Jumpstart Our Business Startups Act

SEC Adopts Jobs Act Amendments

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On April 5, the Securities and Exchange Commission (“SEC“) announced that it has adopted amendments to increase the amount of money companies can raise through crowdfunding to adjust for inflation. It also approved amendments that adjust for inflation a threshold used to determine eligibility for benefits offered to “emerging growth companies” (“EGCs“) under the Jumpstart Our Business Startups (JOBS) Act.

The SEC is required to make inflation adjustments to certain JOBS Act rules at least once every five years after it was enacted on April 5, 2012. In addition to the inflation adjustments, the SEC adopted technical amendments to conform several rules and forms to amendments made to the Securities Act of 1933 (“Securities Act“) and the Securities Exchange Act of 1934 (“Exchange Act“) by Title I of the JOBS Act. The Commission approved the new thresholds on March 31. They will become effective when they are published in the Federal Register.

The Commission provided a helpful chart that sets out the inflation-adjusted amounts for the maximum amount of offerings and investment limits, specifically: (i) the maximum aggregate amount an issuer can sell in a 12-month period; (ii) the threshold for assessing an investor’s annual income or net worth to determine investment limits; (iii) the lower threshold of Regulation Crowdfunding securities permitted to be sold to an investor if annual income or net worth is less than the adjusted thresholds; (iv) the maximum amount that can be sold to an investor under Regulation Crowdfunding in a 12-month period; and (v) the inflation-adjusted amounts for determining financial statement requirements.

Also, pursuant to sections of the Securities Act and the Exchange Act added by the JOBS Act, which define the term “emerging growth company,” every five years the Commission is directed to index the annual gross revenue amount used to determine EGC status to inflation. To carry out this statutory directive, the SEC has adopted amendments to Securities Act Rule 405 and Exchange Act Rule 12b-2 to include a definition for EGC that reflects an inflation-adjusted annual gross revenue threshold. Press Release.

FinCEN Proposes Funding Portals Regulations under Bank Secrecy Act

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On April 4, 2016, the Financial Crimes Enforcement Network, a bureau of the Department of the Treasury (“FinCEN”), proposed amendments to the definitions of ‘‘broker or dealer in securities’’ and ‘‘broker-dealer’’ under the regulations implementing the Bank Secrecy Act (“BSA”). This rulemaking would amend those definitions explicitly to include “funding portals” that are involved in the offering or selling of “crowdfunded securities” pursuant to Section 4(a)(6) of the Securities Act of 1933. The consequence of those amendments would be that funding portals would be required to implement policies and procedures reasonably designed to achieve compliance with the BSA Act requirements currently applicable to brokers or dealers in securities. FinCEN stated that:  “The proposal to specifically require funding portals to comply with the Bank Secrecy Act regulations is intended to help prevent money laundering, terrorist financing, and other financial crimes.”  Written comments of this proposal must be submitted on or before June 3, 2016.

The Jumpstart Our Business Startups Act, enacted into law on April 5, 2012, established the foundation for a regulatory structure for startups and small businesses to raise funds by offering and selling securities through “crowdfunding” without having to register the securities with the Securities and Exchange Commission (“SEC”) or state securities regulators.  In order to take advantage of this exemption for offerings of crowdfunded securities, an issuer must use the services of an intermediary that is either a broker registered with the SEC or a “funding portal” registered with the SEC.

SEC Adopts Rules to Facilitate Smaller Companies’ Access to Capital

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On March 25, the SEC adopted final rules updating and expanding Regulation A, which provides an exemption from registration for smaller issuers of securities, to implement Title IV of the Jumpstart Our Business Startups (JOBS) Act.  The updated exemption (referred to as Regulation A+) will enable smaller companies to offer and sell up to $50 million of securities in a 12-month period, subject to eligibility, disclosure and reporting requirements.  Release.  Final Rule.

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.

Orrick Alert: Jumpstart Our Business Startups (“JOBS”) Act Eases Restrictions on Rule 144A and Private Offerings – ABS Considerations

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President Obama signed the Jumpstart Our Business Startups Act (the “Act”) into law on April 5. The Act includes many provisions intended to facilitate capital raising and reduce regulatory burdens for certain types of issuers, but does little for the asset-backed securities market, which continues to grapple with the Dodd-Frank Act and related regulations and the looming specter of Reg AB II.

ABS issuers, underwriters and investors, however, will be interested in the sections of the Act that amend the exempt offering provisions of the Securities Act of 1933 (the “Securities Act”) and direct the Securities and Exchange Commission (the “SEC”) to revise regulations to permit general solicitation and advertising in connection with offerings that are exempt from registration under the Securities Act.  Click here to read more.

Orrick Alert: Jumpstart Our Business Startups Act – Implications for Issuers and Financial Institutions

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On March 27, 2012, the U.S. House of Representatives adopted the Jumpstart Our Business Startups Act (the “JOBS Act”) with strong bipartisan support, sending the bill to President Obama to sign. The JOBS Act is intended to stimulate economic growth by improving access to the U.S. capital markets for U.S. and foreign startup and emerging companies. The President is expected to sign the JOBS Act into law this week.

Many business groups, including the U.S. Chamber of Commerce, support the JOBS Act and believe it will facilitate capital raising by small companies, allow emerging growth companies to make a transition to public company status while continuing to grow and create jobs, and reduce some of the regulatory burdens imposed by the Sarbanes-Oxley Act of 2002. While certain provisions in the JOBS Act will provide added flexibility to such earlier stage companies, its potential impact on the capital markets remains unclear. Many industry participants are concerned that the JOBS Act may erode investor protections and leave investors susceptible to securities fraud. In addition, because the JOBS Act did not alter the liability regime under U.S. securities laws, it remains unclear how market practices will change or develop for issuers and financial institutions. Such new market practices will depend, in large part, on the rules and guidance provided by the Securities Exchange Commission and other regulatory agencies such as the Financial Industry Regulatory Authority, which we will continue to monitor.

Click here to read more.