The SEC’s Small Business Forum: A Springboard for Radical Systemic Change?

Earlier this month, the Securities and Exchange Commission convened its 45th annual Small Business Forum in Washington DC. Now, this may not sound very consequential for most people outside of the DC sphere of influence, but it can be very consequential for one key reason: The SEC solicits policy proposals each year in advance, and at the end of the day-long event, there is an opportunity for anyone – whether present or not – to vote on the proposals.

This year I submitted four policy proposals (which I’ll include below), and all four of them appeared on the official list to be voted on. We won’t know how the voting went for a few more weeks until the SEC presents a report to Congress that includes the policy proposals that got the most votes.

While it’s possible this may go nowhere, there’s also a good chance it may inspire a member of Congress. Lest that may sound unlikely, it actually happened a couple of years ago. For the same conference in 2022, I proposed an idea to expand the definition of “accredited investor” to include anyone (literally anyone!) who invests no more than 10% of their net worth in a particular issuer’s securities.

Let me pause and point out that this is not a mere technical tweak. This would be the most far-reaching change in securities laws in generations. Since the advent of Reg D in 1982, the vast majority of securities offerings in the US have been conducted under Rule 506 of Reg D, which effectively limits those offerings to accredited investors. That means nearly all of the profitable investment opportunities for the past 44 years have been available to only the wealthiest 10% (roughly) of Americans. Think about how that affects the wealth gap.

But this change would level the playing field and allow anyone to invest in any investment opportunity, revolutionizing wealth-building opportunities for regular folks.

Back to that 2022 conference: My proposal made the cut and was on the SEC’s list that day, and it got a lot of votes at the end of the program. While my proposal was not mentioned in the SEC’s report to Congress that year (presumably because it was considered too radical), it nonetheless somehow ended up on the radar of Senators Thom Tillis (R-NC) and Tim Scott (R-SC), who liked it enough to incorporate it into section 306 of JOBS Act 4.0 (S.3921) later that year, and subsequently in section 201 of the Empowering Main Street in America Act (S.5139).

Unfortunately, those bills stalled and never became law. But they went far enough to demonstrate that these things do matter, and our humble efforts to solve a problem can sometimes snowball into something big.

My 2026 Proposals

For this year’s SEC Small Business Forum, I of course included that same proposed expansion of the “accredited investor” definition, along with a few others. Here are the proposals as I emailed them to the SEC: 

1.     Accredited Investor Definition. The idea of protecting unsophisticated investors by effectively banning them from participating in the vast majority of offerings in America (i.e. Rule 506 offerings, which tend to include the most profitable opportunities) is deeply flawed and has a clearly discriminatory impact on minority groups. A far better way to protect investors is by limiting the amount they can invest in any one issuer. The easiest way to do this is to add a category of accredited investor in Reg D Section 501 for any investor who does not invest more than 10% of their net worth in a single issuer.
2.     Community Investment Funds. In communities all across America, retail investors want to be able to invest in local pooled investment funds that can invest in local businesses. But funds like this are effectively forbidden under the Investment Company Act, unless they are set up as charities or invest primarily in real estate. There is a need for a community-focused fund strategy that accommodates a public offering (like Reg CF or intrastate crowdfunding) so that these funds can raise capital from retail (nonaccredited) investors and invest in local businesses or other assets. The simplest route is for the SEC to issue rules for intrastate funds under Section 6(d) of the ICA without the need for an exemptive order. Another is to exercise the SEC’s power under Section 6(c) to authorize a new type of community-focused fund (with, say, a $50 million cap) that can publicly raise capital.
3.     Reg D Disclosures. The vast majority of offerings in the US utilize Rule 506 under Reg D. That strategy technically allows for up to 35 non-accredited investors. But as a practical matter, doing so is prohibitively expensive because having any non-accredited investor in the offering triggers a very heavy disclosure burden. The practical effect is to exclude retail investors from the vast majority of investment opportunities. I recommend the SEC eliminate the enhanced information requirements for nonaccredited investors that appear in Section 502(b) of Reg D.
4.     Accredited Investor Verification. The enhanced accredited investor verification requirements for offerings under Rule 506(c) serve no important public purpose and serve only to increase the compliance burden and transaction costs for such offerings. I recommend eliminating the verification requirements in Section 506(c)(2)(ii) under Reg D.

Much more could be said about each of these proposals, but I was trying to keep them short. Those who are connected with the National Coalition for Community Capital (NC3) may find that these proposals all sound a bit familiar. It’s no coincidence. I have been privileged to serve on the board of NC3 since its founding in 2017, and also on its Policy Committee, which last year developed a similar set of proposals.

Why Now?

We are living in extraordinary times, and it is times like these that invite us to re-examine some of the core assumptions behind “business as usual.” For example, the assumption that only the wealthy are qualified to invest is one that is ripe for rebuttal. And the same is true of the tired old assumption that investing in your own community is too risky. Both are utterly false, and have led to some unfortunate outcomes.

But these proposals that I put forward to the SEC – all of which we can consider strategies of community capital – represent a different way of organizing an economy, one that is decentralized, community-focused, and inclusive.

And as a bonus that is particularly valuable in today’s highly polarized political climate, community capital is completely nonpartisan, something that both the right and the left can get behind.

You could say that community capital is conservative because that is the way capital was raised for centuries until economic power became concentrated on Wall Street in recent decades. But you could also say it is liberal because it defies the dominant Big Money-driven paradigm. It is conservative because it is fundamentally pro-business. It is liberal because it reflects the belief that business can be a force for good. 

Both sides of the political aisle want to restore economic power to local communities. At PathLight Law, we believe there has never been a better time to make these changes than now.

Naturally, nothing I’ve written above should be taken as legal advice. If you’d like to discuss how our firm can help you make your corner of the world a better place, please reach out to us.