May 21, 2012Client Alert

Developments in Securities Law - May 2012



SEC Continues Releasing Guidance on JOBS Act

As we reported in April’s Developments in Securities Law, the U.S. Securities and Exchange Commission (SEC) is issuing FAQ’s fleshing out the ambiguities and implementation details related to the Jumpstart Our Business Startups Act (the JOBS Act). On May 3, 2012, the SEC issued additional FAQs relating to Title I of the JOBS Act. Title I sets out the IPO on-ramp, scaled disclosure and other provisions applicable to emerging growth companies (EGCs). The May 3, 2012 FAQs (questions 18 through 41) supplement the initial set of FAQs (questions 1 through 17) issued by the Division of Corporation Finance on April 16, 2012. These new FAQs provide SEC staff guidance on (i) determination of EGC status, (ii) confidential review of EGC registration statements and EDGAR publication of related SEC comment letters, (iii) general financial disclosure accommodations available to EGCs, and (iv) the extended transition period available to EGCs for complying with new or revised accounting standards. These FAQs are not rules, regulations or statements of the SEC. Instead, they are merely the SEC’s current guidance on the implementation and application of the JOBS Act, based on its current understanding of the JOBS Act in light of its existing rules, regulations and procedures.


On May 7, 2012, the SEC's Division of Trading and Markets issued FAQs providing guidance on the crowdfunding intermediary provisions in Title III of the JOBS Act. The JOBS Act requires the SEC to adopt rules to implement Title III before December 31, 2012, 270 days after the JOBS Act's enactment. Among other things, the FAQs clarified that:


  • To operate as a crowdfunding intermediary, an individual or entity must register with the SEC either as a broker or as a funding portal. However, the SEC must complete its rulemaking before anyone, including currently registered brokers, can act as a crowdfunding intermediary.
  • The SEC rules will address the form and process needed to register with the SEC as a funding portal.
  • Funding portals must also become members of a national securities association registered under Section 15A of the Exchange Act. Currently, Financial Industry Regulatory Authority (FINRA) is the only national securities association registered under Section 15A.
  • The JOBS Act restricts funding portals from engaging in certain activities, including:
  • providing investment advice or recommendations;
  • soliciting purchases, sales or offers to buy the securities offered or displayed on its website or portal; and
  • holding, managing, possessing or otherwise handling investor funds or securities.
  • The JOBS Act also imposes certain duties on crowdfunding brokers and funding portals, including:
  • providing disclosure as required by SEC rules;
  • protecting the privacy of information collected from investors;
  • ensuring that each investor reviews the investor education materials, affirms that it understands the risk of loss of its investment and demonstrates that it understands the risks generally applicable to investments in startups, emerging businesses and small issuers;
  • ensuring that all offering proceeds are only provided to the issuer when the target offering amount is met and allowing investors to cancel their commitments if the target offering amount is not met; and
  • ensuring that no investor in a 12-month period has purchased crowdfunded securities that, in aggregate from all issuers, exceeds the investment limits under the JOBS Act. 


Submission of Draft Registration Statements for Confidential Review

Pursuant to the JOBS Act, an EGC whose common equity securities have not been previously sold pursuant to an effective registration statement under the Securities Act of 1933 may confidentially submit to the SEC a draft registration statement for confidential non-public review. The SEC has now implemented a secure e-mail system that allows them to receive confidential submissions under the JOBS Act as well as non-public draft registration statements from foreign private issuers. The system will also allow the SEC to securely correspond with companies regarding their draft registration statements. Click here for detailed instructions on how to use the new system.

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