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The SEC Adopts JOBS Act Title IV: Regulation A+

By: Kim Wales (NY) — 03/25/2015

Today marks another milestone in the life cycle of the Jumpstart Our Business Startups Act (JOBS Act) — Regulation A+ is approved. With the three-year anniversary only two weeks away and after many recommendations submitted by myself and fellow colleagues, the Securities and Exchange Commission voted unanimously on the adoption of Title IV: Regulation A+ for small securities offerings.  This is a big step towards furthering the democratization of the capital markets for emerging growth companies.

“These new rules provide an effective, workable path to raising capital that also provides strong investor protections,” said SEC Chair Mary Jo White. “It is important for the Commission to continue to look for ways that our rules can facilitate capital-raising by smaller companies.”

Tier 1 offerings will be subject to federal and state registration and qualification requirements, and issuers may take advantage of the coordinated review program developed by the North American Securities Administrators Association (NASAA).

The rules will be effective 60 days after publication in the Federal Register.

Here are some highlights for the adoption of Regulation A+. Both Tiers are subject to certain basic requirements while Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.

1. State Blue Sky preemption and qualification requirements for securities offered or sold to “qualified purchasers” in Tier 2 offerings.

2.  Tier 1 issuers can raise up to $20m rather than the limited $5m maximum in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer.  The coordinated review process by NASAA will only be used for tier 1 offers.

3.  Tier 2 offers and issuers can raise up to $50m in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer.

3. Regulation A+ offerings are exempt from the mandatory 12(g) registration thresholds – so long as the issuer engages services of a registered transfer agent, remains subject to and current in a tier 2 reporting obligation and meets public float and revenue requirements similar to those in small reporting companies and exchange act rules.  The details of the reporting rules should be included in the final rules.

4. The JOBS Act mandates the Commission to review Tier 2 limits every two years.

5. Issuers raising capital using Regulation A+ may submit draft offers to the SEC staff, use electronic filing process on EDGAR, ability to use test the waters solicitation materials both before and after the filing of the application process.

6. Additional Tier 2 Requirements:

– Financial statements included in the circular will be audited annually.

– Semi and annual outgoing reports and current event updates that are scaled to Regulation A offerings.

– Limit the number of securities, non-accredited investors can purchase, up to 10% of the greater of annual income of net worth natural person; and

– Limit the purchase of 10% of the greater of annual revenue or net assets of unnatural persons.

– Issuers will use Form 8a — short form registration statement concurrently with a qualification Regulation A offering statement to register securities class 12(b) or 12(g) of the total package of investor protections to be included in the implementation of Reg A offer.

“Moving Title IV forward is a positive step in stimulating the economy, however, start-ups will still find it challenging to raise money using Reg. A because the cost and process  remains burdensome for this stage of company, says Kim Wales, founder of Wales Capital.” As an advocate for the JOBS Act and policy reform, “we still need to get the rules released for Title III and raise the limits up to $5 million and exclude investment limits for accredited investors” as prescribed in my recommendation letter “Limitation of Capital Raised,” February 23, 2014. “This is the part of the JOBS Act that will help all people.”

SEC and FINRA Released Proposed Final Rules for Title III

Today, October 23, 2013 marks an exciting day for the alternative class of issues for Crowdfund Investments.

The Securities and Exchange Commission (SEC), unanimously voted during an impromptu scheduled Sunshine Meeting to release the Proposed Final Rules for Title III of the Jumpstart Our Business Startup Act (JOBS Act). It was noted that FINRA would also released Proposed Rules for Funding Portals and Form FP-NMA for public comment.  This move is in the right direction to begin putting in place mechanisms that create jobs and spur on capital formation for small emerging business as the JOBS Act was intended, given that unemployment nationally remains high at 7.2%. The proposal as outlined in the meeting included very similar rules to that which is currently in Draft Proposal.

In addition to ensuring the investor protections are in place for the crowd; the rules provide for methods in which the issuers and intermediaries will be able to conduct business.

It was noted that investors should be protected and have confidence that the market being created knows how to price the securities while being diligent in helping to prevent against fraudulent activities. Capital formation is a global process and when approached objectively, capital formation enhances confidence, promotes integrity and fosters market transparency. The criticality of each business owner, investor and intermediary to read and comment on the proposed rules will set the foundation for the development of this burgeoning Crowdfund Investing industry.

Along with investor protections being at the forefront in all comments, Commissioner Stein called for specific comments in three areas:

 

1. How much should an investor be able to invest? Which method should be used to determine such an answer, Income versus NET worth test?

2. Should non-US based Funding Portals be permitted to conduct business in the USA by registering with the SEC and FINRA?

3. What should Issuers responsibility be for tracking securities holder’s records? Specifically, what role could third party service providers offer to manage record holder information.

What should the public expect in the coming days?

 

1. The SEC will issue proposed rules for public comment along with 295 questions that have to be addressed by the public through the letter writing process.

2. FINRA will issue proposed rules for public comment as related to Intermediaries.

Note that the public comment period in each instance for FINRA and the SEC should be 90 days from the day the Final Proposed Rules are listed in the Federal Register in the case of the SEC.

For more information on the JOBS Act, Title I through VII, please contact Wales Capital, 212-736-6884, info@walescapital.com.

SEC’s White Said to Push for Lifting Ban on Hedge-Fund Ads

White, who became SEC chairman on April 10, 2013, has suggested the commission pass the existing plan without major changes and add additional protections later, said the people, who declined to be identified because the deliberations are private. The approach would placate congressional Republicans who have complained the SEC has slow-walked the rule, which was required to be completed by July 2012.

http://mobile.bloomberg.com/news/2013-04-26/sec-s-white-said-to-push-to-lift-ban-on-hedge-fund-advertising.html