JOBS Act: The remainders

This is my final blog summary of the provisions of the JOBS Act (H. R. 3606), about what else is in there beyond the CrowdFunding Act and the elimination of the general solicitation ban.

Much attention has been paid by the media to the changes wrought by Title I of the JOBS Act, because they will "imperil the integrity of the US markets" in the eyes of some.  What the changes do in meaningful part is provide relief to smaller public companies (referred to as "emerging growth companies") from some of the worst aspects of the Sarbanes-Oxley Act.

(I have represented public companies during my career; when Sarbox was enacted, I began to plan my exit from that sphere, because the law was clearly badly thought out, onerous, punitive, and extremely overly complex, with huge potential liabilities for attorneys who lacked the resources of a national or global law firm to satisfy its mandates.  Since its enactment, the US has lost its luster as the premier global market for public securities, and public issuers have elected to leave the US capital markets for foreign domiciles or to go private, and private companies have shunned going public.  The liabilities under that act are absurd but the cost burdens are worse and monstrous.)

Title I would grant some relief to so-called "emerging growth companies" from the executive compensation disclosures and internal accounting controls provisions of Sarbox.

That is all I will say about Title I.

Titles II and III, I have already written about -- Title II eliminates the ban against general solicitation for Rule 506 offerings and Title III is the CROWDFUND Act.

Title IV may or may not turn out to be interesting to me.  What it appears to do, is to authorize the SEC to create (which is different from Congress actually authorizing -- the SEC is simply permitted to create an exemption, and no exemption exists unless the SEC creates it) a new exemption from registration under Section 3(b), provided the exemption meets the handful of conditions laid out by Congress.  In fact, it looks like a bulked up Regulation A.  Until now, Section 3(b) capped the aggregate size of any exemption created by the SEC under that subsection at $5 million (Rule 504 and 505 offerings under Regulation D are actually 3(b) exemptions, while Rule 506 finds its authority under Section 4(2)); under Section 3(b), the SEC long ago created Regulation A, an offering alternative that, in my experience, is rarely used by issuers for a variety of reasons, not least of which is its $5 million cap coupled with a set of requirements more detailed than Regulation D, limitations on the nature of permitted issuers and types of securities that may be offered, AND the requirement that the offering circular used in a Reg A offering be filed with the SEC (and the offering be coordinated with state securities laws).  Issuers usually find Rule 506 easier and more flexible to use.

But if the SEC multiplies the aggregate offering price cap by 10X, to $50 million, Reg A will deserve another look.  In addition, the statute says that the SEC --IF it adopts a regulatory exemption -- must treat the securities issued as NOT being "restricted securities" (which substantially enhances their future transferability) and MUST be permitted to be offered and sold "publicly," which (together with the unrestricted nature of the securities) can mean no restriction on the number of offerees or purchasers and a smooth transition by original buyers into the secondary market (assuming the issuer is a public company).

Titles V and VI also drew ire from the same crowd that fears the relaxing of Sarbox's terms, because they raise the threshold for registration under the 1934 Act from 500 to 2,000 holders.

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