My Day on the Hill; SEC Will Propose Big Changes on May 23

1. Mr. Feldman Goes to Washington. On Tuesday, May 15, four of us met in the House Majority Leader's office with 7 congresspeople (and their staff) who serve on the financial services committee which is run by Barney Frank (he did not meet with us). This committee oversees the SEC. We talked about working to improve the attitude of some at the SEC with regard to smaller companies while recognizing the hard work of others to help small businesses (see item 2 below). We also spent some time talking about some current challenges in capital formation for small and microcap companies. While we talked about various possible legislative initiatives, it was clear no one is talking about any changes to Sarbanes-Oxley. We ended with pledges for further discussion, additional meetings, an ongoing dialogue, which is great and we thank the legislators for taking the time out of their busy day to join us. We even got a tour of the Capitol!

2. Big (Good) Changes a-Comin..The SEC just announced that on May 23 it is going to consider approving proposals, primarily coming out of the work of the SEC Advisory Committee on Smaller Public Companies (I was honored to testify before this committee as it was doing its work). In addition to some proposals that are intended to ease some of the burden under Section 404 of SOX, there are a number of small business initiatives (some of which happily follow recommendations I made to the committee). Below is the actual agenda from the SEC website:

"The Commission will consider a number of rule proposals addressing the registration and disclosure requirements for smaller companies, as well as private offerings of securities, including whether:

a) to propose amendments to increase the number of companies eligible for the scaled disclosure and reporting requirements for smaller reporting companies;

b) to propose amendments to expand the eligibility requirements of Form S-3 and Form F-3 to permit registration of primary offerings by companies with a public float of less than $75 million, subject to restrictions on the amount of securities sold in any one-year period;

c) to propose exemptions from the registration requirements of the Securities Exchange Act of 1934 for grants of compensatory employee stock options by non-reporting companies;

d) to propose a new Regulation D exemption for offers and sales of securities to a newly defined subset of "accredited investors," as well as to propose revisions to the Regulation D definition of "accredited investor," disqualification provisions, and integration safe harbor and to provide interpretive guidance regarding integration;

e) to propose revisions to Form D and mandate electronic filing of Form D; and

f) to propose amendments to Rule 144 to revise the holding period for the resale of restricted securities, simplify compliance for non-affiliates, revise the Form 144 filing thresholds, and codify certain staff interpretations, as well as to propose amendments to Rule 145."

This 144 change could be huge. If the current one year holding period before public sales can begin without registration is reduced (say to six months), much of the Rule 415 brouhaha will be ameliorated. Also I am hopeful that "codify certain staff interpretations" refers in part to Worm/Wulff and that they take a hard look at providing some relief to allow non-affiliate, non-promoters in shells the right to sell under Rule 144 at some point.

Looking forward to hearing more details, and I'll be back to you as soon as we hear.