Posts Tagged ‘Capital formation’

SEC Crowdfunding Rulemaking under the Jobs Act—an Opportunity Lost?

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday March 9, 2014 at 8:34 am
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Editor’s Note: The following post comes to us from Samuel S. Guzik, Of Counsel and member of the corporate practice group at Richardson Patel LLP, and is based on an article by Mr. Guzik.

In an article recently posted to SSRN I addressed certain issues faced by the SEC in the ongoing Title III rulemaking process under the JOBS Act of 2012, enacted into law by Congress in April 2012. The SEC issued proposed rules to implement Title III in October 23, 2013, and has yet to issue final rules.

Title III of the JOBS Act created an exemption from registration for the offer and sale of so-called “crowdfunded” securities under the Securities Act of 1933, allowing the offer and sale of securities to an unlimited number of unaccredited investors without registration with the SEC, on an Internet-based platform, through intermediaries (portals) which are either registered broker-dealers or SEC licensed “funding portals.” Title III also provided for a number of built-in investor protections, including limitations on the amount invested, a limitation on the amount an issuer may raise in a 12 month period ($1 million), detailed financial and non-financial disclosure in connection with the offering, and ongoing annual issuer disclosure. Congress left much of the details of Title III in the hands of the SEC, to be fleshed out in the rulemaking process.

…continue reading: SEC Crowdfunding Rulemaking under the Jobs Act—an Opportunity Lost?

The SEC in 2014

Editor’s Note: Mary Jo White is Chair of the U.S. Securities and Exchange Commission. This post is based on Chair White’s remarks to the 41st Annual Securities Regulation Institute Conference; the full text, including footnotes, is available here. The views expressed in this post are those of Chair White and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

For nearly 80 years, the Securities and Exchange Commission has been playing a vital role in the economic strength of our nation. Year after year, the agency has steadfastly sought to protect investors, make it possible for companies of all sizes to raise the funds needed to grow, and to ensure that our markets are operating fairly and efficiently.

That is our three-part mission.

But, while commitment to this mission has remained constant and strong over the years, the world in which we operate continuously changes, sometimes dramatically.

When the Commission’s formative statutes were drafted, no one was prepared for today’s market technology or the sheer speed at which trades are now executed. No one dreamed of the complex financial products that are traded today. And, not even science fiction writers would have bet that individuals would so soon communicate instantaneously in so many different ways.

…continue reading: The SEC in 2014

Regulation A+ Offerings—A New Era at the SEC

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday January 15, 2014 at 9:02 am
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Editor’s Note: The following post comes to us from Samuel S. Guzik, founder and principal of Guzik & Associates.

December 18, 2013 may well mark an historic turning point in the ability of small business to effectively access capital in the private and public markets under the federal securities regulatory framework. On that day the Commissioners of the U.S. Securities and Exchange Commission met in open session and unanimously authorized the issuance of proposed rules [1] intended to implement Title IV of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”)—a provision widely labeled as “Regulation A+”—and whose implementation is dependent upon SEC rulemaking. Title IV, entitled “Small Company Capital Formation”, was intended by Congress to expand the use of Regulation A—a little used exemption from a full blown SEC registration of securities which has been around for more than 20 years—by increasing the dollar ceiling from $5 million to $50 million. Both the scope and breadth of the SEC’s proposed rules, and the areas in which the SEC expressly seeks public comment, appear to represent an opening salvo by the SEC in what is certain to be a fierce, long overdue battle between the Commission and state regulators, the SEC determined to reduce the burden of state regulation on capital formation—a burden falling disproportionately on small business—and state regulators seeking to preserve their autonomy to review securities offerings at the state level.

…continue reading: Regulation A+ Offerings—A New Era at the SEC

Promoting Investor Protection in Small Business Capital Formation

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Saturday January 4, 2014 at 9:00 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at a recent open meeting of the SEC; the full text, including footnotes, is available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today [Dec. 18, 2013], the Commission proposes rules to implement Title IV of the JOBS Act. As mandated by that Act, the proposed rule would allow companies to issue a class of securities that are exempted from the registration and prospectus requirements of the Securities Act, provided that certain conditions are met. This is the third major rulemaking undertaken by the Commission to comply with the JOBS Act since its adoption last year.

Enhancements to Investor Protection under Regulation A-plus

The proposed rules being considered today enhance an existing exemptive regime known as Regulation A. Under the current provisions of Regulation A, companies can raise up to $5 million per year without registration, provided that they file an offering statement with the Commission containing certain required information and furnish an offering circular to purchasers, among other conditions.

