The Senate Banking Committee's Subcommittee on Securities, Insurance and Investment, chaired by Jon Tester, D-Mont., held a hearing on Oct. 30 titled "The JOBS Act at a Year and a Half: Assessing progress and Unmet Opportunities," with witnesses representing the Securities and Exchange Commission (SEC), which was given responsibility for issuing the rules while at the same time being prohibited, along with the industry's self-regulatory agencies (SROs), from regulating these new activities, followed by four representatives of the securities industry.
Leading off the panels, Keith Higgins, director of the SEC's division of corporation finance, explained that the JOBS Act created a new category, the "emerging growth company," which would be allowed to engage in general solicitation of investors, and allowed these companies to reduce their accounting and reporting compliance, enabled the use of crowdfunding to raise up to $50 million in capital without registering with the Commission, and increased the size of bank holding companies that would be permitted to deregister and to cease reporting to investors.
Alan Lewis, director of the National Grocers by Vitamin Cottage, a 70-store chain that operates in 13 states and sells only certified organic foods, lauded the provision allowing confidential filing of financial information as allowing his company "to better orchestrate the timing of the road show and IPO successfully, despite unpredictable and skittish financial markets."
However, the company decided to take advantage of the opportunity to reduce the provision of audited financial statements from five years to three, where the omitted two years covered a period of complexities and a change in auditor. But the company decided to comply with the internal control provisions of Sarbanes-Oxley and to comply with accounting rules even as these rules evolve.
Robert Kaplan, Jr., managing partner of the Kaplan Voekler Cunningham & Frank law firm, a boutique firm in Richmond, Va., complained that high costs and regulatory burdens have restricted the opportunities for smaller investment banking, brokerage, law and accounting firms to participate in public securities offerings, and that the definition of "accredited investor" unduly limits the audience for these offerings, which will tend to come from firms of regional scope. He urged the SEC to proceed with implementation of Title IV of the JOBS Act, also known as Reg A+, without further delay.
Rick Fleming, deputy general counsel of the North American Securities Administrators Association, warned that unless the SEC acts quickly to make modest changes in filing requirements for offerings of small public companies, unmonitored general solicitations could begin to erode public confidence and make investors (even) less willing to enter this market.
Finally, Sherwood Neiss, principal of Crowdfund Capital Advisors, the leading proponent of the crowdfunding provisions of the JOBS Act, confidently predicted that there will be minimal fraud, be he still complained that the SEC's proposed rules are unworkable for funding portals, which along with brokers would be the outlets for these offerings to reach to public.
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