April 25, 2012
Special Forum: JOBS Act - More Metaphors, Many Questions
Posted by joanheminway

I cannot resist picking up where Usha left off . . . .  What about "Road to Nowhere?"  As a Talking Heads fan, I cannot resist that one.  And that shoe may fit.  (Oops.  Mixed metaphor there.)

Where is the on-ramp taking these emerging growth companies?  Does it prepare them for success or failure in the public company realm?  What is the real purpose of the on-ramp?  Sure, it improves access to the public markets for smaller issuers by cutting costs of compliance (including, among other things, the diversion of management and board time and resources to the satisfaction of some public disclosure obligations).  But why do we want to encourage issuers to become public based on their size (as opposed to other or blended atributes)?  Said another way, why should we back off on compliance requirements because an issuer has low gross revenues (or a small market capitalization or limited non-convertible debt issuances or any other measure of limited size)?  How does this tyoe of deregulation help promote investor protection and the maintenance of the integrioty of the securities markets?  (I.e., how do I explain this to my students?)  Good things do not always come in small packages, right . . . ?  

Erik's post heads down this path a bit.  Leaving aside matters of market efficiency, the temporary suspension of public company disclosure requiremnts certainly makes one think about whether some of the existng requirements are necessary even for larger issuers.  Perhaps this will be an experiment that helps show us how and where we have over-regulated.  Or perhaps the savings that small issuers will realize through the IPO on-ramp provisions will be offset by a higher volume of shareholder litigation (successful and unsuccesful) for inadequate disclosures of material fact.

It also is important to note that an issuer may or may be in a position in which it can take advantage of all of the benefits of the on-ramp.  The nature of the issuer, the nature of the offering (and its underwriters), or contractual obligations with previous funders, for example, may prevent an issuer from availing itself of each on-ramp advantage.  Accordingly, the cost benefits of the on-ramp may not be fully realizable, and it therefore may not be as advantgaeous as Congress anticipated.

It's all a bit of a black box for me at the moment.  But with issuers already proceeding up the ramp and the SEC's publication of filing guidance, . . . GAME ON.

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