Blog /Policy Weekly 03 01 24
SEC’s climate rule may spare private companies

SEC’s climate rule may spare private companies

Author: The Carta Policy Team
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Read time:  9 minutes
Published date:  March 1, 2024
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Updated date:  April 23, 2024
Tax package remains in jeopardy over backlash from Senate Republicans.
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Topline

  • Congress passes short-term government funding extension

  • Crapo seeks CTC changes before Senate action on tax deal

  • SEC advisory committee considers accredited investor enhancements

  • SEC expected to adopt long-awaited climate disclosure rule on March 6 

  • House nears consideration of capital markets package

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Another temporary reprieve on government funding

The government will avoid a partial shutdown after another short-term reprieve was passed by the House and Senate chambers on Thursday. The agreement shifts the staggered funding deadlines from March 1 and March 8 to March 8 and March 22, and it reshuffles the 12 appropriations bills evenly between the two dates. 

What’s next: While the new terms give Congress more time to pass the 12 appropriations bills, Speaker Johnson will still have to navigate the House Freedom Caucus to end next week with at least six House-passed funding bills and his speakership intact. The delay does not solve the structural dynamics from Johnson’s right flank, so he will need to advance appropriations bills that satisfy his base and can get signed into law, or we will likely be faced with another deadline and another stop-gap measure.

McConnell stepping down as Leader after election

Longtime Senate Republican Leader Mitch McConnell announced that he will retire from his leadership post following the elections in November. McConnell’s decision kicks off months of speculation and jockeying over who will succeed him. Expected frontrunners so far include Sens. John Thune, John Cornyn, and John Barrasso, though former President Trump has also thrown Sen. Steve Daines in the ring.

Crapo seeks CTC changes before Senate action on tax deal

While the House, Senate Democrats, and industry push to advance a tax bill that would restore full R&D expensing, Senate Finance Committee Republicans signaled concerns and opposition to the structured expansion of the Child Tax Credit (CTC). Top GOP tax writer Sen. Mike Crapo supports the business tax provisions (including restoring full R&D expensing), but he is voicing concerns for the CTC’s proposed lookback provision—which would allow families to use prior year or current year income to optimize the refundable portion of their credit. 

Sen. Crapo has also expressed an interest in using the bill to make technical corrections to aspects of the tax code and include some additional, but unnamed, tax extenders. This is important because negotiators may be able to gain his support by adding bipartisan provisions to the bill rather than re-opening the more challenging CTC-for-R&D deal, which could jeopardize the effort.

What’s next: The tax deal hinges on maintaining the current CTC-for-R&D treatment, or finding a new compromise on the CTC expansion—one that retains sufficient bipartisan support to finalize the deal. Some Senate Republicans support the bill as written, but likely not enough for the bill to advance in the Senate. If the Senate does modify the bill, the House would need to revote on the measure, further delaying enactment. A possible—and the quickest—path forward would be to finalize the deal soon to attach it to a must-pass funding bill. 

Call to action: The Carta team has been closely following the tax package and pushing for the restoration of full R&D expensing. Join the effort by contacting your U.S. senators to let them know that R&D matters to the innovation community. 

>>Download the email template here.

SEC committee supports expanding accredited investor onramps

The SEC’s Small Business Capital Formation Advisory Committee (SBCFAC) convened to discuss potential changes to the accredited investor definition. The Committee voted to advance three recommendations:

  • Preserve existing thresholds: The SBCFAC did not support indexing the current net worth and income thresholds for inflation.

  • Allow education-based qualification: The SEC should allow non-accredited investors to invest up to 5 percent of their income or net worth in private offerings per year if they meet certain educational criteria or pass a certification examination.

  • Require risk-awareness statement: The SEC should require a risk awareness statement be provided along with private investment documents.

What’s next: The SBCFAC will formalize these recommendations and present them to the SEC. While these recommendations are not binding on the Commission, they can be persuasive and have historically served as the basis for a number of bipartisan efforts in Congress. The SEC is expected to propose increasing the wealth and income thresholds for individuals to qualify as accredited investors. Recommendations from the SBCFAC to maintain the current thresholds and expand onramps—in addition to bipartisan support for these efforts in Congress—could help shape future action. 

Long-awaited climate disclosure rule set for March 6 release

As we previewed last week, the SEC is expected to finalize its controversial climate change disclosure rule on March 6. Here’s what to expect:

  • No Scope 3 disclosures: The most controversial part of the proposal, which would have required U.S.-listed companies to disclose Scope 3 supply chain emissions, will reportedly be absent from the final rule. This component, if included, would have had indirect impacts on private companies in the supply chain by forcing them to account for and provide emissions reporting to inform public company disclosures.  

  • But Scope 3 disclosures could still impact the private markets: Despite the SEC’s expected softening, the die has already been cast in California, where a more extensive climate disclosure framework was enacted in September 2023 for companies that have over $1 billion in revenue and do business in the state. The CA law includes Scope 3 disclosures, though it is currently being challenged in court.

