Legal
SEC

Repeal of General Solicitation Ban Ushers in New Era for Private Offerings

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Last week’s long-anticipated repeal of the ban on public advertising of private securities offerings either ushers in a new era of transparent, information-rich, digitally-greased, and crowd-vetted capital markets, or it is a leap into the abyss that will pervert the most trusted capital markets in the world into a carnival midway of investment hustlers, crowd madness panderers and common thieves. That seems to be the consensus, or lack thereof, of regulators and growth capital professionals surveyed in the wake of the SEC’s action to implement the mandate set by Congress a year ago when it passed the JOBS Act. On July 10, the Securities and Exchange Commission held an open meeting regarding its nine-month old proposal to repeal the ban on the advertising and general solicitation of Regulation D securities offerings. Although the amendment, known as Rule 506(c), was ultimately adopted, concerns regarding investor protection were raised by two commissioners, Elisse Walter and Luis Aguilar. 

Walter’s concerns about the risks of fraud and the promotion of investments inappropriate to less sophisticated investors came short of persuading her to vote against the repeal. Aguilar was blunter in his criticism, decrying the Commission’s move to repeal the ban before approving additional mitigating rules aimed at keeping “bad actors” out of the market and strengthening disclosure requirements for private offerings.

Markets
Cromwell Coulson

OTC Markets’ Coulson Testifies to House Capital Markets Committee

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R. Cromwell Coulson, CEO and president of OTC Markets Group (formerly the Pink Sheets), addressed the financial needs of small public companies in a June 12 presentation to the U.S. House of Representatives Capital Markets and Government Sponsored Enterprises subcommittee. The hearing was entitled, "Reducing Barriers to Capital Formation." Coulson began by outlining his primary concerns. "We want more openness so our public markets are more inclusive, we want better transparency so our public markets are better informed, and we want more connectivity so our public markets are more efficient," Coulson said. "Finally," Coulson continued, "we want to remove unneeded regulatory burdens in order to reduce the cost and complexity imposed on smaller public companies."

Views

SEC Clears a Path for a Viable Equity Capital Marketplace with Second No-Action Letter on Angel Crowdfunding

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When the SEC followed up its March 29 “No-Action” letter to an online angel investment platform with a second letter a day later addressing the same issue to a different online angel funding startup, it did something that no-action letters aren’t supposed to do: it made policy. And by successively offering to stand-down from enforcement of the onerous broker-dealer rules governing most equity offerings, it cleared a path, albeit rock-strewn and circuitous, toward a viable crowdsourced equity market – something that the agency has been unable or unwilling to do within the mandates of the JOBS Act. The message delivered by the agency in those letters to the FundersClub and AngelList online angel funding websites was that small but not insignificant amounts of investment capital may be aggregated together through online networks and restricted equity securities distributed in return, without registering as a broker-dealer or as a JOBS Act “crowdfunding portal,” FINRA’s soon-to-be Cinderella stepchild. William Carleton, an attorney that has watched the JOBS Act implementation closely and regularly writes about it at Crowdsourcing.org and his own blog, calls the publication of the two letters “momentus.” While cautioning that no-action letters only establish a “green zone” within which certain activities are allowed given specific conditions and contexts, he still nonetheless believes they were meant to sketch out a framework for exempted crowd fund-raising and investment. “[I]t is fair to say that no-action letters are rarely, if ever, as high profile as these two,” Carleton wrote.

Legal
Mary Shapiro

Resignation to Prolong JOBS Act Wait

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Champions of small growth companies were filled with optimism in the spring that the Securities and Exchange Commission would swiftly write rules to implement capital-unleashing provisions in the JOBS Act. By early fall they began to temper their expectations, hoping that maybe some regulations would fall into place around the beginning of the year. But last week’s resignation of SEC Chairman Mary Schapiro is turning any remaining optimism into despair – at least in the short term. While Schapiro has been largely criticized for dragging her feet on addressing the JOBS Act, the agency now finds itself in a transition period without a full complement of commissioners that some believe could delay full implementation of the Act until early 2014 or later. Shapiro’s  departure creates even more uncertainty about when the commission will get around to finalizing rules that would allow issuers to advertise Rule 506 offerings to accredited investors, enact crowdfunding and increase the size of Regulation A offerings.