Tag: JOBS Act

Comments on Advertising Restrictions for Private Funds

Section 201 of the recently passed Jumpstart Our Business Startups Act will change the advertising limits on private funds and any other company that raises capital through the private placement safe harbor in Rule 506 of Regulation D. That rule has historically prevented the use of general solicitation and advertising in selling private fund interests. Section 201 requires the SEC to lift the ban through a new rulemaking and gave the SEC 90 days (July 4) to do so.

I still find it strange that Congress did not just create revise the underlying statutes to allow solicitation and advertising in private offerings not registered with the SEC. Instead, Congress took the convoluted route of requiring the SEC to change a rule that interprets a statutory provision of the Securities Act. That injects some uncertainty into what limitations, if any, the SEC will continue to require after July 4 (or whenever the new rule goes into effect).

There are a few other points in Section 201 that concern me and make me worry about fundraising in the post JOBS Act regulatory world.

First, Section 201 limits sales only to accredited investors when using general advertising or solicitation. Currently, a Rule 506 offering can have up to 35 non-accredited investors. That would typically include friends and family investors. It would also include employees.

Second, Section 201 requires the SEC to include a requirement that the issuer take reasonable steps to determine accredited investor status using methods determined by the SEC. That could radically change the current practice and safeguards in the fundraising process.

Third, I’m concerned what the effect will be for a fund or other issuer that ends up selling to a non-accredited investor. A fund can take reasonable steps to determine if a potential investor is accredited. But the investor could be deceptive. That would leave the fund in violation even though it reasonably believed the investor was accredited.

Fourth, Section 201 purports to lift the ban across all federal securities law. In particular, I’d prefer clarification that the advertising and solicitation applies to the Section 3(c)(1) and 3(c)(7) of the Investment Company Act that permits most private funds to avoid regulation under that law.

In looking through the comments letters to Section 201, I see that I am not alone in these concerns.

The American Bar Association’s Federal Regulation of Securities Committee does a a great job of focusing on my fourth concern and asks for a clear statement that “an offering of fund shares pursuant to Rule 506 or Rule 144A utilizing general solicitation or general advertising will not be a ‘public offering’ for the purposes of Section 3(c)(1) or 3(c)(7) of the Investment Company Act.”

The letter also requests clarification of the reasonable belief standard in the Rule 501 definition of accredited investor.

“any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person…”

The letter falls short in its comments to the verification practice. It merely asks the SEC to have the rule reflect “current custom and practice” without letting the SEC what the customs and practice is. (It’s asking the investor to fill out a questionnaire.)

In it’s comment letter, the Managed Fund Association focuses on reasonable steps for the verification process.

In general, each potential hedge fund investor must complete a subscription document provided by the fund’s manager that provides a detailed description of, among other things, the qualification standards that a purchaser must meet under the federal securities laws. In completing the subscription materials, each investor must identify which applicable qualification standard it meets. In addition to these procedures, many hedge funds managed by MFA members obtain further assurance of the qualification of their investors by virtue of minimum investment thresholds that meet or exceed the net worth requirement in the definition of accredited investor.

The Managed Fund Association also asks that the knowledgeable employee exemption be extended to Rule 506. With private funds, investors prefer (demand?) that senior management have a significant investment in the fund. This aligns interests among the investors and management. When operating under the Section 3(c)(7) exemption from the Investment Company Act, the issue then becomes how a private investment fund can provide an equity ownership to key employee when it’s unlikely that your key employees will have the $5 million in investments needed to qualify as  a Qualified Purchaser. The SEC established Rule 3C-5 to allow “knowledgeable employees” to invest in their company’s private fund without having to be a qualified purchaser. The rule also exempts these knowledgeable employees from the 100 investor limit under the Section 3(c)(1) exemption from the Investment Company Act. The Managed Fund Association recommends

that as part of the implementation of Section 201, the SEC amend the definition of “accredited investor” to include those individuals who meet the definition of “knowledgeable employee” in Rule 3c-5 under the Investment Company Act.

The New York City Bar splits the verification process by asking for a principle-based approach with a non-exclusive safe harbor. Their comment letter points out the body of existing practice and asks the SEC to build on it, rather than replace it.

The clock is ticking and the SEC has very little time to produce a proposed rule for comment. I wouldn’t be surprised to see the SEC miss the deadline given all of the other rule making piled up in front of them. That means the advertising may have to wait that much longer.

