Legal

SEC Forgoes Rule Making and Addresses Research Analyst Reforms under JOBS Act in FAQ

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While much of the emerging growth capital market was fixated over the past two weeks on the Securities and Exchange Commission’s vague proposals lifting the ban on public solicitation for investments in private placements, the agency issued a FAQ outlining its stance on the JOBS Act’s repeal of restrictions on sell-side research analysts’ participation in investment banking activities. While similarly paradigm-shifting in its impact on capital raising, the release of the interpretative document has received little attention outside of securities law circles. The SEC’s Division of Trading and Markets issued the FAQ in late August as an alternative to new rulemaking vis-à-vis the JOBS Act, which explicitly forbids preventing analysts from participating in capital raising meetings with investors and company management teams.  That had been the case since the Global Analyst Research Settlement agreement on sell-side research activities was adopted in 2003. The post-JOBS Act interpretation of permitted analyst conduct construes the Act’s provisions “narrowly” according to Sidley Austin’s Jim Brigagliano, a former deputy director at the SEC, in a client briefing published in late August. Brigagliano wrote that the SEC interprets the JOBS Act changes to provide that:

Investment banking personnel may play a role in arranging analyst communications with investors.

Legal

SEC Cans Ad Ban on Private Placements

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It’s hard to imagine any one constituent group being overly enthused about the Securities and Exchange Commission’s effort to write rules that implement general solicitation in private offerings as mandated by the JOBS Act. Although the proposal was accepted on a vote of 4-1, lawmakers and some commissioners voiced displeasure that the SEC failed to meet the law’s proscribed 90-day deadline and that SEC Chairman Mary Schapiro late in the game elected to issue a proposal and take comments for 30 days instead releasing of an interim final rule. State regulators and other organizations predicting widespread fraud can’t be pleased that the proposal didn’t include their suggestions for strict, well-defined procedures for issuers to follow when verifying that a purchaser is an accredited investor. Parties that lobbied to keep the verification process the same as it is today – largely certification by buyers that they are accredited investors via questionnaires – may be uncomfortable with the proposed “facts and circumstances” test to establish a “reasonable belief” that a purchaser is in fact an accredited investor. And although allowing general solicitation has been a centerpiece of discussion among market participants over the last several months, practitioners may nevertheless have a tough time wrapping their minds around the change.

Legal

Shells Brandish the Emerging Growth Company Label

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In May 2007, New York-based blank check company Madison Ventures Capital Group registered with the Securities and Exchange Commission to sell 3.2 million shares. After filing amendments over the next few months, it dropped off the radar. Until recently. Madison Ventures resurfaced in April and withdrew its Form S-1. Ten days later the company, which is sponsored New York-based Mintz & Fraade Enterprises and Boca Raton, Fla.-based Sierra Grey Capital, registered as a Form 10 blank check.

Legal

Spirited Debate on General Solicitation

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With the Securities and Exchange Commission scheduled on Aug. 22 to roll out rules allowing general solicitation for Rule 506 offerings under Regulation D, the National Small Business Association (NSBA) made a late-inning plea to steer away from imposing a new and complex “regulatory regime” on issuers. The letter, submitted on Aug. 2 as part of the commission’s request for comments related to the JOBS Act provisions, attempts to rebut arguments calling for SEC to hold issuers to a high standard when verifying whether investors in such an offering are in fact accredited investors. Under Title II of the Act, Congress did away with the ban on general solicitation in Rule 506 offerings, provided issuers take “reasonable steps” – as determined by the commission – to verify that only accredited investors participate.