Just over ten years ago, following corporate and accounting scandals in which investors lost billions of dollars, Congress enacted the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley reformed public accountability reporting standards, raising the costs of compliance. In 2010, following the recent financial crisis, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Dodd-Frank Act further increased market regulation. Sarbanes-Oxley and the Dodd-Frank Act have together worked to stem market participation.
On April 5, 2012, President Barack Obama signed the bipartisan Jumpstart Our Business Startups Act (the “JOBS Act”). The JOBS Act now seeks to ease some of the restrictions brought about by Sarbanes-Oxley and the Dodd-Frank Act, and promote market participation. President Obama’s Startup America initiative and independent efforts to legalize crowdfunding as a method for raising early-stage equity-based financing were among the catalysts of the JOBS Act legislation, which includes a crowdfunding component.
Since many Americans are looking for jobs, “lawmakers looking for an edge on Capitol Hill are…labeling their proposals ‘jobs’ bills.” But, the JOBS Act is not fundamentally about the direct creation of jobs. The full name of the new legislation – the Jumpstart Our Business Startups Act – more accurately reflects its aim: encouraging small business capital formation by easing restrictions imposed by the federal securities laws. Although the Securities and Exchange Commission (“SEC”) has yet to implement the bulk of the JOBS Act provisions through required regulations this article describes and explores the changes to federal securities regulation promised through the JOBS Act and assesses their prospective impact on a preliminary basis.
This article will first consider the amended offering exemptions provided under Sections 3(b) and 4(2) of the Securities Act of 1933, as amended, generally, before addressing the new crowdfunding exemption under Section 4(6) specifically. Then, the article describes legislative changes to the initial public offering process before addressing amended threshold requirements for issuers registering a class of securities under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).