* SEC forms advisory committee for fast-growing companies
* SEC reviewing private company capital raising rules
* House panel to examine "crowd funding" on Thursday
(Adds statement by SEC commissioner in paragraphs 18 and 19)
By Alexandra Alper
WASHINGTON, Sept 13 The top U.S. securities
regulator has formed an advisory panel of fast-growing
companies and venture capital funds as it reviews whether it
needs to update rules on how private companies can access
The U.S. Securities and Exchange Commission has said it is
examining its share issuance rules for private companies to see
if they are still relevant in light of market developments.
The issue jumped into the spotlight recently as Wall Street
banks and electronic markets offer investors a chance to buy
and actively trade stakes in hot Internet companies such as
Facebook and Twitter before they go public.
Lawmakers have also raised concerns about whether the U.S.
Securities and Exchange Commission's restrictions on capital
raising by private companies hurt innovation and hiring.
A House Oversight subcommittee is holding a hearing on
Thursday to explore "crowd funding," which would allow
investors to take small stakes in private companies, usually
over the Internet.
The SEC said on Tuesday the newly formed committee will
advise the agency on issues such as capital raising, trading in
the securities of fast-growing companies and the public
reporting of those companies.
"Our capital markets are a critical source of funding for
emerging companies and smaller public companies," said SEC
Chairman Mary Schapiro in a statement. "A key component in our
agency's mission is to facilitate capital formation while at
the same time protecting investors."
The SEC panel will be composed of private sector
representatives, including Karyn Smith, deputy general counsel
at Zynga Inc, a California-based game maker for Facebook that
has vigorously supported crowd-funding.
Privately held companies are bound by the 500-shareholder
rule, which states that once a company has that many
shareholders of record -- and at least $10 million in assets --
it must make the same financial disclosures as a public
But there are legal ways around it.
Goldman Sachs Group Inc (GS.N) used special purpose
vehicles, or SPVs, to aggregate investors and avoid the 500
threshold to allow investors access to invest in Facebook,
which is still privately held.
Online private exchanges -- such as Second Market -- also
allow investors to buy and trade stakes in companies such as
Groupon and Zynga before they go public.
Opponents say these market structures harm retail
investors, who do not meet the high annual income or net worth
requirements to participate in the online exchanges.
And venture capitalists -- who often profit when companies
they invested in go public -- may be harmed by delayed IPOs,
while all investors are more vulnerable to fraud, they say.
Other market players are more supportive of strategies that
allow private companies more access to capital without being
forced to file for an IPO.
Sherwood Neiss of the Startup Exemption says equity-based
crowd funding can create 1.5 million net new jobs in the next
five years. He will be testifying at the hearing on Thursday,
along with Slava Rubin founder of IndieGoGo, a crowd-funding
The SEC also said it was in the process of re-establishing
an investor advisory committee required under the Dodd-Frank
Wall Street overhaul law.
In a statement late on Tuesday, SEC Commissioner Luis
Aguilar, a Democrat, said he was disappointed the investor
advisory committee has yet to be launched. He added that his
vote in support of the small and emerging company advisory
board was conditional on the investor advisory committee being
launched at the same time.
"I firmly believe the SEC should consider the views of the
public and all interested parties. This includes small and
emerging companies and other entities affected by the decisions
of the SEC. Most importantly, this includes investors," he
said. "I strongly urge that the SEC's Investor Advisory
Committee be immediately re-established."
(Reporting by Alexandra Alper; editing by Andre Grenon,