NSBA Urges Small Businesses to Contact SEC on JOBS ActApril 25, 2013
NSBA is urging all small businesses to weigh in on regulations pertaining to the NSBA-supported JOBS Act. This legislation was enacted last April and has the potential to dramatically and positively transform the ability of small firms to access the capital they need to grow, to innovate and to create jobs. Implementation is currently stalled at the Securities and Exchange Commission (SEC). The JOBS Act will help small firms raise debt and equity capital in private placements and through crowdfunding web portals, reduces regulatory costs, allows small firms to lawfully advertise on the web or in newspapers for investors or lenders and makes various other positive changes. It also improves the ability for small firms to access the public securities market (both through an improved Regulation A and reduced regulation of small public “emerging growth companies.”
But this will only happen once the SEC issues regulations under the law and only if those regulations are reasonable. The SEC has already missed two critical JOBS Act deadlines and there is strong reason to believe that it may so heavily regulate crowdfunding that it will not be a viable option for small firms.
The SEC has issued a proposed rule that would implement the JOBS Act provision allowing general solicitation and general advertising in Regulation D private placements. This would allow small businesses to place advertising seeking accredited investors for their business. Generally, accredited investors are institutions or persons with incomes over $200,000 ($300,000 joint) or a residence exclusive net worth of $1 million or more. The JOBS Act required the SEC to finalize this rule by last July. Although it is far from ideal, NSBA supports the proposed rule.
The JOBS Act also required the SEC to finalize the crowdfunding rules by the end of 2012. To date, they have not issued even proposed rules.
Both general solicitation under Regulation D and crowdfunding remain prohibited until the SEC issues final rules. NSBA wants the SEC to issue the rules and to ensure that the rules are not so burdensome that the JOBS Act is of little practical value to small firms.
Small firms can weigh in. The SEC web page accepts comments on the JOBS Act. There is a major effort underway by state regulators, consumer groups and unions to undermine the JOBS Act through the regulatory process. It is important that small business express their views. It is critical that the voice of small firms is heard.
NSBA has crafted a draft letter you can download, personalize and send to the SEC. Click here to download the draft letter.
To comment on the JOBS Act generally, click here.
To read the proposed rule on general solicitation, click here.
To read NSBA’s comments on the SEC proposed rule on general solicitation, click here.
Background on the JOBS Act Implementation
The JOBS Act required the SEC to issue a rule by early July to implement the general solicitation provisions of the law allowing companies to advertise seeking investors or lenders. On Aug. 29, the SEC issued a proposed rule which adds little to the statutory language in the JOBS Act permitting general solicitation for accredited investors or regarding the requirements that companies “take reasonable steps to verify” an accredited investor’s status. An accredited investor has an income over $200,000 ($300,000 joint) or a net worth over $1 million (excluding the primary residence). Most institutions also qualify as accredited investors.
In our judgment, the traditional, and almost universal, current practice of using investor suitability questionnaires combined with investor self-certification to establish accredited investor status should continue to be allowed and be deemed to constitute taking reasonable steps to verify that purchasers of the securities are accredited investors, as required by the JOBS Act. There is neither legislative history supporting nor any other reason to believe the proposition that Congress intended to undermine the laudable policy goals of the Act by changing the current long-standing practice with respect to verifying accredited investor status.
No matter how the SEC ultimately proceeds, the reasonable belief standard regarding accredited investor status should be retained and the rule needs to be written so that offerings not involving general solicitation are not in a worse position than they were prior to the passage of the JOBS Act.
Please click here for more background and to read about NSBA’s testimony on the issue.
To read NSBA’s comments to the Financial Industry Regulatory Authority (FINRA) regarding crowdfunding, click here.