RMSC: Small Cap Finance

One of the breakout sessions of the afternoon entitled “Small Cap Financing” turned into an important session and acted as an Introduction to the JOBS Act.  The session was moderated by Reid Godbolt, Shareholder, Jones & Keller.  The panel included Frank Birgfeld, The St. Croix Group LLC; Daniel Jablonsky, Shareholder, Brownstein Hyatt Farber Schreck LLP; Gerald J. Laporte, Chief, Office of Small Business Policy, Division of Corporate Finance, Securities and Exchange Commission (“SEC”); and Shelly Parratt, Deputy Director, Division of Corporate Finance, SEC.

Moderator Reid Godbolt gave a quick overview of the recent history of the IPO market and its ups and downs.  Talk quickly turned to the newly signed JOBS Act and whether the regulation can keep up with the potential for fraud in this uncharted territory.  The panel outlined certain investor protection provisions such as a one-year transfer restriction and a one-year maximum investment amount.  More regulations are needed regarding the JOBS Act, and crowdfunding in particular, leading Mr. Laporte to comment that the SEC was “anxious” to get input from the public though pre-rulemaking public comments.  Public comments can be made here.  The SEC has a 270-day window for rulemaking regarding the crowdfunding provision of the JOBS Act.

Ms. Parratt spoke on the creation of a system for submitting Confidential Draft Registration Statements (“CDRS”) to the SEC.  Currently submissions are in paper form and the SEC hopes to have an electronic submission system soon.  The physical process is new but the SEC hopes to have the submissions reviewed and returned with comments within 30 days.  The panel commented that CDRS are not public filings and do not require a fee to submit.  The panel also outlined the ability of submissions already under review as entitled to the protections described in the JOBS Act as long as they met its criteria.  The panel also stressed the need for completeness of the CDRS, including signed audit reports, so that they are not deferred.

The panel also discussed the role of the broker-dealer under the JOBS Act.  Mr. Birgfeld commented that the old broker-dealer model cannot work, which will create plenty of opportunity for someone to come up with a new model.  The panel highlighted challenges facing the SEC and investors, including the liquidity, or potential lack thereof, of the crowdfunding securities because of the one-year holding requirement.

Again, The Race to the Bottom’s complete coverage regarding the JOBS Act can be found here, here, and here.