If you are at all like us, you find the rulings that the SEC puts forward to be a bit confusing, at first blush. And no wonder, as the SEC Rules under current discussion are over 100 pages long. You, like us, are just trying to understand the rulings and also do your job, with a minimum of distractions.
Let us help, at least with the most recent SEC ruling on advertising and private placements, as related to the Job’s Act.
On July 10th, the SEC announced that it was eliminating the prohibition on general solicitation and general advertising in “certain” offerings. This proclamation is a big deal, and was widely touted by the press:
- SEC Rule Will Revolutionize Financing of Small Businesses and other Privately Held Companies (Risk & Compliance Journal headline)
- SEC Clears Way for Entrepreneurs to Tweet, Blog About Unregistered Shares (WSJ headline)
The actual SEC Ruling is 117 pages, accompanied by a final ruling on the Disqualification of Bad Actors (147 pages) as well as a Rule Proposal for amendments of Regulation D, Form D and Rule 156. The Final Rules become effective 60 days after publication in the Federal Register, The Rule Proposal, different from the Final Rules, has a 60-day public comment period.
While we’re making progress, all-in-all, we’re not there yet. The JOBS Act was proposed in April 2012. It is still winding its way through the SEC.
The SEC is doing a good job of being comprehensive. For this, we are pleased. We’ve all seen the best intentions muddied by bad actors such as Bernie Madoff and Allen Stanford. How is the public to know if these companies are real, and are not fraudulent? There are so many bad actors out there.
The end result will be more bureaucracy, which will result in more cost, which will be shifted to the investors. This is an interesting, but important balancing act. I have been able to mostly avoid the bad actors by knowing the subject area/market, doing my due diligence and working with good lawyers.
Hopefully, the new investors will not get lazy, and believe when someone says, “Trust me.” I also knew that I am more sophisticated and knowledgeable than the average investor. After all, it’s my job.
I like the restrictions being put in place. The startup world is incredibly dicey, with the majority of companies not making it past two years of existence. The process and procedures will help people learn without destroying their financial health. At the end of the day, America will have a smarter, better-informed investor public. Allowing advertising for private placements just makes sense. Why not provide the investment opportunity to more than a select few. The investors in these private placements must be accredited investors. Any deal that uses advertising must file an Advanced Form D, before solicitation, with the SEC, and then file a Form D within 15 days after the completion of the deal. That, at least, provides some degree of protection and oversight.
I’m also excited about the next step—the actual crowd funding platforms. What do you think about Advertising and Private Placements?