Sources – Comment letter from:

Update on the new regulations and how they will impact you going forward

These are my notes from the “Update on the new regulations and how they will impact you going forward” session at the Private Fund Compliance Forum 2012. Excuse the typos and rambling nature. They are just my raw notes.

Moderator:

  • Karen Barr, General Counsel, Investment Adviser Association

Panel Members:

  • Jason E. Brown, Partner, Ropes & Gray LLP
  • Jason Mulvihill, General Counsel, Private Equity Growth Capital Council

Form PF

Should you be thinking about Form PF now? Depends. The reporting deadlines and substantive information varies depending on the type of fund and the size of the fund. If you filled out 7B1 in the Form ADV Part 1 then you need to file a Form PF.

Distinguishing between a hedge fund and private equity fund is a key to the reporting. It’s very technical. Can you charge a carry based on unrealized gains? Can you sell short? You may be a hedge fund. If you have different types of funds, you could be consolidated together to be a large hedge fund and have increased reporting obligations.

Good news. The filing of Form PF no longer has the “signing under penalty of perjury standard.” The SEC realized it’s more of an art than a science.

Focus on section 16 that asks for characterizations of investors. The SEC has made it clear that you need to gather the information on investors starting in March 2012. This is for new fund raising and transfers.
Is the Form PF information confidential? Supposedly. SEC says it will be confidential. Congress will have access. You can avoid listing the name of your fund.

Volker Rule

We are still waiting on the final wording of the Volker Rule. The Devil is in the details. The rule could limit the types of investors in private equity firms and limit the amount an investor could commit to a fund. There is lots of crafting going on. The final rule could be materially different from the proposed rule. There is a statutory compliance deadline starting on July 21, 2012. How do you become compliant with a rule that does not yet exist? Lots of uncertainty. Wait and see.

Incentive Compensation Rules

Section 956 of Dodd-Frank requires some disclosure and rule around executive compensation. The regulators issued a proposed rule. Firms will need to disclose compensation structure to regulators. Not the dollar amount, but how the compensation is calculated. Firms will need to analyze whether the compensation resulted in increased risk taking.

The level is $1 billion of asset. Not assets under management, but assets on the balance sheet. That would seem to exclude most private equity fund managers. You should expect some more clarification under the final rule. The proposed rule works well for banks, but gets murky when applied to fund managers. Look at question 1.O on Form ADV. If you checked that box, you are subject to this rule.
There is some concern that carried interest could be pulled into the 3 year holdback requirements under the proposed rule. That would seem strange since the carried interest has already been subject to a realization and usually lengthy investment period.

Treasury Regulations

There are treasury forms that have been on the books for years that nobody fills out.
Form SLT is the new form and the Treasury has used that as a tool to make firms aware of the other forms. Form SLT is based on foreign investments. The form is looking for more than $1 billion in foreign investments and more than $1 billion of foreign investors. There is an exclusion for direct investments.

Form S is also there for foreign investments and foreign investors. Add in Form SH.

BEA filings come out of the Department of Commerce, but Treasury helped publicize it. The BEA form is triggered if you own more than 10% of a foreign company. It requires lots of information. (The instructions say it will take 84 hours to complete the form and are required quarterly.)

FBAR is if you have control over a non-US account. Fortunately, it’s a short form. Add in FATCA and the proposed rules coming out on reporting for foreign accounts.

CFTC Regulations on swaps

The CFTC definitions are very broad. Trading even a small amount of commodities pulls you into the definition of a commodity fund. Dodd-Frank includes swaps into the definition of a commodity. The rules are not final yet. However, the CFTC has begun changing lots of other rules that get affected by the change in definition.

The CFTC has removed the broad exemption if you had all sophisticated investors, analogous to 3(c)(7). The other common exemption is a de minimis exemption. The broad exemption has been eliminated. There is a December 31, 2012 deadline for compliance. It’s tricky because a swap is not yet a commodity. There are lots of interpretive issues.

If you register as a commodity pool operator do the rules harmonize with the SEC’s investment adviser rules? No. The NFA (equivalent to FINRA) requires lots of information.

If you can fit under the de minimis exception, there is an annual filing requirement. For most private equity firms, you should be able to meet the de minimis exception. The threshold is 5% and 100% notional. The biggest footfall is likely to be hedging a credit facility before there is much investing.

JOBS Act

What happened? It was surprise that there was such bi-partisan support for this bill.

The law repeals the ban on general solicitation and advertising. This is still subject to SEC rule making. Don’t start advertising yet.

