After the SEC Small Business Forum in mid-November, there was a great deal of hope surrounding progress toward final rulemaking of the 2012 JOBS Act provisions. Commissioners at the SEC spoke candidly of the need to make forward progress on the bill, not only to provide clarity in the equity crowdfunding space, but to effectively give small business the boost they so desperately need to gain access to a wider range of investors. Put simply, the JOBS Act was created in a strategic effort to soften the current strict regulation around capital formation and the prohibitive filing requirements imposed on small business. For those who attended the forum, there was hope the SEC would make the moves mandated by the JOBS Act, even though it has been a long two years past the original deadline.
In a brief comment during a conference late last week, Chair Mary Jo White of the SEC stated bluntly that the organization as a whole does not believe there is a “drop-dead date” for finalizing JOBS Act guidelines—a direct contradiction to the urgency felt during the forum just a month prior. Now, the buzz in Washington is that final rules will not be shared until October 2015, meaning implementation of those rules would not take effect until the beginning of 2016. At that time, it will be more than three years past the original, mandated deadline, and that seems to matter very little to the organization.
It means quite a bit, however, to business owners across the nation.
The JOBS Act was meant to be a progressive piece of legislation promoting capital formation in different forms, based on the rapidly expanding pool of willing and able investors. Under its provisions, businesses no longer need to depend on deep-pocketed angel investors or venture capitalists to pursue expansion projects. Instead, use of new platforms to raise capital—namely, equity crowdfunding opportunities—would provide much-needed access to a pool of investors of all shapes and sizes. Depth of pockets becomes less important while a connection with a company’s mission and work springs to the forefront. The expansion of both investor pools and investor platforms creates a level of access not experienced by small business, and, as the JOBS Act boasts, creation of jobs, capital, and growth in the process.
So, what’s the holdup? The SEC has a handful of programmed responses to explain their now uncomfortable stall tactics.
First, the definition of accredited investor has been questioned for decades, but has become an even greater concern for SEC officials under JOBS Act provisions. As it stands, only seasoned and experienced investors, or those who meet certain income or net worth requirements, are allowed to participate in alternative investment opportunities. This includes, vaguely, the raise of capital through equity crowdfunding platforms. The SEC’s concern is that opening up the definition would create fertile ground for fraud in the alternative investment landscape. If they were to allow less-experienced investors to participate in opportunities that presented a greater deal of risk, specifically through web-based platforms that may or may not be strictly regulated, the SEC is of the belief that these less-savvy investors will be taken for all they’ve got.
This is a viable concern, as the occurrence of fraud has the potential to multiply when regulation is light; however, the last two years of the Small Business Forum has brought a number of intelligent, focused recommendations to the attention of the SEC in an effort to create an environment that is both beneficial to small business and protective for investors (see our recap of this year’s forum here). Each year, the SEC reviews these recommendations and presents them for consideration. The purpose of these recommendations is to move progress of regulations in question forward, including the powerful provisions of the JOBS Act, but business owners and investors alike have yet to seem that in action. The process, as exciting as it may seem during the day-long forum, has become more of a formality and less of an active prompt for SEC officials to take necessary action.
With the additional delay, business owners are at a standstill. Some have said the SEC is holding the market hostage, creating an environment where growth is becoming less of option for some businesses, and investment in alternatives is less of option for individuals. As hope wanes, we’re left with only one question: will the SEC actually fulfill its obligation to present final rules on the JOBS Act when October rolls around? We’ll have to wait and see.
To read more about the JOBS Act, check out our blog here.