Broadening Regulation D: Congress Should Let More People Invest in Private, High-Growth Companies
The Securities and Exchange Commission’s Regulation D accounts for more than $1.3 trillion in new capital annually. Under current Regulation D rules, sophisticated investors without high incomes or net worth are often unable to invest in the companies that offer the greatest opportunities (often with greater risk). People who fall in this category are disproportionately young. Current rules are amorphous and have demonstrably limited the pool of people from whom businesses can raise capital. Congress should provide bright-line rules for determining who is financially sophisticated, and therefore eligible to invest in Regulation D private placements. This would increase the number of people allowed to invest in private firms, broadening the options available to investors and helping entrepreneurs to raise capital. The House-passed Fair Investment Opportunities for Professional Experts Act would have a positive impact on both investors and entrepreneurs. It should, however, be improved by (1) broadening the definition of who would qualify as a sophisticated investor, and (2) minimizing the role of the Financial Industry Regulatory Authority.