Why it matters: Like the California framework, the SEC’s climate rule will likely be the subject of a legal challenge even if it is significantly scaled back. Progressives, who pushed SEC Chair Gensler to hold firm on Scope 3, will also be disappointed. Importantly, with roughly nine months remaining in the current administration, the conclusion of the climate disclosure rulemaking should free up agency resources to work on a host of Gensler’s stalled initiatives, like anticipated Regulation D reforms and human capital management disclosures.

House expected to consider capital markets package

Next week, the House is expected to consider a capital markets package that contains a number of provisions designed to help more companies go public, as well as increase access to capital and investment opportunities in the private markets. Carta supports these efforts, which include a number of key provisions that would benefit the venture ecosystem, including:

  • DEAL Act: This bill would increase the ability for venture capital funds to make investments in other funds and secondaries. Under the current parameters of the venture capital exemption, funds are largely limited to primary investments in private companies.  

  • ICAN Act: This bill would increase the size and investor parameters for qualifying venture capital funds. A similar bill, the Expanding American Entrepreneurship Act, has bipartisan support in the Senate.

12(g) signal: Democrats offered amendments that would, among other things, force more private companies to go public by changing the way “holders of record” are counted under Section 12(g) of the Securities Exchange Act. Rep. Brad Sherman, the lead Democrat on the capital markets subcommittee, has offered an amendment that would require the beneficial owners of private funds to be counted toward the 2,000 limit under Section 12(g). Currently, investment vehicles count as one holder, so counting underlying beneficial owners will make it more likely an issuer will hit the 12(g) limit, which would trigger SEC registration, reporting, and disclosure requirements. While this amendment is unlikely to be voted on, it signals where progressive policymakers want to go and provides support for the SEC to move forward with rulemaking to change how holders of record are counted.

What’s next: While some provisions have bipartisan support, the broader package has failed to garner Democratic support. House Republicans have also struggled to pass substantive legislation with a slim two-seat majority, so final passage is far from guaranteed. Even if the House is able to advance the legislation, the Senate is unlikely to act given the current political dynamics. A partisan vote could also make it harder to build support for those provisions that have previously enjoyed bipartisan support. 

Corporate Transparency Act: Simplify filing with Carta      

Corporate Transparency Act: Simplify filing with Carta

Effective January 1, 2024, virtually all new companies formed or registered to do business in the U.S. will need to comply with the Corporate Transparency Act (CTA). Join us on March 7 at 10 a.m.
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News to know

  • McHenry reintroduces innovation bill. Chairman McHenry reintroduced his Financial Services Innovation Act this week. The legislation would require regulators to create “regulatory sandboxes” that  offer pathways for entrepreneurs to develop innovative products and services under an alternative compliance plan. 

  • Bipartisan repeal of SAB 121 advances. The House Financial Services Committee passed a resolution that would roll back the SEC’s controversial crypto custody guidance, which has also come under scrutiny from federal banking regulators. The resolution could be considered on the House floor in the coming weeks.

  • Stripe announces new employee cash out option. Payments giant Stripe announced a tender offer surpassing $1 billion that will allow current and former employees to cash out stock options. The offer puts the company’s valuation at $65 billion, and the demonstration of its ability to continue raising private capital calls into question whether many startup giants have a reason to go public in the current environment.

  • OpenAI under fire from the SEC ( and Elon Musk). The SEC has launched an investigation into whether OpenAI misled investors last year; the probe reportedly stems from the board’s November 2023 admission that CEO Sam Altman was not “consistently candid in his communications.” This was followed by Elon Musk, an investor in OpenAI, filing a suit alleging OpenAI broke its “founding agreement,” which was predicated on a non-profit pursuit. The company is also under scrutiny from the FTC and European regulators.  

  • Bipartisan lawmakers oppose IRS crypto exchange disclosures. Republicans and Democrats on the House Ways and Means Committee expressed concerns to Treasury Secretary Janet Yellen that a proposed rule requiring cryptocurrency exchanges to disclose detailed information on their clients’ transactions to the IRS is overly broad. Meanwhile, the IRS is building out its digital assets bench with the addition of two CPAs who bring extensive experience in the tax and crypto industries. 

  • White House order will limit sharing of U.S. consumer data. President Biden signed an executive order (EO) that aims to protect bulk sensitive U.S. personal data and U.S. government data from exploitation by countries of concern. The EO is narrowly targeted at the most sensitive bulk U.S. personal data, including personal health, geolocation, and financial data, in addition to U.S. government-related data. 

  • SEC Investment Management Director William Birdthistle to leave agency. Birdthistle has spearheaded many of the efforts to overhaul the regulation of private fund advisers. Chair Gensler named Natasha Vij Greiner as his replacement, an agency veteran who is currently serving as Deputy Director of Examinations.

  • FTC sues to block Kroger merger. The Federal Trade Commission sued to block a proposed merger between grocery giants Kroger and Albertsons, citing that the $24.6 billion deal would eliminate competition and lead to higher prices. Both companies, immediately after the FTC announcement, said that they will challenge the agency in court.

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The Carta Policy Team
Author: The Carta Policy Team
Carta’s Policy Team aims to connect the policymaking community and venture ecosystem to build an ownership economy and advance policies that support private companies, their employees, and their investors.