The JOBS (Jumpstart Our Business Startups) Act of 2012, is an amendment to both the Securities Act and the Exchange Act. Its purpose is to encourage economic growth and the increase in jobs, by relaxing the regulatory encumbrances on business start-ups that trying to raise capital in securities markets. There are three major differences in the JOBS Act, along with other smaller revisions of existing rules.

Crowdfunding

This gives small companies the ability to use online markets to sell securities to many small investors. This is the first time that non-public companies can raise capital from public investors without needing to go to register their offerings under state or federal law. This does not mean that there are no restrictions on crowdfunding, however. Among other conditions, the seller has to provide an elaborate offering document, and that the intermediary must be registered by the SEC. One of the biggest crowdfunding platforms today is Kickstarter, which helps smaller companies gain the funding that they need to successfully launch their business, project, etc.

General Solicitations

This act also simplifies the company’s process of marketing private placements. As long as the securities are sold to exclusively “accredited investors,” the company can market their private offerings in far-reaching public markets under Regulation D (which allows smaller companies to raise capital by selling equity or debt securities without having to register their securities with the SEC).

Emerging Growth Companies

The JOBS Act alleviates some of the restrictions and difficulties of “emerging growth companies.” When registering their IPOs they face fewer requirements, like confidential filing and the ability to “test the waters.” In the following five years the companies receive exceptions from some of the disclosure and corporate governance rules that would be enforced for other public companies.

Through the JOBS Act of 2012, “emerging growth companies” will have an easier time gaining capital and marketing their securities. This expedites economic growth stimulation and the creation of more jobs.

General Solicitation is the act of marketing a capital raise publicly. Rule 506(b) of Regulation D prohibits the use of general solicitation to market securities. (link: https://www.sec.gov/fast-answers/answers-rule506htm.html)

Additionally, Rule 502(c) prohibits:

(1) Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television and radio; and

(2) Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

See: https://www.equitynet.com/crowdfunding-terminology/general-solicitation

The Securities and Exchange Commission (SEC) takes a case-by-case approach when determining whether a company is engaging in general solicitation.

Prohibited communications tend to bebroad-based; they are not targeted to a specific audience. A typical example of general solicitation is telling potential investors in a newspaper the terms of an offering and inviting them to purchase securities.

A pre-existing relationship between the issuer and a potential investor is strong evidence that general solicitation has not taken place. A relationship is pre-existing if the it was formed before a securities offering commences, or if it was established through a registered broker-dealer or investment adviser before the registered broker dealer or investment adviser participated in the offering.

A pre-existing relationshipmay arise in business, social settings, or any other context. The general rule is that the pre-existing relationship must be of some duration and substance. The SEC defines a substantive relationship as “[a relationship] in which the issuer (or person acting on its behalf) has sufficient information to evaluate, and does, in fact evaluate, a prospective offeree’s financial circumstances and sophistication, in determining his or her status as an accredited or sophisticated investor.”

The relationship must be established from actual effort to get to know the person, rather than “just checking some box” or waiting a set amount of time.

See: https://www.wealthforge.com/insights/what-constitutes-a-pre-existing-substantive-relationship-in-a-506b-offering

The SEC has stated in past no-action letters that a third-party broker-dealer may establish a pre-existing relationship with a potential investor by sending the potential investor a generic form that providesenough information for an issuer’sevaluation of the potential investor’s financial circumstances. The generic form may not reference the offering the issuer is undertaking.

See: http://www.wnj.com/files/Publication/a941cb2d-f6db-40da-9cb0-85b44f514c70/Presentation/PublicationAttachment/ba8ac6ec-6388-4a90-b2fa cb6b5b30328d/FAQ_Regarding_the_Private_Placement_of_Securities_under_Regulation_D_Rule_506.pdf

If you are unsure of whether your company is following Regulation D or engaging in general solicitation, call Wilson, Bradshaw & Cao, LLP today to speak with an experienced securities lawyer.

The SEC suspended trading in the securities of Simex, Inc. due to concerns about inaccurate and
insufficient information in the marketplace regarding the company’s products and services and purported regulatory approvals. The SEC order was entered pursuant to Section 12(k) of the Exchange Act.

See: https://www.sec.gov/litigation/suspensions/2018/34-84460.pdf

Earlier this month, Robert A. Cohen, Chief of the SEC Enforcement Division’s Cyber Unit, said that
the SEC “does not endorse or qualify custodians for cryptocurrency” and warned investors to be “skeptical of those attempting to sell digital assets” that make claims about future SECactions. Cohen stated that to allay confusion, the SEC will announce official actions regarding digital assets through official government sources. Examples of official government sources include agency press releases, the Federal Register, an agency’s official government website(SEC.gov, Investor.gov, or
CFTC.gov), or authorized public statements by the agency’s leadership.

See: https://www.investor.gov/additional-resources/news-alerts/alerts-bulletins/investor-alert-watch-out-false-claims-about-sec

The SEC can suspend trading in stock for 10 days and can enjoin a broker-dealer from soliciting
investors until the broker-dealer has met reporting requirements. Pursuant to rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation can be issued unless they have “strictly complied with all provisions of the rule.”

The SEC’s Office of Investor Education and Advocacy has issued materials to educate investors,
including an Investor Bulletin on initial coin offerings and a mock ICO website. Additional information is available on SEC.gov/ICO and Investor.gov.

If you have questions about SEC regulation of cryptocurrency transactions and complying with rule 15c2-11, call the Bradshaw Law Group before publishing statements that may lead to SEC enforcement action.