Keep in mind that two of the SEC commissioners sent letters to Congress that they were opposed to the bill and may take a harsh view in implementing the rules.

The change to 12(g) raising the limit of holders of record above 500 to 2000 allows for bigger funds. Although it be unusual to have a private fund with so many LPs.

Will Private Funds Be Excluded?

Title II of the Jumpstart Our Business Startups Act directs the SEC to lift the ban on general solicitation and advertising under Rule 506 of Regulation D. That rule creates a safe harbor that deems the covered transactions to not involve any public offering within the meaning of section 4(2) of the Securities Act.

However, private funds also have to deal with the restriction in the Investment Company Act that also limits public offerings. Under the exclusions in 3(c)1 and 3(c)7 the fund must be an issuer “which is not making and does not presently propose to make a public offering of its securities”. Historically, the SEC has interpreted the meaning of “public offering” to be the same between the two acts. So not being a public offering under Rule 506 meant the offering was not public under the Investment Company Act.

For real estate fund managers relying on the 3(c)5 exclusion, there is no ban on a public offering in that exclusion.

The JOBS Act requires the SEC to revise its rule, so we don’t know exactly how the changes to Rule 506 will work. It’s possible that the SEC will limit the changes to the Securities Act and not open general advertising to funds under 3(c)1 and 3(c)7 who are required to be private.

However, Section 201(b) of the JOBS Act contains this:

(b) CONSISTENCY IN INTERPRETATION.—Section 4 of the Securities Act of 1933 (15 U.S.C. 77d) is amended—

(1) by striking ‘‘The provisions of section 5’’ and inserting

‘‘(a) The provisions of section 5’’; and

(2) by adding at the end the following:

‘‘(b) Offers and sales exempt under section 230.506 of title 17, Code of Federal Regulations (as revised pursuant to section 201 of the Jumpstart Our Business Startups Act) shall not be deemed public offerings under the Federal securities laws as a result of general advertising or general solicitation.’’.

(My emphasis)

I assume the Investment Company Act is part of the “Federal securities laws.” I suppose you could argue that the Investment Advisers Act and the Investment Company Act operate separately from the Securities Act and the Exchange Act. That would be a tough argument for the SEC to make. The SEC could explicitly not include 3(c)1 and 3(c)7 under the changes to Rule 506.

That would seem unlikely. Take a look at the SEC’s own website “Researching the Federal Securities Laws Through the SEC Website” where it lists the Investment Company Act and Investment Advisers Act as part of the federal securities laws.

More likely would be the SEC issuing a rule with no mention of 3(c)1 and 3(c)7 or the Investment Company Act. That might leave practitioners a bit nervous about the gap.

Sources:

Steps to Determine if an Investor is Accredited

Private funds will be able to advertise and solicit for investor, provided all of the investors are “accredited investors.” The will dramatically change the way capital raising for private funds operates.

The drawback is the loss of 35 non-accredited investors in the fund. That exception has been eliminated. Funds will need to wait until the Securities and Exchange Commission issues the rules under Section 201 of the JOBS Act.

Part of those rules may be a mandated approach to determine if someone is an accredited investor.

“Such rules shall require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission.”

The SEC may take the opportunity to mandate an approach to validate an investor’s financial standing. As with most regulations, it could clear up uncertainty or create a paperwork headache (or both).

Will you need a copy of an investor’s W-2? A certified financial statement? Those are reasonable requests. However it would create much more personal information that would need to be safeguarded by the fund sponsor.

There is the possibility that the mandated approach would also address the requirements to determine if an investor is “qualified client” under the Investment Advisers Act or a “qualified purchaser” under the Investment Company Act.

We will have to wait and see what comes out of 100 F Street.

Sources:

Compliance Bits and Pieces – JOBS Act Edition

The Jumpstart Our Business Startups Act is soon to be law. Here is a smattering of post that caught my attention.

In spite of what you may heave heard, the Senate just effectively killed crowdfunding by Alexander J. Davie

The replacement crowdfunding bill is significantly more complex and fraught with liability for issuers. While even the McHenry approach had some degree of complexity, the Merkley version makes it look simple and straightforward in comparison. Here are just a few examples of some of the differences that I think will sink the new crowdfunding law and prevent it from being of any practical use: ….

