The Jumpstart Our Businesses Act (the “JOBS Act”) is intended to provide easier access to funding for emerging companies. Among other major changes, the JOBS Act increased the number of shareholders a company could have before it is required to register its stock with the Securities and Exchange Commission (the “SEC”), permitted the use of internet funding portals to raise money for certain small offerings, and relaxed other regulatory and disclosure requirements for small businesses.
Additionally, the JOBS Act permitted an initial public offering (“IPO”) underwriter to publish research materials regarding the IPO immediately when the IPO registered with the SEC for companies whose revenue generated less than $1 billion in annual revenue (“Emerging Growth Companies” or “EGC”). Prior to the JOBS Act, there was a blackout period ranging from 15 days to 40 days, depending on certain conditions, before an underwriter for an IPO could publish research materials regarding an IPO. These published research materials were often helpful in boosting the price of an IPO by drumming up interest in the IPO on the open market.
Unfortunately, when the JOBS Act was signed into law, for many of the major investment banks which often act as underwriters for EGC IPOs including Goldman Sachs, J.P. Morgan, Credit Suisse, Citigroup and Morgan Stanley, they were unsure if they could take advantage of these new rules regarding the blackout period. In 2003, in the aftermath of the dot com bubble, then New York Attorney General Elliot Spitzer settled his lawsuit against these major investment banks for their analysts allegedly illegally hyping internet company IPOs. Among other things, the settlement required the investment banks to place a blackout period before research materials could be published.
In light of the JOBS Act, the question for the banks was: do the new rules lift the 2003 settlement’s publication restrictions? In an August 22, 2012 frequently asked questions article, the SEC stated that the JOBS Act did not modify the 2003 settlement’s publication restrictions. In other words, while on paper the JOBS Act lifted the blackout period for ECGs, in practical terms, the IPO market status quo will likely be unaffected since many of the major IPO underwriters are still bound by the 2003 settlement’s blackout period rules. While the SEC did leave open the door to future regulation which could modify the 2003 settlement, the current form of the JOBS Act and regulations implementing the JOBS Act leave the 2003 settlement untouched.