60 Days Ago Today, Everything Changed... sorta... well, it will change, soon. Eventually...
It’s been two months since President Obama signed the JOBS Act into law (ironically, the jobs data since then have been less than great). My, how time flies when you watch every move the SEC’s Division of Corporate Finance makes! Or, in this case, doesn’t make.
As you might recall, some of the JOBS Act’s reforms were immediate: already about a dozen Emerging Growth Companies have taken advantage of confidential registration statement review, and the 12(g) shareholder limit for triggering registration is currently 2000, up from 500 (and excluding employees from that count).
But the others require the SEC to pass rules before they are in effect. The SEC was given a 90 day deadline to change Rule 506 and Rule 144A of the Securities Act to remove the ban on general solicitation in those transactions. With 30 days left to go, the SEC has yet to offer proposed rules. It’s not a question of whether or not this deadline will be met – it won’t – but rather, how late it’ll be. Keep in mind that the SC has been so late enacting some of Dodd-Frank’s reforms that it is now being sued for violating the law. I don’t think we’ll see any 506 issuers launching lawsuits anytime soon (seems like a good way of guaranteeing a little more attention from the Division of Enforcement), but there will be some grumbling.
If anyone will be intrepid/foolish enough to sue the SEC for missing JOBS Act deadlines, I expect it would be the crowdfunding guys. The SEC was given 270 days to pass the rules necessary to make crowdfunding happen. I could see a nascent crowdfunder being idealistic and brash enough to attempt to force the SEC’s hand. Of course, that would seem like a great way of ensuring that the Division of Corporate Finance regulates crowdfunding into the ground. Given the large amount of public interest, the potential for fraud, and the appeal it might have to retail investors (of whom the SEC is extra protective), expect crowdfunding to arrive extremely fashionably late.
Finally, the JOBS Act neglected to give the SEC a deadline on the changes to Regulation A, which is essentially nothing more than adding a zero (the maximum amount that can be raised using Reg A rises from $5 million to $50 million). So, y’know, this shouldn’t be that difficult. Heck, I’ll do it right now.
Old: “The sum of all cash and other consideration to be received for the securities ("aggregate offering price") shall not exceed $5,000,000…”
New: “The sum of all cash and other consideration to be received for the securities ("aggregate offering price") shall not exceed $50,000,000...”
Boom. I didn’t even break a sweat. That said, applying Parkinson’s Law (work expands to fill the time available to complete it), I expect Reg A to be the last of the JOBS Act reforms enacted.
The SEC will keep us on our toes this summer. I don't blame them for the delays - they're already fairly overworked and understaffed, and the JOBS Act didn't help. Remember to subscribe to the Securities Compliance Sentinel for updates on the JOBS Act and all your other esoteric federal securities regulatory needs! We’re your one-stop shop for dinner party discussion topics… if your dinner party is comprised exclusively of CPAs, lawyers and broker-dealers! (And if that’s the case, you need to go to better dinner parties).
PS and apropos of nothing: The Transit of Venus is tonight, June 5th, around sun-set. It only happens every 100 years or so, so don’t miss it (but don’t stare into the sun.)