On March 27, 2012, the House of Representatives approved the version of the JOBS Act, as amended by the Senate, by a vote of 380 to 41. Accordingly the legislation has been sent to President Obama for signature, who has previously indicated his support of the legislation. The White House has indicated that the President anticipates signing the JOBS Act early in the week of April 2, 2012.
The text of the final JOBS Act is available here. We have previously summarized the provisions of the JOBS Act generally applicable to the community banks, as well as the impact of the Senate amendment to the JOBS Act. In this post we focus on the timing implications for effectiveness of the amendments to Regulation D and shareholder thresholds for SEC registration and deregistration.
With regard to Regulation D, Section 201 of the JOBS Act requires the SEC to eliminate the prohibitions on general solicitation and general advertising in connection with Rule 506 and Rule 144A offerings, so long as the securities are only sold to accredited investors and qualified institutional buyers, respectively. The JOBS Act requires the SEC to implement these changes no later than 90 days after the JOBS Act is signed by the President. Until the SEC amends the existing regulations, general solicitation and general advertising will remain prohibited.
With regard to the shareholder threshold changes, Sections 501 and 601 of the JOBS Act immediately amend the statutory provisions related to the number of shareholders of record at which a company must register and when the company is permitted to register. The statutory changes are effective immediately upon enactment of the JOBS Act. However, the SEC has also adopted regulatory requirements based on the original statutory language that will likely need to be amended in order to fully take advantage of the revised thresholds.
Section 501 and Section 601(a) of the Jobs Act collectively amend Section 12(g)(1) of the Securities Exchange Act of 1934 to read:
Every issuer … shall -
(A) within 120 days after the last day of its first fiscal year ended on which the issuer has total assets exceeding $10,000,000 and a class of equity security (other than an exempted security) held of record by either —
(i) 2,000 persons, or
(ii) 500 persons who are not accredited investors (as such term is defined by the Commission), and
(B) in the case of an issuer that is a bank or a bank holding company …, not less than 120 days after the last day of its first fiscal year ended after the effective date of this subsection, on which the issuer has total assets exceeding $10,000,000 and a class of equity security (other than an exempted security) held of record by 2,00 or more persons,
register such a security by filing with the Commission a registration statement….
These changes, related to when an issuer needs to register, would appear to be effective without further regulatory action. Accordingly, banks and bank holding companies that are not currently registered will be able to go up to 2,000 shareholders of record at December 31, 2012, and not be required to register with the SEC.
Section 502 of the JOBS Act amends the Exchange Act to provide that the definition of “held of record” shall not include securities held by persons who received the securities pursuant to an employee compensation plan in transactions exempted from the registration requirements of the Securities Act. While the SEC is required to adopt safe harbor regulations to clarify this statutory language, such regulation is presumably not necessary for the change to be legally effective. The JOBS Act does not place a time limit on the SEC for adopting such regulation.
Sections 601 and 602 of the JOBS Act also amend the Exchange Act to increase the deregistration thresholds for banks and bank holding companies. While these statutory amendments will be effective immediately, with limited exemption, the SEC will be required to amend its regulations for the changes to be effective. The JOBS Act requires the SEC to adopt implementing regulations within one year after the date of enactment. Presumably, the bank regulators may also have to adopt implementing regulations for banks without holding companies that currently have securities reporting obligations to their primary regulator.
Under the revised statutes, banks and bank holding companies will be able to terminate their registration requirements under Section 12 of the Securities Exchange Act and suspend their reporting requirements under Section 15 of the Securities Exchange Act so long as they have less than 1,200 shareholders of record (as compared to 300 shareholders under the former statute – and still the thresholds for non-banks.) As revised, Section 15(d) will provide an automatic statutory suspension of reporting under Section 15(d) for bank and bank holding company securities that are held by less than 1,200 shareholders of record as of the first day of a fiscal year. However, the SEC will need to act to amend its related regulations to allow banks and bank holding companies to suspend their reporting requirements under Section 15(d) during the year, as well as to terminate their reporting requirements under Section 12(g). Hopefully, the SEC will act before Form 10-K’s are due for fiscal year 2012, but the JOBS Act’s deadline will give the SEC sufficient runway to perhaps require banks to file another 10-K before being able to take advantage of the increased shareholder thresholds.