Statement on Proposed Rule Amendments to Facilitate Intrastate and Regional Securities Offerings

I join my colleagues in thanking the staff for their hard work and efforts to advance these rule proposals. Specifically, I would like to thank Raquel Fox, Sebastian Gomez Abero, Zach Fallon, Tony Barone, Simona Mola-Yost, Rachita Gullapalli, Bryant Morris and Sarit Klein.

Community-based capital can be an important source of funding for small businesses and entrepreneurs. Investors with a personal connection to a company are more likely to invest in it. A customer who enjoys her neighborhood bakery’s bagels every morning is more likely to help finance new ovens on terms that recognize the financial constraints of a small business. Similarly, a state resident might prefer to invest for a modest return in a community retailer that provides local jobs, rather than in a multinational competitor. These types of small, distinctly local capital raises, when conducted exclusively in one state, have historically been left to the supervision of state securities regulators. Congress recognized this when it adopted the intrastate exemption from the federal registration of securities at Section 3(a)(11) of the Securities Act.[1]

Rule 147 assists an issuer in determining when and how it can conduct an exclusively intrastate offering in reliance on the Section 3(a)(11) exemption. Under current Rule 147, offerings must be conducted entirely within one state’s borders. Issuers may not generally advertise or solicit interstate offers, largely limiting them to targeted marketing to neighbors and other in-state acquaintances. In addition, issuers must be locally incorporated, have a substantial in-state presence, and keep 80% of the proceeds in state. In short, the current rule facilitates local residents giving local companies money to fund local business operations. The bakery down the street, or the neighborhood store providing jobs, comfortably satisfied these restrictions.

Today’s proposal would relax locality requirements and, while still restricting sales to residents of one state, would permit solicitation and advertising in more than one state. These changes may provide certain benefits, including additional state experimentation in providing access to capital for smaller businesses.

However, I am concerned that the proposal may go too far in changing the distinctly local nature of these offerings that led to the original congressional exemption. For example, in contrast with current Rule 147, the proposed amendment does not require that the proceeds be reinvested in the state. I welcome comments about whether these relaxed locality requirements will result in the right outcome.

I am, however, pleased to see the proposal today includes some guardrails. In particular, I support the proposed provision requiring a cap on both an individual investor’s participation and the aggregate amount an issuer can issue if it seeks to rely on a state exemption.

Today’s proposal offers an opportunity to partner with state regulators to facilitate the success and growth of community-based businesses. I look forward to receiving comments from businesses which might avail themselves of the exemption, state regulators, investors, investor advocate groups, and all interested stakeholders regarding this proposal. I would welcome feedback on how we can best facilitate community-based fundraising while maintaining adequate investor safeguards. Thank you again to the staff for all of your hard work. I have no questions.