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Title III of the JOBS Act vote is scheduled

October 28, 2015, posted by Kim Wales

Three years after the Securities and Exchange Commission released proposed rules for Title III, Regulation Crowdfunding, news was released yesterday that the Commission will take a vote on whether or not to release the final rules for Title III on Friday, October 30, 2015.

Given the challenges with the 653 pages of proposed final rules, I am hopeful that commission took into account the 300+ recommendation letters, numerous meetings and sideline protest that would amend the final rules into a usable form.

There were many changes requested but the top 3 included:

  1. Increasing the maximum raise from $1 million to $5 million during a 12 month period.
  2. Raise the cap from $500k to $750k before requiring the issuer to provide audited financial statements and to remove the yearly mandate.
  3. Remove the Liability on funding platforms, see page 280.

The meeting at the SEC is open to the public. It is scheduled to take pace at 10:00 AM in the Auditorium Room (L-002). The proceedings are expected to be live-streamed on the SEC web site.

The SEC outlined the meeting:

  1. The Commission will consider whether to adopt rules and forms related to the offer and sale of securities through crowdfunding under Section 4(a)(6) of the Securities Act of 1933, as mandated by Title III of the Jumpstart Our Business Startups Act.
  2. The Commission will consider whether to propose amendments to Securities Act Rule 147 and Rule 504.

 

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 33rd Small Business Forum on Capital Formation Recap

By: Kim Wales, 11/26/2014 —

The 2014 Securities and Exchange Commission Government-Business Forum on Small Business Capital Formation ensued on November 20, 2014 at the SEC headquarters in Washington, D.C.

In usual form, since the signing of the Jumpstart Our Business Startups Act (JOBS Act), the crowd (attorney’s, issuers, intermediaries, regulators, investors, service providers and) scurry to wait with baited breathe to hear the status of the pending rules for Titles III (Crowdfunding) and Title IV (Regulation A+). Remaining true to form the Commission did not provide any dates on when the final rules will go live for either.

The Forum is known to advance some recommendations in the past that has influenced the health of the capital markets; though it seems like no movement has been made on the recommendations that came from the 2013 Forum, specifically focusing on Title III, as I was a panelist presenting on for the “Panel Discussion: Crystal Ball: Now that you raised money, what’s next for the company and the markets?” Waiting patiently over the webcast or in person we were sure that the Thirty-Third forum would not disappoint.

What resonated from each Commissioner and more specifically from Commissioner Gallagher in his introduction was hope that day’s discussion would “embrace the full scope of the public and the private markets in small business securities which encompasses a fully robust capital market ecosystem for small businesses which requires both.”

Further, he continued –“There is a need for continued innovation in secondary trading in the private marketplace. If additional guidance from the SEC—for example, with respect to a private resale exemption—would help the market to develop further, we should move forward on that now.”

3 Key Points from the Commissioner’s Opening Remarks

READ MORE HERE

Article Revised 11/27/2014

Congressman Patrick McHenry: Three Leg Stool Approach Needed for Regulation A+

By: Kim Wales, 11/1/2014 —

With the national election scheduled in two weeks, Congressman Patrick McHenry finds the time to continue advocating for small business and emerging growth companies in the changing markets under the JOBS Act for Title II, Title II and Title IV at Dara Albright’s New York Event held on October 21, 2014.  Ultimately, Congressman McHenry’s delivered a keynote address that focussed on capital formation issues and offering a way forward.

In the keynote address, McHenry discusses: 1). the state of play in Washington; 2) outlines the three Titles of the JOBS Act that he is passionate about; 3) provides three leg stool for Regulation A+; 4) offers an explanation about why are we working through the question of Capital Formation?; 5) provides key take away; 6) Q&A:

Summary:

State of Play: Gridlock in Washington, based on the work product witnessed or not witnessed by the American people. The JOBS Act is the most significant re-write of securities law in the last 80 years.  There is greatest hope for capital formation and economic sustainability is built into Title III – Regulation Crowdfunding so long as Investor Protection and Capital Formation remain at the forefront of a developing robust marketplace.

Congressman McHenry highlights three Titles of the JOBS Act that he is passionate about and has tirelessly lobbied and advocated for on behalf of the American people and he remains hopeful that “right and just” will win at the end of the day.

  1. Title II (Regulation D, Rule 506(c) and Rule 144A: Lifting the Ban on General Solicitation, which was a straight forward piece of legislation that went live on September 23, 2013. Working well while in it’s infancy.
  2. Title III (Securities Based Crowdfuding): The ambition of Title III was to update outmoded securities law and merge technology with finance. Currently, the law remains deeply flawed and the rule has been pending for a substantially long time (over 700 days). What should have been structured at the Commissioner level has turned into a top priority at the SEC.  Now Congress needs to fix the problem, and the SEC must work with Congress because things like cost structure does not work as laid out in the final proposed rules.  To mention a few flaws that do not work: a). audited financial statements for offering $500K or greater; b). issuance capital raise limits up to $1 million; and c). prohibition on testing the water.
  3. Title IV (Regulation A+) – The biggest opportunity presented by the SEC’s proposal is the preemption of state blue sky law. Regulation A, lifts the capital raise limits from $5 million to $50 million; in addition, a qualified purchaser can invest up to 10 percent of the net worth in an Reg. A offering.  What is needed is a well written set of laws and rules for Regulation A. This is now become a top priority for McHenry!  “We must get the rules right so that is not a  dead letter upon arrival but rather it can be a lively opportunity.”