…continue reading: Promoting Investor Protection in Small Business Capital Formation

Capital Formation from the Investor’s Perspective

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Saturday December 15, 2012 at 10:37 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the AICPA Conference on Current SEC and PCAOB Developments; the full speech, including footnotes, is available here. The views expressed in this post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

I would like to talk about capital formation and the critical role that accountants play in that process. I want to particularly focus on capital formation from the investor’s perspective. Too often, the investor perspective is lost in the discussion over capital formation. The companies, lawyers, and investment bankers that often dominate this discussion often see regulation only as an obstacle to be overcome. They focus the discussion on how to raise money quicker and more cheaply — but seem to forget that the money raised comes from the pockets of hard-working Americans. The capital raising process should not make investors more vulnerable, and attempts to raise money quicker and more cheaply should not come at the investor’s expense. I want to put the focus on investors and examine how protecting investors facilitates capital formation by enhancing confidence, promoting integrity, and fostering transparency.

…continue reading: Capital Formation from the Investor’s Perspective

Effective Small Business Capital Formation

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Friday November 30, 2012 at 8:48 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the SEC Government-Business Forum on Small Business Capital Formation in Washington, D.C., available here. The views expressed in this post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Small business is a powerful engine for economic growth. Independent businesses with fewer than 500 employees account for half of all private sector jobs and more than half of nonfarm private GDP. [1] Growth in small business helps fuel the U.S. economy, generating opportunity, competition, and demand. Small businesses are essential to sustaining a strong economy, strong communities, and a strong middle class.

Today’s Forum reflects the Commission’s continuing interest in capital formation issues for small businesses. Indeed, the Commission has had a long-term focus on small business, and has utilized multiple avenues to regularly and consistently seek input from small business stakeholders. For example:

…continue reading: Effective Small Business Capital Formation

Abolishing IPOs and Harnessing Private Markets in the Public Good

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday August 8, 2012 at 9:20 am
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Editor’s Note: The following post comes to us from Adam C. Pritchard, Professor of Law at University of Michigan.

In my paper, Revisiting “Truth in Securities Revisited”: Abolishing IPOs and Harnessing Private Markets in the Public Good, I explore the possibility of doing away with initial public offerings. In their place, I propose an expanded system of company registration under which companies would have to trade in private markets for a seasoning period, with mandatory disclosure, before they would be allowed to sell their shares to the public at large. I argue that such system would promote not only efficient capital formation, but also investor protection.

Under the current regime, companies can stay private until one of three triggering events occurs: 1) the company lists its shares for trading on a securities exchange; 2) the company makes a registered public offering; or 3) the company exceeds 2,000 shareholders. Typically, companies trigger public company status through an initial offering of shares, with simultaneous listing of those shares on an exchange. The decision to make an initial public offering, however, is frequently made because the company is pushing the limit on the number of shareholders as a result of prior private issues to employees and early-round investors.

…continue reading: Abolishing IPOs and Harnessing Private Markets in the Public Good

Proposed Initiatives May Affect Capital Formation and Public Reporting Requirements

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday March 17, 2012 at 7:37 am
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Editor’s Note: The following post comes to us from Brian V. Breheny, partner at Skadden, Arps, Slate, Meagher & Flom LLP, and is based on a section from Skadden’s 2012 Insights that was published earlier this year, contributed by Mr. Breheny, Stacy J. Kanter, Michael J. Zeidel, Andrew J. Brady, and Pallas A. Comnenos.

Recent regulatory and legislative initiatives relating to capital formation and public reporting requirements, if implemented, would have a significant effect on privately held companies and publicly traded small and emerging businesses. Although the ultimate outcomes and timing of these initiatives are unknown, we expect at least some of them to be adopted in 2012. Because the proposals could materially impact the timing of when a company decides to go public, how it attracts, retains and pays employees, and the manner in which issuers and investment banks conduct offerings, issuers and their advisors should closely monitor developments related to these initiatives.

Prompted by a series of letters in the spring of 2011 between Rep Darrell E. lssa (R-CA), Chairman of the House Committee on Oversight and Government Reform, and Mary L. Schapiro, Chairman of the Securities and Exchange Commission (SEC), in which Chairman lssa criticized perceived regulatory impediments to capital formation, the staff of the Division of Corporation Finance of the SEC (the Division) has committed to undertake a review of certain regulatory provisions, including:

…continue reading: Proposed Initiatives May Affect Capital Formation and Public Reporting Requirements

Facilitating Real Capital Formation

Posted by Luis A. Aguilar, Commissioner, U.S. Securities and Exchange Commission, on Saturday April 23, 2011 at 9:07 am
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Editor’s Note: Luis A. Aguilar is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on Commissioner Aguilar’s remarks at the Council of Institutional Investors Spring Meeting; the complete remarks, including footnotes, are available here. The views expressed in the post are those of Commissioner Aguilar and do not necessarily reflect those of the Securities and Exchange Commission, the other Commissioners, or the Staff.

Today, I want to talk about capital formation. For over 30 years, I advised many clients as to their capital raising efforts in order to grow their businesses, and I worked with institutions that held significant stakes in companies who grew their operations by making better products, and selling more of them.

