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SEC Commissioner Speaks Before Forum on Small Business Capital Formation

Thank you, Martha [Miller]. It is wonderful to be here in Omaha. Thank you to all the participants in today’s [August 14] program. Dean [Anthony] Hendrickson, thank you for welcoming us to Creighton University’s Heider College of Business. It is a beautiful facility that reflects the thriving economic region in which it sits.

I remember my first trip to Nebraska about twenty years ago. I was driving through the state and was just stunned by its Great Plains beauty. Since then, Nebraska has always been one of my favorite states, although I have not had many opportunities to visit. I am therefore happy to be back to talk about capital formation in the Silicon Prairie.

Reading Martha’s introduction to today’s forum deepened my affinity for Nebraska because I learned that the Reuben sandwich—my favorite—has its origins here. I understand, however, that there is a competing origin story that says the Reuben was invented in New York City.[1] The dueling sandwich origin narrative is a fitting theme for a discussion of capital formation. There will always be competition for capital, and too often New York claims capital that could have been put to good use right here in Omaha.

There are many factors that make it easier for capital to flow to New York rather than to places like Omaha. The clustering of capital, innovation, and economic growth is a natural phenomenon, so that is part of what makes big cities like San Francisco and New York attractive places for people looking to invest capital. Some of the factors driving capital to the coastal cities, however, are regulatory, and we have an opportunity to address those issues. For example, the accredited investor thresholds[2] that are not a limiting factor in high-income and high-cost communities on the east and west coasts are more restrictive in their effect in places where the cost of living and hence the salaries are lower. Yesterday, at the Small Business Advisory Committee meeting, we heard about another potential regulatory helping hand we can give to cities like Omaha and Cleveland, where I am from. We can revise our rules to make it easier for venture capital funds to invest on the secondary market and in other venture capital funds. In addition, we can look for creative ways to allow non-accredited investors to participate in private offerings and can design better regulatory options for micro-offerings.

The concept release that you will be discussing this morning was our attempt to stimulate discussion on these and other issues.[3] I look forward to hearing your thoughts this morning on what we can do to open up opportunities for investors and companies all over the country to meet one another and create thriving regional economies. Just as one can find wonderful Reuben sandwiches all over the country, we can find great stories of entrepreneurial and investment success across the United States. In yesterday’s visit to a local opportunity zone, we saw what it looks like when capital gets to work on transforming a community. With the benefit of your suggestions, we can build a regulatory framework that encourages even more such growth and enables communities all over the country to reap the benefit of well-functioning capital markets.

ENDNOTES

[1] See Wikipedia, Reuben Sandwich, available at https://en.m.wikipedia.org/wiki/Reuben_sandwich.

[2] The term “accredited investor” is defined in Rule 501 of Regulation D. 17 C.F.R. § 230.501(a).

[3] Sec. & Exch. Comm’n, Release Nos. 33-10649, 34-86129, IA-5256, IC-33512, Concept Release on Harmonization of Securities Offering Exemptions, Concept Release, Request for Comment, Jun. 18, 2019, available at https://www.sec.gov/rules/concept/2019/33-10649.pdf.

These remarks were delivered by Hester M. Peirce, a commissioner of the U.S. Securities and Exchange Commission, on August 14, 2019, at the 38th Government-Business Forum on Small Business Capital Formation at Creighton University’s Heider College of Business in Omaha, Nebraska.

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