It was another week of speculation as to when the SEC might finalize or propose any JOBS Act rule. Broc Romanek of the TheCorporateCounsel.net pointed to one article which said the current JOBS Act proposal on eliminating general solicitation may be implemented as an interim final rule and compared that to statements attributed to SEC Chair Mary Jo White which spoke of the need for investor protection. Broc concluded “So I don’t know what to believe…” As we noted last week, Chief Counsel and Associate Director for the SEC’s Division of Trading and Markets was quoted as stating “I don’t think anybody who gives you a prediction on timing really knows what they’re talking about.”
The SEC recently approved a proposal regarding the regulation of derivative use by foreign banks under the Dodd-Frank Act. The New York Times ran an editorial which lambasted SEC Chair White because the proposal “implies that foreign regulation will be adequate, but the rules elsewhere are weak or nonexistent.” The editorial moves onto the JOBS Act and concludes “Ms. White’s immediate predecessors supported an early proposal of the rule [eliminating the ban on general solicitation] that, shockingly, did not include any specific investor protections. What is needed is a new proposal with the safeguards recommended by the S.E.C.’s own Investor Advisory Committee . . . This is a critical test for Ms. White, who has yet to show that she supports stronger regulations.”
Jim Hamilton’s blog notes “In a letter to SEC Chair Mary Jo White, consumer groups and former SEC Commissioner Steven M.H. Wallman urged the Commission to re-propose the regulation implementing the JOBS Act provision eliminating the ban on general solicitation so that the recommendations of the SEC Investor Advisory Committee can be incorporated into the final regulation.”
SEC Commissioner Luis A. Aguilar gave a speech addressing the need for robust SEC oversight of self-regulatory organizations, or SROs. We predict he will feel the same about the oversight of crowdfunding platforms under Title III of the JOBS Act.
The SEC Government-Business Forum on Small Business Capital Formation issued its final report. Some of the more interesting thoughts include:
- Simplified crowdfunding disclosures and financial statement requirements
- Simplified regulation of crowdfunding portals as compared to broker-dealers
- Detailed recommendations on determination of accredited investor status in connection with the elimination of the ban on general solicitation
Thecrowdcafe ran an interesting piece on the funded status of various crowdfunding platforms.
CFO.com has an article on how companies can prepare for crowdfunding. The central tenet is how to utilize crowdfunding with a planned follow-on venture capital investment. One idea which is floated is to structure crowdfunded securities that allow venture capitalists to buy out crowdfunded investors at a certain multiple of their investment at a later stage. For instance the crowdfunders would get three times their money back when the company does a Series A. It’s an interesting thought, but historically venture capital funds often want the company to put their money to work for growth, rather than buying out existing investors at a premium. That could potentially change if it becomes the price of admission. Complications may also arise for venture funds relying on an exemption from Investment Adviser Act regulation and the definition of “venture capital fund” under Investment Adviser Act Rule 203(l)-1, depending on how the buy-out of the crowdfunders is structured.