entire retail market and would allow individual retirement savers to select investment options that have traditionally been limited to defined benefit pension plans," Lichtenstein opined.

The agency's concept release also discusses findings of an SEC staff report on the impact of Regulation Crowdfunding on capital formation and investor protection, which was required to be provided to the commission no later than three years following the effective date of the crowdfunding rules.