I have been growing increasingly concerned about the discussion that is taking place in our country regarding capital formation. This discussion seems to confuse the singular act of capital raising with the much broader concept of capital formation. Moreover, this discussion fails to take into account the importance of disclosure in helping investors assess risks and make informed investment decisions. Disclosure leads to an informed investor – and informed investors are ones who will make investment decisions that collectively, in the aggregate, will yield productive benefits and growth to the real economy.

I know you understand exactly what I mean. The Council is an association of members who have a long-term stake in the U.S economy. You are self-described as the “patient capital” of the markets because, in general, you have “30-year investment horizons and heavy use of indexing strategies.” You understand that for most investments to make money, the company generally requires organic or strategic growth over a period of time.

I share this long-term view.

…continue reading: Facilitating Real Capital Formation

US Securities Regulation and Global Competition

Posted by Howell Jackson, Harvard Law School, on Thursday December 11, 2008 at 8:51 am
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Editor’s Note: This post is by Howell Jackson of Harvard Law School.

A forthcoming issue of the Virginia Law & Business Review entitled “US Securities Regulation and Global Competition” will feature articles by Eric Pan and myself, Stavros Gadinis, and Andreas M. Fleckner on international aspects of United States securities regulation. The articles in this symposium issue have important implications for the ongoing debate over competition among markets internationally for issuers of securities as well as for the role played by US securities regulations in the apparently declining competitiveness of US capital markets. In an introduction to the issue, Donald Langevoort characterizes all three articles as exploring different aspects of the bind that U.S. securities regulation now faces in balancing demands for more intense supervisory oversight with pressures to improve U.S. capital market competitiveness in the face of mounting international competition.

In “Regulatory Competition in International Securities Markets: Evidence from Europe – Part II ,” Eric Pan and I return to the study of capital raising practices of foreign firms. We began this project nearly a decade ago at a time when U.S. corporate law scholars were debating the theoretical merits of a regime of “issuer choice” in which firms would be permitted to choose the legal regime governing the sale of and trading in issuer securities. Our goal was to move beyond theoretical debates by interviewing market professionals to ascertain exactly how firms were deciding in which markets to raise capital and to probe the extent to which mandatory legal regimes were constraining.

Our new article is the second half of this research project and draws on evidence gained from some four dozen in-depth interviews conducted in 1999 with lawyers and market professionals in London and other major European markets. The first article in the project, which is available here, presented evidence concerning capital raising practices within the European Union. The second article, which is now forthcoming in the Virginia Law & Business Review, focuses on practices of European issuers seeking to raise capital in the US. Our results are of particular relevance to recent debates over the effect of the Sarbanes-Oxley Act on foreign issuers as our survey took place shortly before that Act was passed. Significantly, our article provides evidence that during this earlier period US investors were tending to prefer to execute transactions on European trading markets as opposed to parallel markets established in the US, such as ADR listings. In other words, many aspects of the decline in U.S. capital markets competitiveness that some have associated with the enactment of the Sarbanes-Oxley Act were in evidence well before the passage of that Act.

In the article, Eric and I present a range of evidence on the capital raising choices available to European issuers seeking to raise capital in the US and how they weighed the pros and cons of these choices. We test our findings against statistical evidence and other academic writings on the subject and discuss the implications of this aspect of our analysis on the debate over regulatory competition. The article also presents survey data about the efficacy of SEC supervision of foreign issuers seeking access to public markets as well as information pertaining to legal fees and other direct expenses that European issuers incurred when they raised capital in the US in the late 1990s. While the additional costs and regulatory impediments of the public U.S. offering process imposed a burden on foreign issuers seeking access to U.S. public markets at the time, market developments, including the rise of European capital markets and the availability of alternative mechanisms to reach most U.S. investors, seem to have played a more important role in the declining relative attractiveness of U.S. public listings.

The paper by Stavros Gadinis, “Market Structure for Institutional Investors: Comparing the US and the EU Regimes,” considers the rules governing stock exchange market structure: Regulation NMS (“National Market System”) in the United States and the EU Directive on Markets in Financial Instruments (“MiFID”) in the EU. Focusing on issues of regulatory design, the article compares the US and EU regimes to explore which policy can better achieve its stated goals. In particular, the paper examines the impact of these policies on the major contributors to equity trading volume in the last decade: institutional investors. It argues that US rules result in higher liquidity costs for institutional investors and may harm the informational efficiency of US markets. The paper is available here.

In “FASB and IASB: Dependence Despite Independence,” Andreas M. Fleckner focuses on the organizational structure of the Financial Accounting Standards Board and the International Accounting Standards Board and their susceptibility to outside influence. The paper considers the integration of each Board into its respective parliamentary system as well as the exposure of each Board to financial, political and national influences. The paper shows that, in principle, both Boards are organized independently from private and governmental influence, but that neither Board is immune to outside influence. It refers to recent examples of both Boards being subjected to outside influence and, when put under pressure, making concessions that jeopardized their independence. The paper is available here.

 
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