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SEC Chief Takes Stock of JOBS Act and Crowdfunding Rules

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Just two days before the Securities and Exchange Commission is expected to approve final rules for equity crowdfunding under Title III of the Jumpstart Our Business Startups Act (JOBS), Chairwoman Mary Jo White offered an informal review of the impact of that legislation, extolling its success.

She told the a gathering of securities attorneys in New York City on Wednesday that since the JOBS Act was enacted in April 2012, emerging growth companies – companies with total annual gross revenues under $1 billion – have accounted for 85% of initial public offerings. In addition, she said, nearly 1,000 EGCs have confidentially submitted draft registration statements for IPOs, which precede offerings.

“Companies began to take advantage of the initial public offering ‘on-ramp’ as soon as the JOBS Act was enacted,” said White, referring to the maximum five-year period that companies have following their IPO to fully comply with various SEC disclosure and accounting requirements.

The JOBS Act has made it easier for companies to issue stock for the first time and for investors to access those shares. It has been implemented on a  gradual basis. First was Title II of the Act, which allowed accredited investors with a minimum $1 million in net worth or income above $200,000 for the previous three years to get an equity stake in a company in exchange for their crowdfunded contribution, beginning in late September 2013.

Then came Title IV, known as Regulation A+, effective June 2015, which let unqualified investors who participated in crowdfunding offerings get an equity stake so long as they didn’t invest more than 10% of their income or net worth per year. Companies, in turn, could raise up to $20 million under Tier I following review by state regulators or up to $50 million under Tier II, after a review by the Securities and Exchange Commission.

Now the SEC is preparing to release on Friday rules for the final phase of equity crowdfunding under the JOBS Act, known as Title III. Under this phase, it’s expected that entrepreneurs will be able raise up to $1 million in seed money from unqualified investors who contribute as little as a few hundred or a few thousand dollars, but the SEC could deviate from those expectations.

White said the commission received more than 480 comment letters on proposed Title III rules.

She said the SEC “cannot know with certainty how the new rules will work for investors and issuers in practice but will be taking steps to understand changes in the market due to the implementation of these new rules and to address any issues that may arise.”

To do that, White said the commission is enhancing its monitoring and assessment of the new rules, looking at the impact on investors and the capital markets, and targeting regulatory adjustments as needed. The SEC will also focus enforcement resources on these new markets, responding to evidence of fraud or misconduct, White said.

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