On April 8, Commissioner Aguilar and Commissioner Stein spoke at the North American Securities Administrators Association conference.

Commissioner Aguilar noted in his remarks that “Regulation A-plus remains a work in progress, and no one can say what the ultimate outcome will be.”  The Commissioner went on to note that a workable exemption would “attract issuers that might otherwise choose more opaque exemptions for their capital-raising needs.”  Indeed, in Rule 506 offerings to accredited investors, there are no disclosure requirements, no investment limit, and no ongoing reporting obligations.  The proposed Reg A+ framework provides enhanced investor protections that should mitigate any concerns; however, the debate regarding pre-emption continues.

Even with coordinated review, an issuer faced with a range of capital-raising alternatives, will not choose a Tier 2 offering if state review is necessary.  Tier 2 offerings are unlikely to be “local” in nature.   Statements of Policy applied by state regulators have not been updated in a meaningful way and are inconsistent with practices in “public” offerings.

A Tier 2 Reg A+ offering will have more in common with a public offering than with a private placement.  Many states require that each investor in their state sign a subscription agreement.  Of course, in a registered offering that clears and settles through DTC and is sold by a broker-dealer, individual subscription agreements generally are not used.  A recent state review triggered comments from examiners inquiring about the rules of DTC, and requested more information about Cede & Co, DTC’s nominee, as well as about the “officers, directors and purpose/role of Cede & Co.”  Presumably, Tier 2 Reg A+ offerings will clear through DTC.  These are the just examples of speed bumps that do little to add to investor protection.

On Wednesday, September 25, Anna Pinedo participated in a Lexis Practice Advisor CLE seminar focusing on the JOBS Act. Ms. Pinedo presented on a panel entitled “The Impact of the JOBS Act on the Capital-Raising Process.” A portion of the presentation is available for replay here:



The Staff of the Division of Corporation Finance recently published a summary of the various capital-raising alternatives available to foreign issuers.  The summary is accessible from this link:  http://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml.  The summary incorporates discussion of the applicability of various JOBS Act provisions to offerings by foreign private issuers.

Many banks have taken advantage of the provisions of the JOBS Act regarding the holder-of-record threshold to deregister and terminate their registration.  Banks may want to consider their capital-raising alternatives going forward.  A community or small bank that is no longer subject to Exchange Act filing requirements may consider a Rule 506 offering.  A Rule 506 offering to accredited investors will be an attractive alternative for many banks.  However, capital-raising always has been a challenge for community banks.  Some institutional investors may be reluctant to invest in “restricted securities” if these investors are subject to caps or limitations on the amount of restricted securities that they may hold in their portfolios.  Some banks may want to focus on issuances at the bank level (not the holding company level) and rely on the Section 3(a)(2) exemption available to banks.  Section 3(a)(2) of the Securities Act exempts from registration any security issued or guaranteed by a national bank, or any banking institution organized under the law of any state, territory, or the District of Columbia, the business of which is substantially confined to banking and is supervised by the state or territorial banking commission or similar official.  To qualify for the exemption under Section 3(a)(2), the institution must meet two requirements: (i) it must be a national bank or any institution supervised by a state banking commission or similar authority and (ii) its business must be substantially confined to banking.  Securities issued by bank holding companies are not exempt from registration under Section 3(a)(2).  Securities issued pursuant to this exemption will not be considered “restricted securities” and, as a result, there may be more investor interest.

Banks would benefit from a specific exemption under Section 3(b)(2).  The Commission has an opportunity in connection with its 3(b)(2) rulemaking (required by Title IV of the JOBS Act) to consider a streamlined approach for banks to offer securities publicly (relying on a framework similar to that provided by existing Regulation A), which will not be “restricted securities.”  Under existing Regulation A, an issuer must prepare an offering statement.  Banks, however, are already subject to significant regulatory oversight and make available financial and other information to their regulators (and bank call reports are accessible to investors).  It would make good sense to consider a tailored 3(b)(2) exemption for banks, with reduced information requirements, especially given that many banks will have availed themselves of the modified holder-of-record provisions to terminate their filing obligations, but still need access to capital.

On October 25, from 2:00-3:00pm ET, CFO Magazine will present a webcast entitled “JOBS Act: Benefits, Best Practices and Opportunities.” The JOBS Act changes many capital raising regulatory requirements with the goal of facilitating public and private offerings for small businesses. This webcast seeks to examine how the various provisions of the JOBS Act will affect CFOs’ abilities to raise capital for startups, as well as provide a general overview of the main components of the Act. Speakers include Vincent Ryan, Deputy Editor with CFO.com, Timothy J. Keating, Founder and President of Keating Investments LLC, and David Lynn, Partner at Morrison & Foerster.

The speakers will discuss:

  • How to benefit from the slower phase-in of Sarbanes Oxley and Dodd-Frank rules for emerging growth companies;
  • Best practices in confidentially submitting a draft S-1 to the SEC;
  • How to use the “test-the-waters” provision to gauge institutional investor interest in a company’s shares prior to an IPO;
  • Whether it is more likely that underwriters will publish research on  emerging growth companies, or that they will stick to current practice on quiet periods;
  • Whether existing public firms that listed in 2012 ought to elect emerging growth company status;
  • The keys to staying private longer under the new, higher threshold for Securities Act registration; and
  • New opportunities for small-business capital raising under revisions to Rule 506, Regulation A, and Section 3(b)(2).

For more information and to register, please visit CFO Magazine’s website.

Many smaller banks in the United States recently received a bit of surprising news.  The banking agencies published their notices of proposed rulemaking relating to the bank capital requirements.  The Basel III NPR made clear that only the smallest banks in the United States would be exempt from compliance with the heightened regulatory capital requirements of Basel III.  Over time, smaller banks will need to raise capital in order to meet the new requirements that will be phased in over the next few years.  Historically, smaller banks have found it difficult and expensive to raise capital.  Many smaller banks were not able to raise capital on their own, and turned to issuances of trust preferred securities, which then got pooled with trust preferred securities issued by other small banks, and sold (on a packaged basis) to investors.  Trust preferred securities will no longer be eligible for favorable regulatory capital treatment.  Smaller banks must offer common stock, or non-cumulative perpetual preferred stock, or REIT preferred stock.  Memories are probably too fresh to accept a new pool instrument, even if it were a simpler pooled non-cumulative preferred.  A few JOBS Act changes may provide some new alternatives for smaller banks.  First, small banks might want to consider issuing securities at the bank level and rely on the exemption from registration offered by Section 3(a)(2).  A national bank generally relies on Part 16 of the Office of the Comptroller of the Currency’s (the “OCC”) regulations in connection with offerings pursuant to Section 3(a)(2).  The Part 16 regulations generally require that a national bank offer and sell its securities pursuant to a registration statement filed with the OCC, unless there is an available exemption.  An exemption from the registration requirement is available if the national bank offers and sells its securities in transactions that comply with the Regulation D safe harbor or in Rule 144A qualifying transactions.  Generally, banks have structured their offerings of securities to comply with the Regulation D safe harbor in order to avoid the OCC registration statement requirement.  Once the SEC promulgates rules to permit general solicitation and general advertising in connection with Rule 506 offerings and resales under Rule 144A, banks should have an easier time raising capital.  Banks will be able to offer securities at the bank level in 3(a)(2) offerings, using general solicitation, provided that actual investors are verified to be accredited investors.  If the institution were to issue securities at the bank holding company level instead (for which the 3(a)(2) exemption is not available), this new flexibility in relation to private offerings is still quite useful.