JOBS Act Amendments to General Solicitation and Advertising of Private Offerings
Title II of the JOBS Act provides that, within 90 days of the passage of the JOBS Act (i.e. July 5, 2012), the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors. The JOBS Act directs the SEC to make the same amendment to Rule 144A so long as all purchasers in the Rule 144A offering are qualified institutional buyers.
Neither a Rule 506 offering nor a Rule 144A offering will be considered a public offering (i.e. will lose its exemption) by virtue of a general solicitation or general advertising so long as the issuer has taken reasonable steps to verify that purchasers are either accredited investors or qualified institutional buyers, respectively. Since it would be impossible to ensure that only accredited investors, or qualified institutional
The JOBS Act Is Not Just Crowdfunding
On April 5, 2012 President Obama signed the JOBS Act into law. In my excitement over this ground-breaking new law, I have been zealously blogging about the Crowdfunding portion of the JOBS Act. However, the JOBS Act impacts securities laws in many additional ways. The following is a summary of the many ways the JOBS Act will amend current securities regulations, all in ways to support small businesses.
A. The New “Emerging Growth Company” Category
The JOBS Act will create a new category of companies defined as “Emerging Growth Companies” (EGC). An EGC will be defined as a company with annual gross revenues of less than $1 billion, that has been public and reporting for a minimum of five years and whose non-affiliated public float is valued at less than $700 million. EGC’s will have reduced requirements associated with initial public offerings (IPO’s) and ongoing reporting requirements. For many purposes, EGC’s will be allowed to use the less
Crowdfunding Act Signed Into Law
On April 5, 2012 President Obama signed the JOBS Act into law. In accordance with the JOBS Act requirement that all crowdfunding platforms (i.e. websites and intermediaries) be a member of a national securities association, the new self regulatory organization (SRO), The Crowdfunding Intermediary Regulatory Association (CFIRA) has already been formed. The CFIRA will be charged with ensuring investor protection and market integrity. The CFIRA will have members from crowdfunding investor intermediaries as well as related industries such as venture capital firms. In addition to regulating its members, the CFIRA will provide investors with information such as learning about crowdfunding and its risks.
Opportunity For All Americans
Crowdfunding provides an opportunity for all Americans, whether accredited or not, and whether connected with an elite investment banking firm or not, to invest small amounts of money in small businesses that they know or just believe in. Small businesses provide jobs and sometimes small businesses become big businesses. For the first time
Crowdfunding 101
As I recently blogged, the President has signed the Jobs Act including the much anticipated Crowdfunding bill. Crowdfunding is a process whereby companies will be able to raise small amounts of money either directly off their own website or using intermediaries set up for the purpose. The Securities Act of 1933, as amended, (Securities Act) prohibits the sale or delivery of any security unless such security is either registered or exempt from registration. Crowdfunding will be an exemption from registration. The exemption will likely be codified as a new and separate exemption likely under Regulation D and will include an overhaul of the current general provisions of Regulation D found in Rules 501-503.
Crowdfunding Exemption Possibilities
The exemption will likely be limited to $1 million in any twelve (12) month period, or up to $2 million if the company provides certain financial disclosure such as audited financial statements. As proposed, each investor will be limited $10,000 or 10%
Big Changes Are Coming
I’ve been practicing securities law for 19 years this year (phew!) and for the first time in my career I am excited about changes, big changes, on the horizon for small businesses. I’m talking about the JOBS Act and its ground breaking crowdfunding bill which has now been signed into law.
A Whole New Exemption
Over the years I have consistently received calls from potential clients that wish to use the exemptions provided for in Regulation D to raise money for small or start up ventures. Many of these individuals believe, mistakenly, that Regulation D provides them with a method to raise money. It does not. Regulation D only lays out rules to follow to utilize an exemption from the registration requirements in the Securities Act of 1933. These rules include such items as limitations on the dollar amount raised; who you can raise money from, how you can raise money, prohibitions on advertising and solicitation, disclosure documents required,
DTC Chills, Due Process and Rule 22
Back in October and November of 2011 I wrote a series of blogs regarding DTC eligibility for OTC (over the counter) Issuers. OTC Issuers include all companies whose securities trade on the over the counter market, including the OTCBB, OTCQB and Pink Sheets. Many OTC Issuers have faced a “DTC chill” without understanding what it is; let alone how to correct the problem. In technical terms, a DTC chill is the suspension of book-entry clearing and settlement services with respect to an Issuer’s securities. In layman’s terms it means your stock can’t clear or trade electronically. Since all trading in today’s world is electronic, it really means your stock doesn’t trade.
