JOBS Act

SEC Announces Three New Rulemakings

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On September 26, the Securities and Exchange Commission (SEC) announced three significant rulemakings. Summarized in a Public Statement by Chairman Jay Clayton, they are designed to achieve the following objectives.

  • The Modernization of the Approval Framework for ETFs. This new rule: “(1) sets forth a clear and consistent framework that will allow exchange-traded funds (ETFs) meeting certain standardized conditions to come to market without obtaining an individualized exemptive order, and (2) amends certain forms to enhance disclosures for investors.”
  • The Expansion of “Testing-the-Waters” Communications to All Issuers. This new rule: “will extend to all issuers the flexibility provided by the JOBS Act to communicate with institutional investors about potential IPOs and other registered offerings to better gauge market interest.”
  • The Enhancement of the Regulation of the OTC Markets. These proposed amendments to the rules governing the publication of quotations for over-the-counter (OTC) securities are “designed to better protect investors from fraud and manipulation, while at the same time facilitating more efficient OTC trading in certain well-capitalized issuers.”

Chairman Clayton emphasized that these rulemakings “share common themes.” Foremost, they “modernize decades-old regulations . . . taking account of our experience, advances in communications technology and changes in the operation of our markets.” Significantly, these “common sense actions better align our regulations with the preferences and investor protection interests of our long-term Main Street investors, while also facilitating capital formation.”

SEC Proposes Amendments to Implement JOBS Act Mandate for Exchange Act Registration Requirements

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As mandated by the Jumpstart Our Business Startups Act (JOBS Act), on December 17 the Securities and Exchange Commission approved the issuance of proposed amendments to revise the rules related to the thresholds for registration, termination of registration, and suspension of reporting under Section 12(g) of the Securities Exchange Act of 1934.

Among other things, the proposal would:

  • Amend Exchange Act Rules 12g-1 through 4 and 12h-3 which govern the procedures relating to registration, termination of registration under Section 12(g), and suspension of reporting obligations under Section 15(d) to reflect the new thresholds established by the JOBS Act
  • Apply the definition of “accredited investor” in Rule 501(a) under the Securities Act of 1933 to determinations as to which record holders are accredited investors for purposes of Exchange Act Section 12(g)(1).  The accredited investor determination would be made as of the last day of the fiscal year.

The JOBS Act revised Exchange Act Section 12(g) to raise the threshold at which an issuer is required to register a class of equity securities.  Under the revised threshold, an issuer that is not a bank or bank holding company is required to register a class of equity securities under the Exchange Act if it has more than $10 million of total assets and the securities are “held of record” by either 2,000 persons, or 500 persons who are not accredited investors. 

The SEC will seek public comment on the proposed rule amendments for 60 days following their publication in the Federal Register.

SEC Proposes Rules on Crowdfunding

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On October 24, the Securities and Exchange Commission voted unanimously to propose rules under the JOBS Act to permit companies to offer and sell securities through crowdfunding.  Title III of the JOBS Act created an exemption under the securities laws so that this type of funding method can be easily used to offer and sell securities as well.  The JOBS Act also established the foundation for a regulatory structure for this funding method.  Press Release.

SEC Lifts Ban on General Solicitation, Adopts “Bad Actor” Disqualification Rules and Proposes Amendments to Form D Filings

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On April 5, 2012, the Jumpstart Our Business Startups Act (the JOBS Act) was enacted.  Title II of the JOBS Act mandated the Securities and Exchange Commission to amend applicable rules within 90 days of its enactment (i.e., July 5, 2012) in order to eliminate the prohibitions against general solicitation or general advertising in Rule 506 of Regulation D under the Securities Act of 1933, as amended, and under Rule 144A under the Securities Act.  In August 2012, the Commission proposed a new Rule 506(c) and an amendment to Rule 144A to implement Title II.  During an open meeting on July 10, 2013, the Commission issued two releases (33-9414 (bad actor) and 33-9415 (Rule 506, Rule 144A and Form D)) which adopted new rules.  For more information on the adopted rules, please click here.

SEC No-Action Relief Under the JOBS Act

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On March 26, the Staff of the Division of Trading and Markets of the SEC provided no-action letter relief from the broker-dealer registration requirements of the Securities Exchange Act of 1934 to FundersClub Inc. and its wholly-owned subsidiary in connection with their internet based, Rule 506 compliant securities offerings.  FundersClub and its subsidiary are venture capital fund advisers under Rule 203(l)-(1) of the Investment Advisers Act of 1940.  The FundersClub no action relief sets forth the Staff’s interpretation of Section 201 of the JOBS Act, which provides an exemption from broker-dealer registration for persons providing certain services in connection with an offering under Rule 506 of Regulation D.  In granting the requested relief, subject to numerous conditions, the Staff noted that FundersClub and its subsidiary comply with the JOBS Act, in part, because they and each person associated with them receive no compensation (or the promise of future compensation) in connection with the purchase or sale of securities (transaction-based compensation), rather they receive compensation for their traditional advisory and consulting services, i.e., carried interest.  SEC No Action Letter.

SEC JOBS Act Amendments to NASD Rule 2711 and Incorporated NYSE Rule 472

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On November 1, the SEC approved amendments to NASD Rule 2711 and Incorporated NYSE Rule 472 to conform to the requirements of the JOBS Act and make certain additional changes to quiet period restrictions consistent with the policies underlying the JOBS Act.  Most amendments are effective retroactively on April 5.  However, amendments to rules regarding quiet periods after secondary offers and after the expiration, termination or waiver of a lock-up agreement are effective retroactively on October 11.  FINRA Notice.  FINRA Amendments.

The JOBS Act in the IPO Market

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On October 11, Orrick will host a breakfast briefing that will include a recap of the JOBS Act, a real-time update on the JOBS Act and its impact on the IPO market and early-stage venture capital, and a legal review of the latest SEC guidance and proposed rule-making related to the Act. Keynote Speakers will include Orrick partners Bruce Czachor and Edward Eisert, as well as John Truzzolino, Managing Director at RR Donnelly and Scott Livingston, Officer at Livingston Securities. For additional information and to RSVP, please click here.

When a “Public Offering” Is Not a “Public Offering”: The SEC Rule Proposal Eliminating the Ban on General Solicitation and Advertising in Securities Offerings

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On April 5, 2012, the Jumpstart Our Business Startups Act (the “JOBS Act”) was enacted.  The stated objective for the JOBS Act is to improve access to the public capital markets for startup and emerging companies and thus increase job creation and economic growth in the United States.  Click here to read more.

Eliminating General Solicitation and Advertising Prohibitions under Rule 506 and Rule 144A

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On August 29, the SEC proposed a rule to implement Section 201(a) of the JOBS Act that would amend Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933.  The proposed amendment to Rule 506 would eliminate the prohibition against general solicitation and general advertising in Rule 506 offerings if all purchasers are accredited investors.  The proposed amendment to Rule 144A would allow offerings to non-qualified institutional buyers so long as the seller reasonably believes that all purchasers are qualified institutional buyers.  Comments should be received within 30 days after publication in the Federal Register.  SEC Release.  SEC Proposed Rule.