The Staff of the SEC’s Division of Corporation Finance has been discussing the JOBS Act at recent conferences, including the Practising Law Institute’s 44th Annual Securities Regulation Institute in New York and the American Bar Association’s Business Law Section Fall Meeting in Washington, DC. David Lynn was the moderator of a JOBS Act panel at the PLI Annual Securities Regulation Insitute and he was a panelist on a JOBS Act panel at the ABA Business Law Section Fall Meeting.
The Staff has indicated at these conferences that they are hard at work on the rulemaking projects mandated by the JOBS Act, which include the adoption of changes to Regulation D and Rule 144A pursuant to Title II, the crowdfunding exemption contemplated by Title III, the Regulation A+ exemption contemplated by Title IV, and particular rules regarding Exchange Act registration/deregistration requirements contemplated by Titles V and VI. As is always the case, the Staff spoke for themselves and the views they expressed did not represent the views of the Commission or other members of the Staff.
The Staff was unable to provide any precise commentary on the timing of JOBS Act rules. It appears unlikely that the SEC will meet the 270 day deadline imposed for the Title III crowdfunding exemption, although the Staff is continuing to work hard on formulating proposals for the Commission. Based on the Staff’s comments, it may be very difficult for a Title III rule proposal to be issued between now and the end of 2012. Practitioners on panels at both programs noted some of the significant headwinds that are present for implementing a workable crowdfunding exemption, particularly given the complexity of the statutory requirements, as well as some of the significant practical considerations for issuers who engage in exempt crowdfunding offerings.
With regard to the SEC’s proposal to amend Rule 506 and Rule 144A to remove the ban on general solicitation and advertising (provided that, in the case of Rule 506, the issuer takes reasonable steps to verify that all purchasers are accredited investors), the Staff acknowledged some of the comments which have been submitted calling on the Commission to, among other things, adopt the Dodd-Frank – mandated bad actor rules at the same time the changes to Rule 506 are adopted, impose restrictions on the form and content of general solicitation materials, and to establish a non-exclusive safe harbor with respect to the reasonable steps to verify requirement. The Staff emphasized that the Commission’s approach was to propose a framework that could be implemented quickly in accordance with the directive in the statute, and then the Commission and its Staff could monitor the use of the exemption to determine if further changes would be necessary at some point down the road. While the Staff did not acknowledge the point, it may be the case that the extent and nature of the comments received on the Title II proposal may prevent the Commission from moving forward quickly to adopt workable amendments to Rule 506. No matter how the rule changes ultimately come out, the Staff indicated that a multi-Division team of Staffers will evaluate the market practices with regard to verification of accredited investor status and general solicitations.
On the topic of Title IV implementation, the Staff has indicated that it is working on a term sheet for a Regulation A+ proposal, and is considering either leaving existing Regulation A intact and adopting a new Securities Act Section 3(b) exemption, or updating existing Regulation A to reflect the parameters contemplated by Title IV. Efforts at the state level to create a streamlined process for dealing with Regulation A+ offerings were discussed, as well as the possibility for some exemption from Exchange Act registration in the context of a listed security sold pursuant to a Regulation A+ exemption.
With regard to the Exchange Act registration amendments in Titles V and VI, the Staff has indicated that it is actively working on recommendations for a rule that would establish when securities obtained in an employee benefit plan can be excluded when counting the number of holders of record. This rulemaking involves quite a few issues, although the Staff is trying to keep the rule as simple as possible. The Staff noted its efforts through the FAQs and the no-action letter process to clarify the application of the Exchange Act registration/deregistration provisions, and to provide appropriate relief where necessary in the case of deregistration of bank holding companies.
On the implementation of Title I, the Staff discussed their guidance on the “IPO On-Ramp” provisions, including the recent guidance on applying the Title I provisions in the context of exchange offers and mergers. The Staff noted that further FAQs are unlikely at this point, although if issuers have questions they should contact the Office of Chief Counsel. The Staff noted that while some have commented on how the confidential submissions process has reduced visibility into the IPO pipeline, the Staff was not planning on making any information available about confidential submissions given their obligations to maintain the confidentiality of those submissions. The Staff did note that the confidential submission has been widely embraced since the enactment of the JOBS Act, with over 100 EGCs submitting draft registration statements on a confidential basis (one-third have gone public). The Staff noted that EGCs are frequently flipping to publicly-filed registration statements after the first confidential submission, thereby avoiding running up against the 21-days-before-the-roadshow filing deadline. While the Staff noted that a draft registration statement must be complete when submitted confidentially, the Staff has found no problems with the completeness of draft registration statements submitted to date. The Staff acknowledged that they will need to make some rule changes to integrate the IPO on ramp provisions into existing SEC rules, although it is not expected that these rule changes will be proposed any time soon.