NSBA Testifies for Reasonable JOBS Act Implementation

September 18, 2012

On April 5, 2012, the President signed into law the JOBS Act. NSBA strongly supported this bipartisan legislation which is designed to substantially reduce the regulatory impediments to small firms’ access to capital markets.  Properly implemented by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), it will dramatically improve small companies’ access to capital and reduce their cost of capital.

On Sept. 13, NSBA Treasurer Jeff Van Winkle testified about JOBS Act implementation before a Joint Hearing of the Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs of the Committee on Oversight and Government Reform and the Subcommittee on Capital Markets and Government Sponsored Enterprises of the Committee on Financial Services.

Mr. Van Winkle expressed NSBA’s concern “that either the SEC or FINRA or both will impose such a high regulatory burden on issuers and crowdfunding portals that important aspects of the JOBS Act may become a dead letter.  This would frustrate the intent of Congress and the President, and would have a severely adverse impact on the ability of small firms to raise the capital necessary to create jobs and to play a major role in improving the U.S. economy.  Moreover, there are important indications that the SEC and FINRA are moving too slowly to implement the JOBS Act.”

The Commission was required to have issued a final rule by July 5 implementing the provisions allowing small businesses to advertise seeking accredited investors in their company.  On Aug. 29, the Commission finally agreed to a proposed rule. That rule effectively parrots the underlying statutory language by eliminating the ban on general solicitation and requiring that “[t]he issuer shall take reasonable steps to verify that purchasers of securities sold in any offering under this § 230.506(c) are accredited investors.”

Clearly, the Commission was feeling pressure to issue a rule as required by the JOBS Act.  Equally clearly, as demonstrated by the public comment record and press reports, the Commission was feeling pressure from state regulators, self-styled consumer groups, labor unions and others who opposed the JOBS Act to use the statutory verification requirement as an excuse to implement a complex and expensive regulatory regime that would effectively nullify the JOBS Act provision allowing general solicitation.

It is not clear whether the Commission will adopt something similar to the proposed rule, go down the road of mandating a series of steps by issuers or creating a safe-harbor composed of specific steps similar to those outlined in the proposed regulation.

On balance, after careful consideration of the likely outcome given the current situation, NSBA has decided to support the proposed rule in its current form.  Although the proposed rule could be better, it is unlikely to improve.  It is better to let practitioners, experience and courts work out the contours of the verification requirement over time.

The JOBS Act requires the SEC to issues crowdfunding rules by year end.  At this point, it is virtually certain the SEC will miss this deadline.  The situation at FINRA is probably worse.  NSBA has forcefully urged the SEC and FINRA to issue the rules required to make crowdfunding a reality by the Congressionally mandated deadline.

To read NSBA’s testimony, click here.