Emerging Markets Law

SEC Small Business Advocate Act of 2016

Posted In JOBS Act, SEC, Securities

President Obama on December 16, 2016, signed into law the SEC Small Business Advocate Act of 2016.

During a period of exceptional political division, it was noteworthy that the Act passed with bi-partisan support and was quickly signed into law by the President.

The Act establishes an Office of the Advocate for Small Business Capital Formation and a Small Business Capital Formation Advisory Committee within the SEC through newly-added Section 4(j) of the 1934 Exchange Act.

The Act requires the investor advocate (“Advocate”) to be chosen by the SEC from a selection of individuals who have “experience in advocating for the interests of small businesses and encouraging small business capital formation.” The Act prohibits any current employee of the SEC from serving as the Advocate.

As described in the Financial Services Committee Report, Congress created the Advocate because the SEC Office of Small Business Policy (part of the Division of Corporation Finance) is a “functional office rather than an advocacy office.” The Financial Services Committee, implicitly criticizing the SEC, claimed that creating the Advocate is a “logical outcome of the JOBS Act, since the SEC has taken little to no action to advance the many recommendations the agency has received from its annual Government-Business Form on Small Business Capital Formation to help small businesses and [emerging growth companies] access the capital markets.”

According to the Congressional Summary of the Act, the Advocate will:

  • “assist small businesses and small business investors in resolving significant problems they may have with the SEC or with self-regulatory organizations;
  • “identify areas in which such businesses and investors would benefit from changes in SEC regulations or the rules of such organizations;
  • “identify problems that small businesses have with securing access to capital, including any unique challenges to minority-owned and women-owned small businesses;
  • “analyze the potential impact on such businesses and investors of proposed SEC regulations and proposed rules that are likely to have a significant economic impact on small businesses and small business capital formation;
  • “conduct outreach to such businesses and investors to solicit views on relevant capital formation issues;
  • “propose to the SEC changes in its regulations or orders, and propose to Congress legislative, administrative, or personnel changes, to mitigate problems identified and to promote the interests of such businesses and investors;
  • “consult with the Investor Advocate on such proposals and advise the Investor Advocate on small business-related issues; submit annual reports on its activities to specified congressional committees; and
  • “be responsible for planning, organizing, and executing the annual Government-Business Forum on Small Business Capital Formation.”

In addition, the Act adds Section 40 to the Exchange Act in order to create the Small Business Capital Formation Advisory Committee. The Committee will consist of (i) the Advocate for Small Business Capital Formation; (ii) ten to twenty persons who are market participants; and (iii) three non-voting members, each of whom will be selected separately by the Investor Advocate, the North American Securities Administrators Association and the Small Business Administration, respectively.

According to the Congressional Summary, the Committee will advise the SEC on achieving its goals of protecting investors, maintaining markets and facilitating capital formation with respect to:

  • “capital raising by emerging, privately held small businesses and publicly traded companies with less than $250 million in public market capitalization through securities offerings;
  • “trading in the securities of such businesses and companies; and
  • “public reporting and corporate governance requirements of such businesses and companies.”

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