SEC To Rule on JOBS Act

NEW YORK ( TheStreet) --The JumpStart Our Businesses Act, or JOBS Act, needs a jumpstart itself. Progress, however, finally seems to be happening as the SEC is scheduled to hold an open meeting on July 10 to vote on the Title 2 portion of the Act. It isn't the crowdfunding portion that many are anxiously awaiting, but it is a sign of action which is giving the crowdfunding crowd a feeling of hope. Title 2 was supposed to be completed 90 days after the enactment of the JOBs Act, but has only gone so far as a set of proposed rules dating back to August of 2012.

This portion of the JOBS Act addresses the approval of advertising for securities sales to accredited investors and requiring the issuers take steps to make sure the investors are indeed accredited. The SEC received 220 comments regarding Title 2, with the majority opposed to the proposal due to fears of fraudulent offerings. The other group was very much in favor of the proposed rules saying it would boost capital formation, but did request specific verification methods to make sure they were satisfying that requirement.

Bob Carbone, co-founder of CrowdBouncer, believes there is internal pressure for the SEC to move forward. "There is an appetite within the SEC to make it a reality," he said. "If they don't accept the rules as proposed, then they will have to start with new rules." Carbone thinks the proposed rules are fairly straightforward and reasonable. "It's long overdue and I think they want it to work," he added.

The question is whether the delay has hurt the JOBS Act. A new study by BDO USA found that investment bankers have lost faith in the Act. Last year, 55% believed it would have a positive impact on IPO activity. Now only 29% have that belief. More than two-thirds (68%) predict the law will never achieve its desired goal of increasing the number of businesses going public. Some 19% believe that crowdfunding would negatively impact the IPO market.

Crowdfunding sites like WeFunder are struggling with how best to protect potential investors. WeFunder CEO and CoFounder Nick Tommarello said his company does due diligence on the companies they feature but wonders whether investors should also conduct their own research. "They shouldn't just take our word for it," said Tommarello. "They should get involved and learn about the companies personally." Many crowdfunders believe that will be the beauty of crowdfunding - i.e. the crowd will "out" bad offerings. Tommarello wonders whether too much protection harms a potential company's chance to raise capital.

One group that urges caution is the North American Securities Administrators Association. President Jack Herstein wrote in August to the SEC that the rules are not as straightforward as some suggest, but actually quite complex. They urge that the SEC not give in to the pressure to act quickly. Herstein points out that in 2011, 200 actions were taken against fraudulent Rule 506 offerings. He goes on to mention the Justice Department's indictments against Provident Royalties in connection with a $485 million fraud against 7,700 investors in private placements.

Carbone said if the rules are accepted as proposed it could be implemented within 30 to 60 days and deal flow will begin with the companies that have been established and waiting for the green light. Tommarello said, "I strongly think they will pass the rules. I don't think they'd schedule the meeting if they didn't think it wouldn't happen, but it may be August 12th before implemented."

An SEC spokesperson would only say the implementation date will be noted in the proposal put before the meeting. For many, it's been a long wait to jumpstart the act.

--Written by Debra Borchardt in New York.

>To contact the writer of this article, click here: Debra Borchardt.
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