The “JOBS” Act and the Capital Raising Process (Crowdfunding and the Consequence of Gambling) by J. Robert Brown Jr. in The Race to the Bottom

But in fact, the crowdfunding exemption included in the JOBS Act is not limited to amounts that investors can afford to lose. The provision allows those with an income or net worth of less than $100,000 to invest up to 5% of that amount or $5000 every year. For those with a net worth or annual income above $100,000, they can invest up to 10% of that amount or up to $100,000 during any 12 month period.

The Three Audiences of the JOBS Act by William Carleton

No one can really know for sure, of course, but I would say that the changes made in the Senate to crowdfunding will make crowdfunding and angel financing mutually exclusive. It’s a bit ironic, but Title II of HR 3606 in many ways puts true crowdfunding behind the accredited investor gate, while giving non-accrediteds a new kind of limited offering registration as an alternative to the others (little used) already out there.

Chowing Down On The JOBS Act And Ralston Purina by Keith Paul Bishop in California Corporate and Securities Law blog

Anyone who has studied securities laws has undoubtedly heard of the Supreme Court’s decision in SEC v. Ralston Purina Co., 346 U.S. 119 (1953). In that case, the Supreme Court struggled with the exemption in the Securities Act of 1933 for “transactions by an issuer not involving any public offering” (now in Section 4(2) but then found in Section 4(1)). Yesterday, Congress passed the “Jumpstart Our Business Startups Act“. Assuming that President Obama signs this bill, the JOBS Act will dramatically change the longstanding limitations on private offerings.

Jobs Bill Opens Door to Hedgie Advertising by Juliet Chung in WSJ.com’s Deal Journal

Could pro golfers soon test their skills at the Paulson & Co. Open? Will legions of basketball or hockey fans one day cheer on their home team from the friendly confines of D.E. Shaw Center?

Which Hedge Fund Manager’s TV Commercial Are You Most Looking Forward To? by Matt Levine in NY Times.com’s DealBreaker

“I take back whatever mildly negative things I may have said about the JOBS Act, since apparently in addition to making it easier for small startups to rip off investors, it will also make it easier for small hedge funds to rip off investors”

The jumper cables are Coleman Cable 08565 12-Foot Heavy-Duty Booster Cables, 6-Gauge

Accredited Investors and the JOBS Act

The Jumpstart Our Business Startups Act repeals the SEC’s ban on general solicitation and advertising under Rule 506. That is the exemption from registration used by most private fund managers. Is this a good thing?

I didn’t like the ban, mostly because it was so broad. The SEC gave little guidance as to what was advertising in support of the company and what was advertisement in support of the sales of securities. I would have welcomed better guidance. Now it looks like private fund managers will be free to have late-night television ads, email campaigns, twitter accounts, and Facebook fan pages.

Section 201(a) gives the SEC 90 days to

“revise its rules issued in section 230.506 of title 17, Code of Federal Regulations, to provide that the prohibition against general solicitation or general advertising contained in section 230.502(c) of such title shall not apply to offers and sales of securities made pursuant to section 230.506, provided that all purchasers of the securities are accredited investors.”

At first, I thought the last proviso was extraneous. Rule 506 allows unlimited fundraising as long, but it’s limited to accredited investors. But that’s not right. Rule 506 allows up to 35 investors that are not accredited, as long as they are “sophisticated” – have sufficient “knowledge and experience in financial and business matters” to make them “capable of evaluating the merits and risks of the prospective investment”.

If a manager is going to advertise that it is fundraising, then it needs to ban those previously allowed 35, even if they are sophisticated. Money rules. You need $ 1 million, excluding your primary residence, or $200,000 in income, $300,000 income with your spouse. It doesn’t matter if you are sophisticated. Even though the Crowdfunding section of the JOBS Act is supposed to allow a broader range of capital sources, this part of the law cuts off access to non-accredited investors.

That means fund managers may have to cutoff  “friends and family” investors from the fund, unless they are accredited investors.

The jumper cables are Heavy-Duty Auto Jumper Cables – 20-Ft Length – Heavy 4-Gauge Copper Wire by Tooluxe

Next Steps for the JOBS Act

The Jumpstart Our Business Startups Act, as amended by the Senate, was voted on by the House of Representatives yesterday and passed 380 to 41. That makes it a very bi-partisan bill, even though all 41 “Nays” were Democrats. If I remember my Schoolhouse Rocks song correctly, it’s up to the President to sign it or veto it.

The White House has already expressed support for the concept of crowdfunding. I expect President Obama will sign it into law very soon. He may actually have signed it by the time you are reading this.

