Before last Thursday's SEC Annual Forum on Small Business and Capital Formation, I suspected that the afternoon breakout sessions, the event's main avenue for public comment and discussion, might involve being corralled into a room to rant together without actually being heard by the SEC. Thankfully, I was completely wrong. SEC staff co-ran the open sessions with panelists from the morning presentations, and were deeply engaged and interested in the discussions. They actively made sure that recommendations from all attendees were heard and impartially transcribed into a master list. In the coming weeks, all attendees will be sent this list and asked to vote to prioritize it, with the results published on the SEC's website, along with video and transcripts of all the panels and presentations.Against the recent backdrop of news stories detailing mind-boggling ineptitude and possible corruption at the SEC, it's easy to generalize about the place, but I was very impressed with the folks in the SEC Office of Small Business Policy. It's a small group, with only six full-time staff. But as SEC chair Mary Schapiro noted in her presentation, small businesses are responsible for 60% of all domestic jobs in and 90% of all U.S. patents. (It also generates over half of the country's private non-farm GDP.) So that means six people at the SEC are in charge of regulating securities for most of the U.S. economy and nearly all of its innovation (in terms of patents, at least). Presumably the SEC's other 3792 employees somehow divide up the rest. Furthermore, as one person at the Small Business Forum quietly mentioned once, Office of Small Business Policy had no hand in any of the SEC's recent scandals. But this characterization isn't entirely fair; the rest of the SEC has its own ongoing work: participating in the vast machine that has, in the name of investor protection, acquired the ability to harvest profits from the non-millionaire, unaccredited-investor public's bank accounts, investment accounts, retirement accounts, homes, and other assets by shutting down all shareholding options outside of their own managed menu of non-local, in-system big businesses. Given these facts, I think of the Office of Small Business Policy as the cool kids at the SEC. And in a moment that I hope was understood as simple appreciation and enthusiasm, I shared this characterization with one of its staff. He responded that it wasn't true, explaining that they are sometimes listened to, but that the high-paying private-sector jobs that people take after working at the SEC are not open to people from their group. I took this to mean that in other SEC departments, people do their time in order to jump the fence to the easy green, but the Small Business Policy folks actually believe in what they're doing, and tend to continue working there. OK, enough gushing. Here's a more specific trip report. The take-away is that Gerald Laporte, who heads the SEC's Office of Small Business Policy, now wants to figure out how the SEC should address the SELC's de minimis exemption petition, and crowdfunding in general. This is great news! The blow by blow: On Wed eve Nov 17th, a bunch of us got together at the CommonWealth Gastropub in DC: me, Frank Knapp (South Carolina Small Business Chamber of Commerce), Atlee McFellin (American Sustainable Business Council - ASBC), Stacy Passeri (KiteTale LLC), Brian Parkinson (recent Law School grad with community development experience), and Doug Rand (White House Office of Science and Technology Policy - OSTP). Unfortunately my phone ringer was on too low, so I missed Ken Priore (SELC) -- but I hooked up with him the following day. We had fun introducing ourselves and discussing the proposed exemption. Two ideas that bubbled up were, 1) the SEC would probably want to limit the specific contract between offeror and investor-- it's not enough to just say "that's up to the parties involved" because they're interested not just in whether the offeror fulfils the terms of the agreement, but whether the terms are fair in the first place, and 2) investment offerors need to earn the right to do a crowdfunding offering by being as transparent as possible, publish your checkbook etc.-- "radically transparent" is the only way to play if you want to crowdfund a securities offering. Meanwhile, Doug Rand recommended that I discuss crowdfunding with Gerald Laporte at the SEC forum the following day, and keep in mind the SEC's inevitable question, "what about fraud?" On Nov 18th, at the forum itself, the SEC Small Business folks seemed genuinely interested in considering our exemption petition. Kevin O'Neill assured me that they read and consider all of the public petitions and comments submitted to the SEC, and that their decisionmaking can take a while, but that we should continue pushing. Anthony Barone said that they've been discussing our exemption proposal and see its potential, but are leery of it due to bad memories of widespread "microcap" stock fraud that was widespread during the 1990's. (So now I want to learn more details about that , and figure out the similarities and differences between 90's era microcap and crowdfunding today and under a possible exemption in terms of potential for fraud. For starters, crowdfunding probably has lower stakes, and 90's microcap investors weren't one click away from communicating with everyone else making the same investment, and one Google tab away from the ability to instantly search and verify any claims made by the offeror.) Michael Sauvante of the CommonWealth Group, whom I had originally met a couple of weeks ago at the SELC launch party, also met with Gerald Laporte and learned that Gerald was going to look into crowdfunding issues for the SEC. Michael said that Gerald had said that he'd received some "pressure from the White House" regarding crowdfunding, so I'm wondering if the OSTP folks might have been the source-- if so, I'm sure that helped, and they are to be thanked! [OSTP did not do this; see Addendum below] Michael also said that they'd heard about a very new book about crowdfunding that sounded interesting and was available on the Kindle. I recognized this as Kevin Lawton and Dan Marom's groundbreaking The Crowdfunding Revolution, which you should all read-- I'll post a review soon. So I called up Kevin (whom I know-- he's a great guy and he also lives in SF) and talked to him about how Michael and Gerald could see a sample and buy copies-- so that's cooking now. By all accounts, the SEC will be up to their ears until at least mid-2011 dealing with Dodd-Frank legislation, which requires 90+ rule changes etc. But Michael Sauvante got an assurance from one of the Small Business folks that they should be able to start at least looking at crowdfunding-related rulemaking around February 2011.
Addendum, 29 Nov 2010: OSTP has no authority over the SEC, which is an independent agency, so they cannot "apply pressure" to the SEC-- and even if they had tried, this would not have been appropriate or good. (I was informed of this twice, and the second time it stuck...) Also, I don't mean to diss all the people at the SEC who regulate big business; they're doing very important work and I believe that most of them are competent, dedicated, and trying to do what I would consider the right thing. (I would welcome a conversation with anyone who works there.)