Tag: JOBS Act


Crowdfunding and the Digital Shareholder

Andrew A. Schwartz is an Associate Professor at University of Colorado Law School. This post is based on Professor Schwartz’s recent article published in The Minnesota Law Review, available here.

After several years of delay, Internet-based securities crowdfunding is finally poised to go live this year thanks to the SEC’s recent issuance of Regulation Crowdfunding. Through crowdfunding, people of modest means will for the first time be legally authorized to make investments that are currently offered exclusively to “accredited” (wealthy) investors. This democratization of entrepreneurial finance sounds great in theory, but will it work in practice? Will non-accredited investors really buy unregistered securities in speculative startups, over the Internet, with only the barest form of disclosure? The conventional wisdom among most legal scholars is, basically, no. In their view, securities crowdfunding is doomed to failure for myriad reasons, including fraud, [1] costs, [2] dilution, [3] adverse selection, [4] opportunism, [5] and more. [6]

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FAST Act Amendments to the U.S. Securities Laws

Nicolas Grabar is a partner at Cleary Gottlieb Steen & Hamilton LLP focusing on international capital markets and securities regulation. This post is based on a Cleary Gottlieb publication by Mr. Grabar, Les Silverman, and Andrea M. Basham.

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (the “FAST Act”), which, among other legislation in its 1300+ pages, includes several bills designed to facilitate the offer and sale of securities. In this post we focus on two of those bills. The first provides additional accommodations related to the SEC registration process for emerging growth companies (“EGCs”), a category of issuer established by the Jumpstart Our Business Startups Act (the “JOBS Act”) in 2012. The second creates a non-exclusive safe harbor under Section 4 of the Securities Act of 1933, as amended (the “Securities Act”) for resales of securities that meet the conditions of the safe harbor.

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FAST Act: Capital Formation Changes and Reduced Disclosure Burdens

Stacy J. Kanter is co-head of the global Corporate Finance practice at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on a Skadden alert by Ms. Kanter, David J. Goldschmidt, Michael J. Zeidel, and Brian V. Breheny.

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act (FAST Act), which, despite its name, contains several new provisions designed to facilitate capital formation and reduce disclosure burdens imposed on companies under the federal securities laws. The provisions build upon the 2012 Jumpstart Our Business Startups Act (JOBS Act), which created a new category of issuers called “emerging growth companies” (EGCs) [1] and sought to encourage EGCs to go public in the United States. [2] The FAST Act provisions, which were first introduced in a package of bills often called “JOBS Act 2.0,” are the culmination of a continuing congressional effort to increase initial public offerings (IPOs) by EGCs, reduce the burdens on smaller companies seeking to conduct registered offerings and provide trading liquidity for securities of private companies.

While some of the new provisions require rulemaking by the U.S. Securities and Exchange Commission (SEC) before they are effective, other provisions of the FAST Act amend the Securities Act itself and therefore are effective, with an immediate effect on current offerings.

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Looking Back at the SEC’s Transformation

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I started my tenure as an SEC Commissioner in the late summer of 2008, only a few weeks before the collapse of Lehman Brothers and the financial turmoil that followed, and only a few months before one of the largest financial frauds in U.S. history—the Bernard Madoff Ponzi scheme—was exposed. Beyond their obviously substantial impact on the capital markets and the greater economy, these historical events demonstrated that the Commission needed to change and adapt if it was to continue to be an effective regulator. Indeed, in late 2008 and in 2009, the continuing existence of the Commission was a matter of serious speculation. Thus, whether by coincidence or circumstance—some would say a fate of timing—it is not surprising that my tenure has corresponded with one of the most transformational periods in the SEC’s august history.

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Legislation to Facilitate Capital Formation

Joseph A. Hall  is a partner and head of the corporate governance practice at Davis Polk & Wardwell LLP. This post is based on a Davis Polk memorandum authored by Mr. Hall, Alan F. DenenbergMichael Kaplan, Richard D. Truesdell, Jr., and Michele Luburich.

[December 1, 2015], conference committee members for the House and Senate agreed on a five-year transportation bill. While this type of legislation is rarely of interest to participants in the capital markets, the bill includes several provisions that will improve upon the JOBS Act and facilitate capital formation transactions. The legislation is expected to be voted on by the House and Senate this week as lawmakers prepare to send a final bill to President Obama for signature before December 4.

