House Republicans have embraced at least one proposal inPresident Barack Obama's jobs package: changing the rules to makeit easier for closely held companies to raise money without goingpublic.

Republicans have already lined up with hearings and bills tosupport expanding exemptions from U.S. Securities and ExchangeCommission rules for companies trying to raise capital, and twolawmakers introduced legislation yesterday.

The idea was contained in a single line from the president'sspeech to Congress last week, where he pledged “to cut away the redtape that prevents too many rapidly growing start-up companies fromraising capital and going public.”

“While there may be disagreements about the broader Obamaproposals, one thing we can all agree on is the need to alleviatethe burden of onerous SEC regulations for those small businesseslooking to access capital,” said House Majority Whip KevinMcCarthy.

Currently, closely held companies are restricted from offeringmore than $5 million in securities or advertising such securitiesunless they register the offering with the SEC.

The legislative proposals include: exempting the practice of“crowdfunding” or soliciting small investments from the public,often over the Internet or through social media; raising the sizeof exempted securities offerings to $50 million from $5 million;and allowing companies to advertise the offering.

Crowdfunding
Representative Patrick McHenry,a North Carolina Republican, released a bill yesterday that wouldpermit crowdfunding to finance new businesses by permittingcompanies to accept and pool donations up to a certain level.McHenry, chairman of a House Oversight and Government Reformsubcommittee, held a hearing on the issue yesterday.

It was not clear whether or when the proposals might be voted onin the full House, or whether the Democrat-led Senate wouldconsider them as well.

The new attention comes as smaller firms struggle to raise moneyamid regulatory and economic pressures. Secondary markets, whereprivate shares of companies are bought and sold, have surged as the2002 Sarbanes-Oxley Act and last year's Dodd-Frank Act have madeaccessing public markets more expensive.

The White House, in a blog post the night of Obama's speech,laid out the initiatives, which include raising the cap on publicofferings to $50 million from the current level of $5 million andeasing restrictions on crowdfunding.

Representative David Schweikert, an Arizona Republican, hasintroduced a bipartisan measure to do that — increase theregistration exemption over a 12-month period. The FinancialServices Committee has approved the bill.

'Jobs Program'
Representative Anna Eshoo, aCalifornia Democrat who has pushed for the change in order to spurthe venture capital market in her district, last year called theproposal “a jobs program, with good jobs that are focused on thecutting edge of innovation, creating new products, new markets andadditional growth for our economy.”

Senator Jon Tester, a Montana Democrat, this week introduced asimilar proposal with Pennsylvania Republican Pat Toomey. Testerand Toomey, who both serve on the Senate Banking Committee, saidthey will push the measure in their chamber.

In addition, McCarthy, a California Republican, has introduced abill that would permit “general solicitations” of accreditedinvestors.

The SEC is able to make some of the changes without legislationand has embarked on a broad review, ordered by Chairman MarySchapiro, to find ways to streamline and update rules onregistration and reporting.

Investor Protections
Meredith Cross, directorof the SEC's division of corporation finance, said in testimonyprepared for McHenry's hearing that the agency will “continue toconsider and, if appropriate, implement changes to its existingrules to reduce regulatory burdens while maintaining importantinvestor protections.” She noted that registration exemptions“present an enticing opportunity for the unscrupulous.”

The SEC also is facing pressure from Republican RepresentativeDarrell Issa of California, chairman of the Oversight andGovernment Reform Committee, to loosen the shareholder cap forclosely held firms like Facebook Inc. and Twitter Inc. Schweikertand Issa, along with Representative Jim Himes, a ConnecticutDemocrat, have spearheaded legislation that would increase the capon shareholders to 1,000 before companies would have to file publicfinancial statements. It currently stands at 500.

New Ideas
The agency is considering apossible concept release — the first stage in developing ideas fornew rules — that would relax restrictions on the solicitations,Cross said in her testimony.

McHenry, who said he applauded the president's inclusion ofcrowdfunding in his proposal, complained that the SEC “has resistedcalls to modernize securities regulations to meet the needs oftoday's economy.”

“Fixing this mess will not occur overnight,” McHenry said. “Butwe must find new and modern means for capital formation to igniteour struggling economy.”

McHenry, who also serves on the Financial Services Committee, ispushing to raise the cap on crowdfunding to $5 million withindividual investors limited to $10,000 or 10 percent of theinvestor's annual income. The threshold is higher than the $1million level laid out in the Sept. 8 White House blog post byAneesh Chopra, the administration's Chief Technology Officer andTom Kalil, deputy director for policy in the White House Office ofScience and Technology Policy.

Pabst Case
The rise of social networks hasopened a door to new ways to access funds for smaller firms,lawmakers and companies said. Two advertising executives usingFacebook and Twitter solicitations attracted more than $200 millionin pledges in their effort to buy Pabst Brewing Co. Before theycould collect and bid on the company, they were forced to shutterthe BuyaBeerCompany.com website by the SEC. The agency said the twomen violated federal law by failing to register the offering beforeseeking to raise the $300 million they said they needed to buy thecompany.

McHenry, at his hearing, cited the case as one of the reasons hedrafted his bill.

House Republicans are scheduled to keep the pressure on nextweek, when the Financial Services Committee hosts its own hearingon Obama's proposals with the support of both Democrats andRepublicans on the committee.

The day after Obama's speech, Representative Barney Frank, thetop Democrat on the Financial Services Committee, requested ahearing on the topic in a letter to Representative Spencer Bachusof Alabama, the Republican chairman of the panel. Bachus, in aSept. 13 reply to Frank, a Massachusetts Democrat, said asubcommittee hearing had already been in the works and would occurnext week.

“While Republicans and Democrats don't seem to agree on muchthese days, they do agree that entrepreneurs hold the key to abright economic future,” Chopra and Kalil wrote in their blogpost.

Bloomberg News

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