According to the SEC Division of Corporation Finance’s Office of Small Business Policy chief Gerald LaPorte, Commission staff are working hard to create under Reg A a new $50 million offering cap as soon as possible, even without a hard deadline. LaPorte, who expressed his own views at a Jumpstart Our Business Startups Act rulemaking panel at the American Bar Association Business Law Section, said that a lot of people had “high expectations for this exemption.”
Right now, public offerings of up to $5 million get registration exemption under the regulation. Under the JOBS Act’s Title IV, the SEC has to allow for exempt offerings as high as $50 million under Reg A.
Per LaPorte, the Commission will have plenty of discretion regarding how to put Title IV into effect. He said that SEC staff is looking into questions that commenters have sent in via pre-rulemaking letters, including whether reporting companies should be able to apply the new exemption, there should be a periodic reporting regime for the new cap, who should trigger reporting duties, and how similar Reg A reporting should be to crowdfunding reporting. LaPorte said that too many similarities could cause confusion for market participants.
The panel also talked about rulemaking to eliminate the Commission’s bar on general solicitation and advertising for Regulation D Rule 506 offerings under Title II of the JOBS Act. It was last August that the SEC put out its proposal to put the provisions into effect.
As for Title V of the JOBS Act, Corp Fin director Meredith Cross said that staff had two duties: what should be considered an employee benefit plan and whether rulemaking should be created to establish how accredited investors should be counted for 1934 Act Section 12(g) purposes. The provisions increase the reporting trigger for that section from 500 shareholders of record to 2,000 of record or 500 that aren’t accredited investors. Also per the title, the definition for “held of record” will not include securities obtained by persons pursuant to employee compensation ,and such employees are to be protected by safe harbor provisions that the SEC must adopt.
Meantime, last month, three House Republicans wrote the SEC asking Chairman Schapiro that in regards to the JOBS Act to say away from what they considered certain tedious requirements to confirming investor status. House Majority Whip Kevin McCarthy (R-Calif.), Rep. Patrick McHenry (R-N-C) and Rep. Scott Garrett (R-N.J) said that the Commission should hold back from putting into place requirements on investor accreditation that would create more complexity and cost and at the end of it all inhibit access to capital businesses.
Per the JOBS Act, the SEC has to not only create rules that lift the ban on general solicitation and advertising in private offerings under Rule 506 of Regulation D as long as only accredited investors buy the securities but also establish steps that companies must employ to confirm that a buyer is accredited. In August, the Commission proposed a rule that said that these steps should be grounded in each transactions circumstances and facts. While some have called on the SEC to specify the steps to making sure that buyers are sophisticated, the three Republican lawmakers are pushing for a softer approach.
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Jumpstart Our Business Startups Act (PDF)
House Republicans Urge SEC to Take Light Touch With Reg D Verification Method (PDF)
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