The capital formation legislation was attached to the House version of the transportation bill in early November and was preserved without further modification by a conference committee tasked with reconciling the House and Senate proposals. The capital formation measures (which appear in the last section of the proposed bill, under Division G—Financial Services) include the following:

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The Continuing Work of Enhancing Small Business Capital Formation

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement at the SEC Government-Business Forum on Small Business Capital Formation; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As everyone participating in today’s [November 19, 2015] Forum knows well, our nation’s small businesses spur innovation, produce technological change, and drive job creation across the greater economy. In fact, from mid-2009—or what some pinpoint as the end of the “Great Recession”—to mid-2013, small businesses accounted for approximately 60% of net new jobs. More recently, statistics compiled through the first three quarters of 2014 show that our nation’s 28 million small business owners have been responsible for an even greater share of overall job creation, accounting for between 73% and 84% of net new jobs during that period. There can be no doubt that facilitating an environment that nurtures and breeds successful startups and small companies is critical to the health of our greater economy.

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SEC Adopts Final Rules for Crowdfunding

Andrew J. Foley is a partner in the Corporate Department of Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss memorandum.

On October 30, 2015, the Securities and Exchange Commission (the “SEC”) adopted final rules under Title III of the Jumpstart Our Business Startups (“JOBS”) Act. These rules relate to a new exemption under the Securities Act of 1933 (the “Securities Act”) that will permit securities-based crowdfunding by private companies without registering the offering with the SEC. The crowdfunding proposal (“Regulation Crowdfunding”) follows the 2013 crowdfunding rule proposal in most significant respects and represents a major shift in how small U.S. companies can raise money in the private securities market.

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Making Capital Formation Work for Smaller Companies and Investors

Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s recent public statement; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Small businesses are vital to our nation’s economic growth and well-being. In fact, our nation’s small business owners create almost two out of every three new jobs and employ more than half of the U.S. workforce. It is therefore important to provide opportunities for entrepreneurs and investors to come together and put capital to productive uses through the development of new ideas, products, and services that make America stronger and create new jobs that bring financial security.

Ultimately, the success of small businesses depends on their ability to access capital. To that end, because many small businesses are thought to have more difficulty than established businesses in getting traditional loans, Congress has provided the Commission with authority to promulgate rules to facilitate access by small businesses to financing from the capital markets.

In order for these rules to be successful, and, just as critically, sustainable, the Commission is tasked with creating an ecosystem for capital formation that works for small businesses and investors alike. Thus, the challenge is to develop a system that enables businesses to raise capital in a cost-effective way and, at the same time, provide ways to benefit and protect investors. After all, without investors, there can be no capital formation.

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Building a Dynamic Framework for Offering Reform

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s recent Keynote Address at the 47th Annual Securities Regulation Institute. The full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I am very pleased to be here to help kick off the 47th Annual Securities Regulation Institute. As some of you know, I am no stranger to this program, nor is the SEC staff. I have participated since my early days as U.S. Attorney, and its tremendous success is largely due to its tireless organizers. For many years, that work was led by Anita Shapiro, who is now the President of PLI, along with Laura Shields. Laura has now taken over from Anita, and she will surely continue the program’s record of excellence. Thank you both for all that you do to make this program such a great one year after year.

I have selected a topic that I think is well-suited for a conference of such endurance and importance: how the Commission is building a more proactive and responsive regulatory framework to better assess the impact of regulatory changes on investors and issuers over time in the context of securities offerings. As your opening panelists will no doubt discuss, this important area has seen tremendous regulatory change over the last ten years, including significant new rules in the past year.

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Remarks on Small and Emerging Companies

Mary Jo White is Chair of the U.S. Securities and Exchange Commission. The following post is based on Chair White’s remarks at a recent open meeting of the SEC, available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

As you know, the term of this Committee expires September 24, 2015. The advice and expertise the Committee has provided to the Commission on a variety of issues over the last four years has been incredibly helpful to us. And, as today’s [September 23, 2015] agenda reflects, you are continuing those contributions. Your contributions have shown the importance of this Committee, and I am pleased to announce that the Commission is renewing its charter for another two-year term. The Commission will be selecting members and it is my hope that many of you will continue your service. I look forward to our continuing dialogue and being the beneficiary of your insight and suggestions.

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