Good morning. Thank you, Joe [Borg], for that kind introduction.

It is a pleasure to welcome you to the annual Section 19(d) Conference. Although representatives of the SEC and state securities regulators frequently meet throughout the year, this annual conference provides us with a more formal opportunity to share our experiences and views. We are also fortunate to have representatives of FINRA and the Justice Department with us today. It is important for us to come together and share insights as we help companies grow by facilitating capital formation while providing appropriate safeguards for investors.

On a separate note, I would like to take this opportunity to welcome our new Chairman, Jay Clayton, to the Commission. Chairman Clayton has expressed his strong support for pursuing a capital formation agenda, and I look forward to working with him closely.

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As companies seek to expand their businesses, they—and we—must consider new avenues for raising capital. In recent years, the Commission has amended Regulation A, established new Regulation Crowdfunding to implement provisions of the JOBS Act, and modernized the intrastate and small offerings exemptions to accommodate modern business practices and communications technology. For a capital formation agenda to succeed, it is essential that state and federal regulators work together to support the businesses that seek to engage in these offerings while also protecting investors.

This February, the Commission and NASAA took steps to strengthen our relationship by entering into an information sharing agreement, improving our ability to assess whether these new capital formation options are serving their intended purpose. With this agreement in place, SEC staff and NASAA will be better able to monitor the effects of these changes to the securities laws and to guard against fraud.

As we continue to monitor the use of these exemptions, we must assess any concerns that may arise with these transactions or the types of companies involved and whether the investor protection provisions are working to address those concerns. In Regulation Crowdfunding, one concerning development that we are monitoring is the use of a new startup-financing instrument—the so-called “SAFE” —in offerings that are intended for a broad, mostly retail base of investors. A SAFE, which stands for a “simple agreement for future equity,” is an agreement between an investor and a company in which the company generally promises to give the investor a future equity stake in the company if certain triggering events occur.

Although these securities have been used in some Regulation Crowdfunding offerings, they are not securities with which many retail investors are well acquainted. An investor only receives an equity stake in a SAFE company if the specific terms of the security are met. If the terms are not met, the investor is left with nothing. As an additional element of risk, the terms governing whether and when an investor may receive the future equity vary from offering to offering. In short, despite its name, a so-called SAFE is neither “simple” nor “safe.” In the interests of educating investors about the potential risks associated with SAFE offerings, this week, our Office of Investor Education and Advocacy is releasing an investor bulletin on these particular types of instruments.

SAFEs were first developed in Silicon Valley as a way for venture capital investors to invest quickly in a hot startup without burdening the startup with the more intense negotiations that an equity offering usually entails. For some venture capital investors, the value of obtaining an opportunity for a potential future equity stake exceeds that of protecting a relatively small investment in a SAFE. The terms of the SAFE, from the triggering events to the conversion terms, are typically designed to operate in the context of a fast-growing startup likely to need and attract future capital from sophisticated venture capital investors.

In contrast to the sophisticated venture capital investors for whom SAFEs were originally intended, Regulation Crowdfunding is designed to serve as a new method of raising capital from a broad, mostly retail base of investors. Regulation Crowdfunding thus requires the intermediary facilitating the offering to provide investors with educational materials, including information about the types of securities offered and sold on the intermediary’s platform and the risks associated with each type of security. Intermediaries face a real challenge in educating potential investors about this high-risk, complex, and non-standard security when the security itself is entitled “SAFE.” Companies and their intermediaries should think carefully about how they name or describe their securities. Securities marketed as “safe” or “simple” ought to be just that.

As regulators, we also have a responsibility to ensure that our rules are functioning as intended and in an effective and efficient manner. We must engage in a constant process to obtain feedback as to how our rules are operating in practice. When we learn that there are widespread compliance challenges with a rule, we have a duty to fix the situation, particularly where investors may be adversely affected.

One such example relates to our auditor independence rules. These rules reinforce the concept that independent auditors are key gatekeepers for high quality financial reporting. But some entities, especially mutual funds, face substantial practical challenges related to one part of these rules, known as the “Loan Provision.” The Loan Provision deems an auditor not to be independent if that auditor has received a loan from its audit client. The Loan Provision includes lending relationships between auditors and entities holding more than 10% of the audit client’s equity securities. Thus, it is triggered even in situations where a lender may not be able to assert any influence over the entity whose shares it owns, including certain instances in which the lender holds the securities as a custodian or an omnibus account holder for its customers without beneficial ownership.

More critically, these situations may not have any effect on an auditor’s objectivity and impartiality, because the lender does not have significant influence over the audit client. Yet these compliance challenges threaten to disrupt the operation of the asset management industry, which is relied upon to manage and invest trillions of dollars of investors’ retirement savings.

As a result, during my time as Acting Chairman, I directed the staff to commence work on amendments to the Loan Provision designed to address unnecessary compliance issues and instead focus attention on lending relationships that actually threaten auditor independence. Moreover, this rulemaking is consistent with my view that the Commission evaluate whether the rules and policies the agency implements are indeed achieving their intended objectives.

Before I turn things back to Joe Borg, I am delighted to share that this year brings what I hope will be a productive and refreshing change for this conference. Rather than dividing the breakout session groups according to the internal organizational structures of the SEC and NASAA, we are instead centering discussion around current topics of interest. Whether you choose to join the discussion about JOBS Act implementation, robo-advisers, or one of the other four breakout sessions, I hope these discussions will prove to be collaborative and productive. Please let us know your thoughts on this change as well as any other improvement you would like to see in future years. The Section 19(d) Conference is an opportunity for fellow regulators to speak candidly, share insights, and continue to work together to develop a safe and thriving market for our small businesses to raise capital. I hope the new structure this year will facilitate those conversations.

Thank you for your attention, and I look forward to our continued collaboration to improve our markets for the benefit of both companies and investors.