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  1. The SEC scrambled last month to react to the immediately effective portions of the JOBS Act, including hastily assembling some FAQs, here, to guide emerging growth companies in registration. Some “IPO on-ramp” provisions of the JOBS Act that are the subject of the SEC’s FAQs may be useful, but it’s difficult to imagine they will lead to much of a bump in IPO activity generally. (Pending “Regulation A+” rules, which the JOBS Act requires the SEC to implement “sometime,” will exempt offerings of up to $50 million and may be a legitimate alternative for small companies who need some significant cash and are willing to subject themselves to some SEC regulation but not ready to become full-blown public companies.)
  2. Crowdfunding still seems to get people in a tizzy, which undoubtedly led the SEC to warn, here, that the new crowdfunding exemption requires rule-making. So, if you’re crowdfunding right now, you’re breaking the law. Stop it. A litany of reasons we suspect crowdfunding won’t be useful to most:
  • all fundraising is limited to $1 million per year, including crowd-sourced funds (what happens if you run out of money?!?);
  • unlike every other exempt offering, employees may not conduct the offering—it must go through a broker or crowdfunding portal, which also will be regulated and will charge yet unknown fees;
  • no advertising except for references to the funding portal;
  • some public disclosure is required, including audited financials for offerings over $500,000 and annual reports to the SEC with yet-to-be-determined content;
  • administrative expense of tracking many shareholders;
  • higher risk that unsophisticated shareholders will be more upset when they lose all their money and more likely that they will sue directors or others;
  • may be tougher to get follow-on financing from venture capitalists, who may not want the headache of finding room in your “crowded” capital structure;
  • for those with new product ideas, like, say, smart phone apps, contingent advanced sales may offer an alternative to crowdfunding (see, e.g., here); and
  • lingering fear that companies that can’t get accredited investors interested may not be worth investing in, or are scams (see, e.g., here).
  1. Another reason crowdfunding may not be worth the time and effort is pending rules that eliminate the general solicitation prohibition under Rule 506 of Regulation D if sales are made only to accredited investors. Presumably, that means all kinds of people, including company executives, will be able to say all kinds of stuff about your company, its products and the offering on a website and accept money directly after determining the investor is accredited under whatever verification requirements the SEC adopts. Offerings exempt under Regulation D are already the dominant method for raising money in the U.S., according to a recent study by the SEC’s Division of Risk, Strategy and Financial Innovation published, here. Under Regulation D, Rule 506, which allows sales to an unlimited number of accredited investors, was used over 90% of the time. With the elimination of the general solicitation requirement, that number may edge up, despite the reduction of accredited investor ranks when Dodd-Frank excluded the value of one’s primary residence from the net worth test a few years ago (see conforming changes to SEC regulations here).
  2. A report on recent say-on-pay results for the Russell 3000 is here. Heartening to public company executives is that nearly all issuers get approval of pay practices. But at least some of the outliers tend to be interesting, as evidenced by the amount of internet space devoted to CitiBank’s failed say-on-pay vote last month, which prompted it to release a statement, here. The possible reasons for Citi’s unexpected no vote are described here.
  3. Also of note, Glass Lewis (the other institutional shareholder service) announced a portal through which issuers may engage with GL on governance topics, here.
  4. With all the hullabaloo about the JOBS Act, recall that the SEC is still behind in Dodd-Frank rule-making, in some cases (conflict minerals) blessedly so. A progress report on rule implementation is here.