The Securities and Exchange Commission today proposed rules to implement a new exemption from registration for securities offerings made pursuant to Section 3(b)(2) of the Securities Act of 1933 (Securities Act), as mandated by Section 401 of the Jumpstart Our Business Startups Act (JOBS Act). This new offering exemption is commonly referred to as “Regulation A-Plus.
JOBS Act
SEC Corp Fin Staff Issues “Bad Actor” Rule Compliance and Disclosure Interpretations
On December 4, 2013, the Staff of the SEC’s Division of Corporation Finance issued new Compliance and Disclosure Interpretations (C&DIs) providing guidance on rules recently adopted by the SEC that prohibit certain felons and other “bad actors” from participating in private securities offerings that rely on Rule 506 of Regulation D under the Securities Act of 1933 (Securities Act). The rule generally applies to the issuer, certain third parties that participate in the offering, and certain controlling persons, officers and affiliates of the issuer and such third parties (covered persons).
SEC Corp Fin Staff Issues General Solicitation Interpretations Under the JOBS Act
On November 13, 2013, the Staff of the SEC’s Division of Corporation Finance issued new Compliance and Disclosure Interpretations (C&DIs) providing guidance on recent rule amendments lifting the ban on general solicitation in securities offerings made pursuant to Rule 506(c) of Regulation D under the Securities Act of 1933 (Securities Act) and Rule 144A under the Securities Act, as mandated by the Jumpstart Our Business Startups Act (JOBS Act).
SEC Proposes Crowdfunding Rules
Yesterday, the Securities and Exchange Commission (the “SEC”) held an open meeting to approve the release of proposed crowdfunding rules implementing Title III of the 2012 Jumpstart Our Business Startups Act (the “JOBS Act”). Once the SEC adopts final implementing rules, the crowdfunding exemption contained in Section 4(a)(6) of the Securities Act of 1933 (the “Securities Act”) will allow U.S. private companies (primarily startups and small businesses) to raise up to $1 million in any 12-month period from pools of small investors without registration under the Securities Act. The fundraising will be required to be conducted through a registered intermediary—either a registered broker or an online “funding portal.” While the SEC missed the December 31, 2012 deadline to adopt implementing rules, it now appears to be moving ahead full speed with the proposed rulemaking.
Private Placement of Publicly Traded Equity Securities as Consideration in an M&A Transaction after the JOBS Act
In April 2012, we wrote here about the potential future impact of the Jumpstart Our Business Startups Act (“JOBS Act”) on M&A transactions in which an acquirer seeks to issue its privately placed equity securities as consideration in an acquisition. Our discussion at the time focused on the conditions of Rule 506 of Regulation D under the Securities Act of 1933 (the “Securities Act”) and, in particular, the tension faced by issuers that are required to determine the offerees’ status as “accredited investors” or as otherwise suitable to evaluate the potential investment. We noted that such issuers have historically been prohibited from using any form of “general solicitation” when offering securities in such transactions. Subsequently, in July 2013, the SEC adopted final rules (effective September 23, 2013) to eliminate the absolute prohibition against general solicitation in securities offerings conducted pursuant to Rule 506, as required by Section 201(a) of the JOBS Act (Gibson Dunn’s summary and analysis of the rules may be found here). The following discussion updates our earlier post to address the legal and practical effects of these new rules for M&A transactions that include a private placement component.
Removal of General Solicitation Ban, Bad Actor Disqualification Rules to Become Effective September 23, 2013; Comment Period on Related Proposed Amendments Also to End September 23, 2013
The Commission’s final rules to remove the ban on general solicitation and general advertising in offerings pursuant to Rule 506 of Regulation D under the Securities Act of 1933 (the “Securities Act”) and pursuant to Rule 144A under the Securities Act, and to disqualify felons and certain other “bad actors” from participating in offerings pursuant to Rule 506, were published in the Federal Register today. As a consequence, the final rules will become effective on September 23, 2013.
SEC Approves Final Rules to Permit Advertising in Rule 506 and Rule 144A Offerings; Also Proposes Rules to Add Additional Investor Protections
At an Open Commission Meeting on July 10, 2013, the Securities and Exchange Commission (the “SEC” or the “Commission”) adopted final rules to eliminate the prohibition against general solicitation and general advertising (together, “general solicitation”) in securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act of 1933 (the “Securities Act”) and Rule 144A under the Securities Act, as required by Section 201(a) of the Jumpstart Our Business Startups Act (the “JOBS Act”). Rule 506 currently permits an issuer to raise an unlimited amount of capital in a private placement to an unlimited number of accredited investors and up to 35 non-accredited investors provided that the issuer does not engage in general solicitation; it is the most widely used exemption under Regulation D. Rule 144A permits the resale of an unlimited amount of securities in a private transaction to qualified institutional buyers. The Commission approved the rules by a vote of 4-1 with Commissioner Aguilar dissenting.
Senate Banking Committee Holds Hearing on Nomination of Mary Jo White to Chair SEC
The Senate Committee on Banking, Housing and Urban Affairs held a hearing today on the nomination of Mary Jo White to chair the Securities and Exchange Commission. The Senators showed high support for White’s nomination and, contrary to expectation, asked few tough questions about her ties to Wall Street banks arising from her work at the law firm Debevoise & Plimpton LLP and other potential conflicts of interest.
Departure of SEC Chairman Schapiro Creates Uncertainty Regarding Rules to Remove the General Solicitation Ban in Certain Private Offerings
On November 26, 2012, SEC Chairman Mary Schapiro announced that she will leave the Commission on Friday, December 14. Commissioner Elisse Walter will take over as Chairman.
On August 29, 2012, the SEC proposed rules to implement Section 201(a) of the JOBS Act, which requires the SEC to eliminate the prohibition against general solicitation and general advertising (together, “general solicitation”) in securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act of 1933 (the “Securities Act”) and Rule 144A under the Securities Act. The Commission voted 4-1 to propose the rules, with Democratic Commissioner Aguilar as the lone dissent, but Commissioner Walter, also a Democrat, expressed reservations about the proposal in her opening statement at the Commission’s meeting. Republican Commissioners Gallagher and Paredes strongly supported the proposed rules.
JOBS Act Implications for Mergers & Acquisitions
While most commentary regarding theJOBS Act has focused on capital markets issues and the impact the new rules will have on capital-raising transactions, the JOBS Act can also have significant implications in the merger and acquisition context.