Further, by implementing Title IV, this will allow for us to fix the question of securities based crowdfunding, more specifically equity crowdfunding because of great opportunities afforded the main street entrepreneur, retail investor, and risk takers. “In order to get this right, there are 3 legs to the stool of this alliance”, says McHenry.

3 Legs to the stool of this alliance:

  1. Congress and SEC getting this question of regulation of law correct and done.
  2. Galvanize the democratization of finance: significant amount cultural shift in the marketplace must take place and we the people must be drivers of the shift; alongside helping to create useable public policy in Washington.
  3. Open structure data on the market: we must have the best information on the markets and best market structure that can follow as a result of open structure data. This most importantly can help to move Congress and SEC in the right direction.

Why are we working through the question of Capital Formation? Entrepreneurs may not be connected to the right side of the tracks to get financing for their companies. Delivering the entrepreneur to the marketplace and connecting them to the world of capital so that we can all live better tomorrow and have real vibrant economic growth!

Take Away: Communicate and Build Relationships. Make sure that we have connection with policymakers in Washington. The SEC has an open door policy — go to Washington and introduce yourself. Go to Capital Hill and get to know your U.S. Representative. If you don’t have relationships, go an introduce yourself, to your State Ccongressman and Senator. Inform them about sound public policy. Build these relationships!

Congressman Patrick McHenry takes the final question: Kim Wales, crowdfunding industry pioneer and founder of Wales Capital and CrowdBureau ask Congressman McHenry the last question: “You talk about lobbying our Senators and Congressman, but there is a lobbying group called NASSA that is an influential body as it relates to small securities offerings across all of the states. How do we balance the discussion with that organization and their influence on all of the states in terms of pushing this bill forward (Title IV – Regulation A+)?”

 

Kim Wales speaks with Money Radio on Crowdfund Investments

January 6, 2014

What a great way to start the New Year with Industry Pioneer, Kim Wales, headquartered in New York, NY speaking with Sinclair Noe on the Financial Review Show for “Money Radio.” Kim discusses the JOBS Act, Title II and Title III timelines, Innovation, Trends and Opportunities in the burgeoning new marketplace.

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.

National Minority Angel Network – Capital Formation

On, Thursday, September 26, 2013, the National Minority Angel Network (NMAN), in conjunction with Microsoft will host an event on the JOBS Act and Capital Formation with an expert Panel of Speakers, http://www.nmanetwork.com/nyc-meet-our-panelist/, David Wield, former Vice Chair NASDAQ/Co-Author JOBS ACT/ Chair & CEO Weild & Company, Kim Wales, Entrepreneur/Visionary/Crowdfunding Expert/ CEO. Wales Capital, Doug Ellenoff, Esq. – Strategy/Transactions/Corp. Financing/Member, Ellenoff Grossman & Schole, LLP, Daryl Bryant – Successful Serial Entrepreneur/CEO, StartupValley and Hudson Horizons, Ryan Feit – Entrepreneur/Investor/CEO & Co-Founder, SeedInvest, and Mike Norman, CEO & President, WeFunder.

Small business capital is vital to our economy. With the passage of the JOBS Act for Crowdfunding, a whole new era of capital is available to small business owners of every industry and sector. Under the revisions of the Securities Act of 1933, Crowdfunding allows business owners and entrepreneurs to access the public market to fund their business from several thousand dollars up to one million dollars. But not all forms of Crowdfunding are currently legal, most businesses use pledge or donation based models to raise capital which is legal. However, if you choose to sell securities (stock or units) or raise debt then you need to know the law for Title III funding. Title III funding will increase the amount of funding and number of investors from the current amount. Title III funding  can become one of the most important sources of financing in the 21st Century for minority and woman entrepreneurs who together only represent above 1% and 4% respectively of all Angel based investments in the US. This session will provide you with an understanding of all three forms of funding, how to prepare for raising capital, meet some of the leading authorities in Crowdfunding, and businesses who successfully raised capital from Crowdfunding portals.

Click to purchase your ticket(s).

SEC Adopts General Solicitation and Advertising in Certain Private Offerings

July 10, 2013

The SEC adopts Title II 506(c) – general solicitation and advertising of the JOBS Act, which removes the uncertainty about the forward progress from Chairwoman Mary Jo White.  As for her priorities at the agency, White said during her March confirmation hearing that her top priority would be to finish rulemaking mandates under the Dodd-Frank and JOBS Act “in as timely and smart a way as possible.”

“Given the explicit language f the JOBS Act as week as the statutory deadline which passed last July, the Commission should act without further delay,” White said before  today’s vote on Title II for general solicitation and advertising.  “This does not mean, however, that the Commission should not take steps to pursue additional investor safeguards if and where such measures become needed.

Wales Capital Summary: JOBS Act TItle II – Adoption

SEC’s Final Rules: http://www.sec.gov/rules/proposed/2013/33-9416.pdf