April 26, 2012
The JOBS Act: Who is Going to Use the Crowdfunding Exemption?
Posted by Robert B. Thompson

My question, after contemplating Joan's post, is who exactly is going to use the exemption in new section 4(6)? And that will shape any response to Jeff Lipshaw's question as to how this new statute will affect how we teach our courses? Rule 504 already permits issuers to raise up to $1 million and the regulatory requirements are fairly modest. The only thing that got changed in the Senate considerations of what became the JOBS Act, i.e. the only place where there was any push back to the general deregulatory philosophy of the various parts of the bill, was to add additional regulatory protections for crowdfunding offers, both as to issuers and platforms. (A push back that seems warranted given the SEC's experience with Rule 504 deregulation in the late 1990s). What then is the attraction of the Crowdfunding brand as opposed to the existing exemptions? One difference is that state registration requirements don't apply to the new exemption, suggesting further atrophy in the role of state blue sky laws. But that may not be enough to generate a lot of use of this new exemption. Other changes to exemptions made by the JOBS Act may well have a greater impact. The lifting of the ban of general solicitation for Rule 506 offerings will make that offering more attractive to issuers (and also raise concerns about possible fraud that could arise from internet solicitations). The new exemption to be promulgated under new Section 3(b)(2) of the '33 Act--Regulation A on steroids-- will permit exempt public offerings of up to $50,000,000 as opposed to the current $5,000,000 limit. Overall, I don't think the new statute really changes the syllabus very much on the '33 Act part of securities regulation. Any discussion of any of these exemptions fits within the existing structure. The parts of the on ramp that relate to the IPO process (e.g. confidential filing) likewise fit into what I suspect is the existing structure of most securities courses. Some teachers may want to talk about analysts more than in prior years. But the '34 Act part of the securities course is more of a challenge. The continuing growth of obligations of '34 Act companies as to internal controls and governance and the explicit scaling provided for on ramp companies is likely to require new attention on the transactional side of the '34 Act, likely best taught by the use of problems similar to those often used to teach the '33 Act.

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