The House of Representatives recently voted to pass The
Jumpstart Our Business Startups (JOBS) Act (H.R. 3606), a
collection of several bills focused on barriers to capital formation. I'm
focused on the bill because of mostly because of the Access
to Capital for Job Creators section that would override the ban on general
solicitation and advertising
I welcome some sensible changes to Regulation D because I
find the ban a bit vague as part of the fundraising process. Private fund
managers could use guidance from the SEC on what is allowed and what is
prohibited by the ban.
On the other hand, knowing the general ban exists makes
it easy to dismiss scams and spam spinning tales of possible investment
opportunities. That unsolicited message is either a straight-up scam or a naive
entrepreneur who thinks they can operate without competent advice. Either way
you can easily dismiss the opportunity.
Another provision of the JOBS Act that I found
interesting is the Private Company Flexibility and Growth Act. The main purpose
is to raise the thresholds under Section 12(g)(1)(A) of the Exchange Act.
Currently under that provision, private companies with more than 500 shareholders
and a big stream of revenue effectively have to become public companies. That
shareholder limit forced Google into going public and most recently is forcing
Facebook to go public.
The centerpiece of the JOBS Act is the new crowdfunding
platform. Currently, platforms like Kickstarter are prohibited from offering
equity. Project sponsors have to ask for donations, offer schwag, or pre-sell
products. All of which seems to work very well.
Commentators like William Carleton think the concept of crowdfunding will be great for
entrepreneurs. The Wall Street Journal has a point-counterpoint this
morning on crowdfunding:
Like most stuff coming out of Congress, even if the
concept is good I think Congress is likely to screw up the drafting of the law.
That is my view of the JOBS Act. Most of the concepts are
good, but the execution is poor. I think Congress is missing the balance
between investor protection and access to capital. That opinion is shared by
the North American Securities Administrators Association. Here is a snippet
from an editorial by Jack E. Herstein, president of NASAA:
The most jobs this cleverly named bill may create are
jobs for fraudsters, like the Nigerian scammers, penny-stock pitchers and Ponzi
schemers already lurking behind the Internet to cloak their schemes.
The Senate is mulling over their version of these bills
where it seems to have bi-partisan support. President Obama has also thrown his
support to some of the concepts in the JOBS Act. It seem likely that something
will pass. According to Talking
Points Memo it looks like Senate Majority Leader Harry Reid is willing to
trade support for the JOBS Act for approval of some judicial nominees.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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