SEC Approves Less-Regulated Mini-IPOs Cheered by Hambrecht

(Bloomberg) — U.S. regulators opened a new path recently for small companies to raise money in a less-regulated, mini public offerings.

Small businesses will be able to raise as much as $50 million from the general public without certain regulatory hurdles, such as approval from every state where the firm has investors. The Securities and Exchange Commission unanimously approved the rule last Wednesday.

The regulation stems from a provision in the 2012 JOBS Act that was pushed by the financial industry, including investment banker William Hambrecht, who helped take public companies such as Apple Inc. and Google Inc. Hambrecht has said he plans to underwrite such offerings.

Critics, including the state regulators, have warned that the less-regulated offerings open the door to fraud. The SECs rules, which were proposed two years ago, will make many deals greater than $20 million entirely exempt from review by state regulators.

Businesses have argued that the rule will make it easier for them to raise capital and create jobs.

Youre talking about companies that are further along in their life-cycle and are looking for millions of dollars, said D.J. Paul, a fundraising consultant for small companies who sits on an SEC advisory committee. Those tend to be companies that deploy that money toward the creation of jobs and actual research and development.

High-Frequency Trading

Investors who put money into firms through the mini-IPOs could eventually trade the shares on so-called venture exchanges, which are being studied by the SEC. The less- regulated markets could become a home for smaller companies whose shares trade less frequently, SEC Chair Mary Jo White said last month.

State officials have fought efforts to limit their involvement in smaller stock offerings, saying such deals are often risky and can be a source of fraud. Under the SECs rules, they will retain the authority to vet offerings under $20 million that lack standard financial disclosures, such as audited statements and periodic financial updates.

Companies that provide the enhanced disclosures and limit the participation of less wealthy investors will be able to avoid state review of their deals.

The SEC also unanimously approved a proposal that all high- frequency traders register with the Financial Industry Regulatory Authority, the brokerage industrys self-regulator. Some proprietary-trading firms have taken advantage of a regulatory exemption to avoid Finra oversight of their business.

The SECs plan would change that, giving Finra the ability to conduct compliance exams and bring enforcement actions for violations.

This measure would significantly strengthen regulatory oversight over active proprietary trading firms and the strategies they use, White said.