Many entrepreneurs are wondering when they will get to take advantage of those parts of the JOBS Act that were heralded as new catalysts for start-up equity financing, particularly those sections of the Act engineered to permit crowdfunding (the ambitiously acronymed “CROWDFUND Act”) and the advertising of certain private equity offerings under the SEC’s Rule 506. The JOBS Act was signed into law over ten months ago (April 5, 2012), but so far, it’s business as usual for startups looking to raise capital. So what’s happening?
Well, the JOBS Act is still in place, and the portions of it that start-up entrepreneurs generally care less about, like the so-called “IPO on-ramp” providing easier requirements for taking public certain “emerging growth companies” (i.e., those with annual revenues under $1 billion), took effect when the JOBS Act became law. But the portions of the JOBS Act pertaining to crowdfunding and advertising private placements were not “self-executing”—those new laws merely directed the SEC to change its current regulations (with respect to Rule 506 private offerings) or to draft completely new regulations (with respect to the CROWDFUND Act). The SEC must promulgate those new or amended regulations before those portions of the JOBS Act can have any effect. It’s important to emphasize here that, until the SEC implements these new rules, nothing has changed; rumors that crowdfunding is now permissible are just that—rumors.
Congress did not commit the management sin of not giving the SEC deadlines (at least not for these two particular portions of the JOBS Act). The amended regulations to implement the changes to Rule 506 to permit general solicitation and advertising of certain private offerings of securities were due on July 4, 2012, and the new regulations for implementing the CROWDFUND Act were due on December 31, 2012. So what happens when Congress sets a deadline and the SEC doesn’t meet it? Generally speaking, nothing happens unless it becomes a political priority, and currently the Congress has bigger fish to fry (e.g., the debt ceiling and the temporarily forestalled fiscal cliff).
It’s arguable that the proposed deadlines were overly ambitious, and that the regulations—especially those for implementing the CROWDFUND Act—must address complex and elusive issues left unresolved by Congress when it hastily pushed through the JOBS Act last March. But the biggest obstacle facing implementation of the CROWDFUND Act and the permission of general solicitation and advertising of Rule 506 private offerings is the controversial nature of those provisions within the SEC, with certain commissioners favoring the implementation of the legislation with loose regulations and others opposing implementation without strict regulation to protect unwary investors. At the same time, the leadership of the SEC has experienced significant turnover in recent months. The former chairman, Mary Schapiro, stepped down in December, leaving four commissioners (two Democrats and two Republicans) to direct the commission. Chairman Schapiro’s resignation was closely followed by those of the directors of three of the SEC’s five divisions, including the director of corporation finance.
Until the new chairman is confirmed and those empty director positions are filled, any progress on the regulatory front for the JOBS Act is unlikely. When anything worthy of mention does come about, we’ll be sure to mention it here.
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