As with the big Dodd-Frank law of 2010 that increased regulatory oversight, this law that decreases the regulatory burden tasks the Securities and Exchange Commission with many tasks. There are several studies and rulemakings thrown at the SEC. (I didn’t see any budget increase to go along with these tasks.)

The one I’m most focused on is in Title II-Access to Capital for Job Creators. Section 201(a) requires the SEC to

“revise its rules issued in section 230.506 of title 17, Code of Federal Regulations, to provide that the prohibition against general solicitation or general advertising contained in section 230.502(c) of such title shall not apply to offers and sales of securities made pursuant to section 230.506, provided that all purchasers of the securities are accredited investors.”

The law gives the SEC 90 days to make the revision.  WWSECD? (What Will the SEC Do?)

The SEC could simply insert the new language into Rule 506. It’s exactly what Congress demanded. However, the SEC could provide some clarity and other restrictions around the advertising. There could be rules about record-keeping or submission of advertisements. The SEC still has its ant-fraud mandate so it could impose other requirements. Some of the SEC commissioners have already spoken out against the law. But given the short timeframe, I doubt the SEC will do anything except insert the new language.

However, the SEC does need to act before the late-night TV advertisements begin. There may be some regulatory limbo if the SEC does not enact the revision by the end of the 90 day period. Why would the SEC pick this fight with Congress? Get ready for a new wave of advertisements for unregistered securities starting this summer. But you can only buy them if you are an accredited investor.

The SEC will have to study the “tick rule” to determine if penny increments are too small for the new category of emerging companies under Title I of the JOBS Act: Reopening American Capital Markets to Emerging Growth Companies. Section106 tasks the SEC with this study. I guess Congress thinks the trading on public companies with less reporting on executive compensation, lesser financial reporting obligations, and less auditing would trade differently than companies that meet the more exacting standards of a public company. Of course this is just for small companies, with less than $1 billion in gross revenues. (When did a billion get to be so small?)  I’m sure the brokerage houses would love to see a bigger spread on the tick.

Title I also tasks the SEC with a review of Regulation S-K. Section 108 gives the SEC 180 days to study how to streamline the registration process.

Title IV-Small Company Formation expands the Regulation A exemption allowing a more streamlined approach for smaller issues. The limit is raised from $5 million to $50 million. (When did $50 million get to be so small?) The Comptroller General gets tasked with study of the state blue sky laws on Regulation A offerings.

Title V- Private Company Growth and Flexibility Act, or as I call it the let’s not make Facebook go public section. It raised the 12(g)(1)(A) standard from 500 shareholders to 2,000 or 500 who are not accredited.  Section 503 tasks the SEC with revising the definition of “held of record” and safe harbor provisions for employee compensation.  The SEC also look at its authority to enforce Rule 12g5-1 and report its recommendation back to Congress.

Title VI-Capital Expansion makes a shareholder increase for banks and bank holding companies and gives the SEC a year to issue final regulations to implement the changes.

Title VII makes the SEC tell people about the JOBS Act.

The Securities and Exchange Commission shall provide online information and conduct outreach to inform small and medium sized businesses, women owned businesses, veteran owned businesses, and minority owned businesses of the changes made by this Act.

I expect we will see a new web page or domain from the SEC on the JOBS Act.

Those are not very sexy changes and probably leave you scratching your head about why Congress would pass these changes and do so very quickly. It leaves me curious as well. Many of the SEC commissioners took that rare action of publicly stating their opposition to the law. The state regulatory association stated:

Election-year politics have blinded Congress and the White House to the unintended consequences of the JOBS Act, which while well intentioned, could do little more than open the floodgates to investment fraud.

I suppose it was election year politics. And good marketing. The bill sponsors were able to give it the acronym JOBS, even though the bill has little to do directly with jobs. The sponsors have draped small businesses with the flag of job creators and opening the floodgates of capital to them will allow them to grow and re-create the millions of jobs lost in 2008-2009.

There was also the sexy piece of the JOBS Act that I have not mentioned, Title III-CROWDFUND. It’s designed to enable aspiring entrepreneurs to access capital using the internet to gather small dollar investments from would-be investors across America. William Carleton has done a great job of covering the crowdfunding aspect of the law.

Don’t expect Kickstarter to start offering equity funding any time soon. The SEC has 270 days to enact the rules around crowfunding and regulation of funding portals.

