Thank you, Scott. So we billed this as a fireside chat, but this old building would know that's bringing a fireplace. So I hope that no one comes after us for a misleading statement because we really do want to have the fireside chat sort of format here. So I'll introduce all in the conversation. Fire in the conversation, right? So Commissioner, we had a chance to chat yesterday and she mentioned that at the end of this she's happy to take some Q&A, have some time. She also mentioned, which I think many of the people in the industry are happy to hear, that she's happy to listen to the pain points that people are experiencing in the industry and share them directly with her. So if you have things that maybe not in this form, but at some point if you have issues that have come up, please share them with her because she's very much an advocate for seeing success in this industry. So we have a friend to the crowdfunding industry and I think she wants to help make it successful. So with that, let me give a little bit of her bio and after that give her a chance to make the standard disclaimer that people get to do. So Hester Peirce was appointed by President Trump to the U.S. Securities and Exchange Commission and was sworn in on January 11th, 2018. Prior to joining the SEC, Commissioner Peirce conducted research on the regulation of financial markets at the Mercatus Center at George Mason University. She was a senior counsel on the U.S. Senate Committee on Banking, Housing, and Urban Affairs where she advised ranking member Richard Shelby and other members of the committee on issues. Commissioner Peirce served as counsel to SEC Commissioner Paul Atkins, also worked as a staff attorney in the SEC's Division of Investment Management. Commissioner Peirce was an associate at Wilmer Cutler and Pickering, which is now Hale and Dorr, and she clerked for Judge Roger Gregory on the Court of Federal Claims. Peirce earned her bachelor's degree in economics from Case Western Reserve University and her J.D. from law school. And she's from Ohio. We will hold that against her. I'm a fellow Ohioan, I can say that. So first, just give you a chance to make the standard disclaimer.
Thanks, Ryan, and thanks all of you. It's great to be with you today. I do have to give a disclaimer, which is that my views are my own views as a commissioner at the SEC and not necessarily those of the commission or my fellow commissioners. It's really wonderful to be with a group of people who care about crowdfunding. I think there's a lot of potential in this space and I think you all are trying to bring that to life. So I'm really looking forward to this conversation.
Thank you, Commissioner. So let's start off just a little bit about your personal journey. Can you share just a little bit about your journey and how you found your way to the SEC?
Yeah, it certainly wasn't planned. I didn't plan to become a lawyer. I sort of fell into it because I'm not great at math and I had as an alternate route a PhD in economics, which is really a lot of math. So I decided to go to law school instead and then didn't really know what I wanted to do with that, except I didn't want to work for the government. So really well, but economics and law kind of naturally meet in securities law and so it was a good fit for me. And ultimately, when you're working at a securities law firm, you meet a lot of people who have been at the SEC and you start to realize how important it is to understand things from the outside. So when I had the chance to go over there, I did. And so then when I left, I really hadn't intended to go to the Hill, but that was where there was a job for a securities lawyer that seemed right up my alley. So I ended up there, then went off to study financial regulation after sort of being on Capitol Hill during the financial crisis. You start to think about how can we do financial regulation better. And so that was the reason that I went off to study that from an academic perspective. And then really didn't think I wanted to come back. I worked for a commissioner, I didn't think I wanted to be back at the SEC as commissioner. But again, things don't always turn out the way you expect. So the chance to weigh in on policy seemed like a good opportunity and that's how I ended up back at the SEC as commissioner. And it's been a real honor to be in this role. There's a lot I think about our capital markets that's wonderful and one of the things that I had hoped to do in coming back is making sure that our capital markets stay wonderful but also that they are a place where more Americans can come both as investors and as founders. So people from all over the U.S. should be coming to our capital markets to draw on them if they have good ideas and companies to build and also to invest in them. And so again, I think that's what you all in this room are committed to doing as well.
Now it says you were sworn in in 2018, January. So there are five-year terms, so we're in bonus time with you, right? Is that correct?
Yeah, it's funny how it works. You come in, I came in on a sub-term, so I only had a little bit on the term and then I got a new full term and that term ends in the middle of next year. So just a little bit longer to go.
So for those who, we have people who have come in from all over the country, some of them are not as familiar with the inner workings of Washington D.C. or the commission as others who maybe live here. Would you mind taking a little time just to talk about the decision-making process that happens within the SEC, the commission level?
Yeah, sure. And it is a little bit of a difficult thing to understand from the outside. I will say I've lived in Washington a long time now and this is probably the most beautiful view I've seen, so you guys have a really good spot to see into Washington. The commission is, as its name suggests, a commission. There are five of us commissioners, one of us is chairman, that's not me. The staff reports to the chairman, the chairman controls the budget and the agenda, so that's a pretty powerful role. But Congress set us up as a commission, and a politically balanced commission, so you can't have more from the president's party. And the idea is capital markets are something that we all care about regardless of where you are in the political spectrum. And so you want to have a regulator that isn't changing policy radically from one administration to the next. You have more policy continuity. And so a lot of what we do is very non, it may be controversial but not necessarily political, right? And that kind of is how we operate. That has changed a little bit because I think a lot of people are wanting companies to become more political and then that sort of flows into what they want us to get companies to talk about in disclosure, which is unfortunate from my perspective. I don't think that's a good development. But in general, the five of us vote on every enforcement action, every rulemaking that comes out of the commission. We don't have areas of expertise, all of us work on everything. We have a staff of about 5,000 people and some of the daily things that you think of the SEC doing, reviewing filings from public companies and from mutual funds, that's all done on delegated authority by the staff. We're not reviewing all of those, although in the old days they used to review every registration statement for every public company. That would be quite a job if we'd be able to do that. But so a lot of the work is done at the staff level, they'll prepare a recommendation and then it comes up for a commission vote. There'll be a lot of back and forth with the commission. And I think one other sort of weird facet is that there's something called the Sunshine Act. So the five of us, if we're sitting in a room together talking about policy, it either has to be a public meeting that everyone can see or it has to be a meeting that's in closed session because we're going to talk about enforcement issues. So as you can imagine, that does change the dynamic a little bit. You can't hammer things out in private, which I think is good, but it does make it sometimes a little hard to get to consensus.
Probably cut back on the things you talk about, your true feelings sometimes.
Well, it doesn't stop me, but it might stop others.
So let's get into some of the SEC issues. There's been a lot of discussion here about the use of GAAP financials and how that's problematic for companies in that the Small Business Administration is far more flexible to get loans. So any thoughts on ways to get financial relief?
Yeah, I mean I think that's something that you see the SEC looking at these kind of issues and we're often looking through the lens of an agency that deals a lot with very large companies that are very sophisticated, that have years of operating experience. And so it's sometimes hard for us to look at things through the lens of a smaller company. And that's why Congress has sometimes had to come in and say, hey, we want you to do something for smaller companies. We want you to adopt a set of rules that will be right-sized for the company at different stages of the road. And so I think this is an area where it's really hard for us to move away from, psychologically for us as securities regulators, to move away from that. But I think when you start to really think about it, what value does this bring to investors and how much are they paying for it and do they really want it? I mean yesterday we were talking about a zero-revenue company. Why would an investor want to pay for audited financials in that instance? And so I think that's what we need to be thinking about. We have a small business advisory committee and they deal with outside advisors who volunteer their time to serve on this committee. It's something that you all haven't heard of, you should think about raising your hand to be involved in that. But anyway, they've made some recommendations on crowdfunding specifically and on trying to raise the limits at which point you have to have reviewed financials. And so I think that's certainly something that we should be looking at. That committee, the association wrote some similar things when we formalized our policy platform when that committee met in July, made the recommendations to the commission, we were very supportive of that work that committee did and some of their proposals. Moving to the other thing I'll say is during COVID we relaxed some of these requirements and I think we saw positive results. So I think that drives the desire to replicate that.
So current advertising rules are overly complex, very difficult for issuers to navigate. A lot of frustration in trying to comply. People want to comply, have trouble doing that. In some cases, an issuer could be talking to a podcast host who asks them, so what is your deal finished? They can't say it because it's a term for certain prohibition things they can't. So these rules are many times very difficult to comply with. And so do you have thoughts on how we can simplify these rules in a way that really maintains investor protection but makes it usable for issuers?
Yeah, I mean I'm certainly open to thinking of ways that we can simplify. You know, I think a lot of the rules around how people can talk about private offerings are difficult. I mean it's not only in crowdfunding, it's in lots of areas. So I'm open to doing that. I think we need to sort of think of it from the perspective of someone who's coming in to raise money, who's not a lawyer. And a lot of our rules are written in a way that it's really attractive to lawyers. So we have some resources on our website, for example, our small business capital formation, an advocate for small business capital formation, they have some resources that can be helpful. But again, you get on a podcast, someone asks you a question, it's very natural to answer the question. And so, and I've heard that from much more sophisticated people who have been in the investment world for a long time, had trouble with those same kinds of things. So yeah, happy to think about ways to streamline those rules. I think you are going to run into, is this a general solicitation, when you start to run into problems around that.
Great. So TFPA, I'll talk about specific guidance from our policy platform. We support an increase in the cap that issuers have been raised on Reg CF, up the $5 million limit today to $20 million annually, and on Reg A+, from the limit from $75 to $150 million. In fact, I think the DATA Act, $27.99, that was already proposed and approved by the House, the increasing Reg A+ to $150 million. But in terms of the, that doesn't look like it's going to be passed by the Senate, but that was passed by the House. But in terms of the Reg CF going from $5 to $20 million, that's commission. Do you have any thoughts on that?
Yeah, I mean I think we should be thinking of raising the limits generally. I want to make these exemptions more usable and I think part of that is allowing people to raise more money because otherwise you end up spending a lot of money to raise only a little bit of money and that can dissuade people from even going down that road. So certainly open to that idea. And there's also been a lot of inflation in recent years so I think we have to build that into our calculus as well.
