With the passage of the Jumpstart Our Business Startups Act (JOBS Act), the Securities and Exchange Commission (SEC) will be required to create a number of new rules, in addition to the rules already required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).
The first deadline that the SEC faces under the JOBS Act is adopting rules eliminating the ban on general solicitation of certain private offerings. It will have 90 days to revise Rule 506 of Regulation D to allow those securities to be sold using general solicitation or advertising when all of the purchasers of the securities are "accredited investors."
The JOBS Act also created a new crowdfunding exemption to registration. The SEC will have 270 days to adopt the rules and regulations effectuating this exemption, as the SEC determines to be necessary or appropriate for the protection of investors. The Financial Industry Regulatory Authority may also adopt rules regulating "funding portals" for issuers.
The JOBS Act also increased the shareholder threshold for registration for securities of a bank or bank-holding company. Neither of these types of issuers will have to register will the SEC until there are total assets exceeding $10,000,000 and a class of equity security held by 2,000 or more individuals. The previous threshold was 500 shareholders. The SEC will have one year to implement these regulations.
The SEC must also issue rules raising the current $5 million limit of the small issue exemption, known as Regulation A, to offerings of up to $50,000,000. Securities sold under the new rules may be publicly offered and will not be restricted from resale. The issuer will be required to file audited financially statements annually with the SEC. The JOBS Act did not provide a deadline for the SEC to finalize this rulemaking.
Between the Dodd-Frank Act and the JOBS Act, the SEC continues to be faced with a number of rulemaking deadlines over the next couple of years. It is unsure whether the SEC can meet the new deadlines set out in the JOBS Act, because it has already missed a number of deadlines under the Dodd-Frank Act. However, since the JOBS Act passed that House and Senate with substantial bipartisan support, there may be more political pressure to adopt the required rules in a timely manner. When asked about the new regulation deadlines, SEC spokesman John Nester simply stated that the SEC was "still in the process of analyzing the bill's requirements."
Page Perry's Robert D. Terry stated, "The SEC has quite a task before it. Rulemaking can be a cumbersome, time-intensive process, and the controversy surrounding some of the JOBS Act provisions means there will probably be many comments for the commission to consider."
Page Perry, LLC provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.