The SEC’s Stance
As noted in the SEC opinion:
“…DTC provides clearance, settlement, custodial, underwriting, registration, dividend, and proxy services for a substantial portion of all equities, corporate and municipal debt, exchange traded funds, and money market instruments available for trading in the United States. In 2010, DTC
Private Capital Market Places – A Second Look
Last week I wrote a blog introducing, at least to me, Private Company Market Places (PCMP). A PCMP is a trading platform, such as SharePost or SecondMarket that provides a market place for illiquid restricted securities, such as private company securities, 144 stock, debt instruments, warrants, and the like or alternative assets. It is on a PCMP that Facebook’s shares currently trade and where pre-IPO Groupon and LInkedin received their trading start.
This week I reviewed some of the top PCMP players, including Gate Technologies, SecondMarket, Sharespost and Xpert Financial. I have no affiliation, have never worked with and maintain no accounts with any of these PCMPs.
PCMP’s are Broker Dealers or Affiliated
Each PCMP is a licensed broker dealer or affiliated with a licensed broker dealer, that has either created or licensed an electronic trading board, available at their respective websites, which allows investors to view, buy, and sell otherwise illiquid, restricted or alternative assets. These securities are
Private Capital Marketplace – A First Look
As I discussed in a recent blog, the attraction of the small cap and reverse merger market has diminished greatly in the past two years. The Over the Counter market has become an expensive place to conduct business; the antithesis of the very reason small companies sought to list there to begin with. Accessing capital markets for microcap companies is not as simple as it once was.
In addition to the added expensive of complying with the Securities Exchange Act of 1934 disclosure requirements, the marketplace invites speculators who short sell (bet that the price of a stock will go down) and hedge with derivatives, often creating unpredictable volatility and share prices not indicative of the underlying value of the actual business.
No Automatic Liquidity for Issuers
Being public is no guarantee of liquidity either. It’s fantastic for an issuer to state that their stock is being quoted at $5.00 per share, but if there is no volume (the shares
Why Rule 419 Companies May Revitalize the Small-Cap Market
Are Rule 419 Companies poised to be the next big thing in the small-cap sector?
Recently, the small-cap and reverse merger market has diminished substantially. Operating businesses are wary of completing reverse mergers, and PIPE investors are harder to come by. The reasons for this are easily identifiable.
First – The General State of the Economy
Simply stated, it’s not good.
Second – The Backlash from a Series of Fraud Allegations, SEC Enforcement Actions, and Trading Suspensions of Chinese Company’s Following Reverse Mergers
Chinese company reverse mergers dominated the shell company business for years; now there are none. Moreover, it is unlikely that this area will recover any time soon. The Chinese government and US regulators must reach agreement and a mutual understanding regarding PCAOB review of Chinese audits. Even then, it may take years for the stigma to fade.
Third – The Rule 144 Changes Enacted in 2008
As discussed in previous blogs Rule 144(i),
DTC Eligibility and the OTC Issuer (Part 3)
This is the third in a series of articles I am writing regarding DTC (Depository Trust Company) eligibility for OTC (Over the Counter) Issuers. OTC Issuers include all companies whose securities trade on the over the counter market, including the OTCBB, OTCQB and Pink Sheets. All technical information in this article comes from the DTC website.
DTC Eligibility
As detailed in my first two articles in this series, in order to become and remain DTC eligible, and Issuer must have a transfer agent that has completed and has on file with DTC a DTC Operational Arrangements Agent Letter. In addition, all Issuers must meet the requirements set forth in the DTC Operational Arrangements (OA). This article begins to discuss the OA necessary for an Issue to become and remain eligible for DTC service. Moreover, the OA rules relate to and regard all Issuers. This article will only discuss those rules and requirements for OTC Issuers.
The DTC OA states:
“Generally,
