Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The Dodd-Frank Act was overarching, cumbersome and, from its inception, has created much ongoing regulatory uncertainty.  While there are some open issues raised by the JOBS Act, in contrast to the Dodd-Frank Act, it is targeted, succinct and efficient.  The fact that President Obama signed the often draconian Dodd-Frank Act into law less than two years ago makes some of the provisions of the JOBS Act even more astonishing and, at least from an historical perspective, even radical.  The JOBS Act’s changes to how Rule 506 offerings may be conducted are certainly welcome ones.

For instance, it will be quite refreshing to finally be able to advise clients conducting an offering under Rule 506 of Regulation D that they can advertise their offering and take the current “no general solicitation” prohibitions off the table altogether.  Since most Rule 506 offerings are structured so that only accredited investors may participate in them, these prohibitions always seemed overly restrictive and certainly frustrated issuers to no end.  Simply being able to generate publicity in the marketplace without the constant fear of the loss of the offering’s exemption will be invaluable.  Given the likely broader dissemination of offering documents, issuers will likely be more eager, if for reputational and marketing purposes if nothing else, to improve the quality and appearance of offering documents.  The JOBS Act’s requirement, the details of which are still to be determined by the SEC, that an issuer take “reasonable steps” to confirm that all investors are accredited, will also likely require additional diligence and vigilance on the part of issuers and their counsel.

I’m less excited about the JOBS Act’s formal blessing of matching services.  Matching services, at least in the secondary market, can work well in certain niche industries with a rather targeted audience, but it may be difficult for issuers to benefit much from the legal certainty than the matching service provisions provide.

At the end of the day, the number of accredited investors, both institutional and individual, is a finite one, and the effect of these changes on those seeking capital through a Rule 506 offering remains to be seen.  However, the JOBS Act’s loosening of these regulatory reigns is certainly a positive for companies of all sizes.

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