Sources:

Lifting the Ban on General Solicitation and General Advertising

On Thursday afternoon, the US Senate passed the Jumpstart Our Business Startups Act, a bill designed to make it easier for small companies to raise capital. The centerpiece of the legislation is the crowdfunding provision. However, the Senate passed an amendment to that section of the legislation. That means the Senate version and the House version of the law are different. It’s up to the House to pass the Senate version, or meet in conference to find a compromise.

The Senate did not change Title II of the legislation. Those sections eviscerate the long-standing prohibition on general advertisement and general solicitation of investors. Amendments to Title II were proposed, but were shot down.

It seems like the House is willing pass the Senate version of the legislation and the President is willing to sign it. That means one of the biggest limitations to fundraising for private funds is likely to be erased. It will take a few months after the passage of the law for the SEC to change the regulations in Rule 506.

As early as this summer, the marketing opportunities for private funds will dramatically increase. Maybe that’s a fair trade for having to register as an investment adviser with the SEC.

Here is the text of the bill:

TITLE II—ACCESS TO CAPITAL FOR JOB CREATORS

SEC. 201. MODIFICATION OF EXEMPTION

(a) MODIFICATION OF RULES.— (1) Not later than 90 days after the date of the enactment of this Act, the Securities and Exchange Commission shall revise its rules issued in section 230.506 of title 17, Code of Federal Regulations, to provide that the prohibition against general solicitation or general advertising contained in section 230.502(c) of such title shall not apply to offers and sales of securities made pursuant to section 230.506, provided that all purchasers of the securities are accredited investors. Such rules shall require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission. Section 230.506 of title 17, Code of Federal Regulations, as revised pursuant to this section, shall continue to be treated as a regulation issued under section 4(2) of the Securities Act of 1933 (15 U.S.C. 77d(2)).

(2) Not later than 90 days after the date of enactment of this Act, the Securities and Exchange Commission shall revise subsection (d)(1) of section 230.144A of title 17, Code of Federal Regulations, to provide that securities sold under such revised exemption may be offered to persons other than qualfied institutional buyers, including by means of general solicitation or general advertising, provided that securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe is a qualified institutional buyer.

How Do State Regulators Really Feel About the JOBS Act?

The House of Representatives recently voted to pass The Jumpstart Our Business Startups (JOBS) Act (H.R. 3606), a collection of several bills focused on barriers to capital formation. I’m focused on the bill because of mostly because of the Access to Capital for Job Creators section that would override the ban on general solicitation and advertising under Regulation D.

I welcome some sensible changes to Regulation D because I find the ban a bit vague as part of the fundraising process. Private fund managers could use guidance from the SEC on what is allowed and what is prohibited by the ban.

On the other hand, knowing the general ban exists makes it easy to dismiss scams and spam spinning tales of possible investment opportunities. That unsolicited message is either a straight-up scam or a naive entrepreneur who thinks they can operate without competent advice. Either way you can easily dismiss the opportunity.

Another provision of the JOBS Act that I found interesting is the Private Company Flexibility and Growth Act. The main purpose is to raise the thresholds under Section 12(g)(1)(A) of the Exchange Act. Currently under that provision, private companies with more than 500 shareholders and a big stream of revenue effectively have to become public companies. That shareholder limit forced Google into going public and most recently is forcing Facebook to go public.

The centerpiece of the JOBS Act is the new crowdfunding platform. Currently, platforms like Kickstarter are prohibited from offering equity. Project sponsors have to ask for donations, offer schwag, or pre-sell products. All of which seems to work very well.

Commentators like William Carleton think the concept of crowdfunding will be great for entrepreneurs. The Wall Street Journal has a point-counterpoint this morning on crowdfunding:

Like most stuff coming out of Congress, even if the concept is good I think Congress is likely to screw up the drafting of the law.

That is my view of the JOBS Act. Most of the concepts are good, but the execution is poor. I think Congress is missing the balance between investor protection and access to capital. That opinion is shared by the North American Securities Administrators Association. Here is a snippet from an editorial by Jack E. Herstein, president of NASAA:

The most jobs this cleverly named bill may create are jobs for fraudsters, like the Nigerian scammers, penny-stock pitchers and Ponzi schemers already lurking behind the Internet to cloak their schemes.

The Senate is mulling over their version of these bills where it seems to have bi-partisan support. President Obama has also thrown his support to some of the concepts in the JOBS Act. It seem likely that something will pass. According to Talking Points Memo it looks like Senate Majority Leader Harry Reid is willing to trade support for the JOBS Act for approval of some judicial nominees.

Sources: