By Bill Flook
Rep. Ted Budd, a Republican from North Carolina, on January 13, 2021, reintroduced legislation that would write into law two offering reforms undertaken by the SEC in recent years. H.R. 294, the Encouraging Public Offerings Act, passed the House unanimously in late 2017 but never made progress in the Senate.
“Fundamentally, financial markets connect money to ideas,” Budd said in a statement. “But the process of taking a company public has become more and more difficult. This bill makes significant changes to securities laws to reduce the risk that companies face when they go public, and ensure that the everyday investor has access to the opportunities that help Americans save and watch their dollars grow.”
The bill codifies two changes in which the SEC broadened some significant JOBS Act benefits to all issuers that were previously only available to so-called Emerging Growth Companies (EGCs) under the 2012 law. EGCs are defined as companies with under a billion in revenue that are still within five years of their initial public offering, among other conditions. Sec. 1 of pl112-106
The SEC in September 2019 issued final rules in Release No. 33-10699, Solicitations of Interest Prior to a Registered Public Offering, to open up the so-called “test the waters” benefits to all companies preparing for an initial public offering (IPO).
The largest shareholders, including pension funds, mutual funds, and hedge funds, play an outsized role in IPOs. The JOBS Act allows EGCs to meet with institutional investors, including what the SEC classifies as qualified institutional buyers (QIBs), to better understand investors’ interest prior to the offering, a process often referred to as testing the waters.
Separately, in June 2017, the SEC moved to allow all companies to have their registration statements for IPO reviewed confidentially by the SEC before the offering documents are made public. Originally, under the JOBS Act, confidential filing was available only to EGCs.
Budd’s bill would amend the Securities Act of 1933 to codify the SEC’s expansion of both changes.
The bill comes as financial reform advocates grow increasingly leery of efforts to further the market deregulation of the JOBS Act, despite the ongoing bipartisan support behind the law. In a joint December 18, 2020, letter, Americans for Financial Reform and the Consumer Federation of America argued that the JOBS Act had removed incentives for companies to go public, driving investors to less-regulated private markets.
“Despite this evidence that our public markets are at risk and the lack of any evidence that the JOBS Act produced the promised benefits in the form of sustainable job creation, some are once again suggesting that legislation to restore the economy and create jobs in the wake of the COVID-19 pandemic should include a new round of regulatory rollbacks,” the groups wrote. “This would be a betrayal of the investors and issuers who rely on transparent, orderly and efficient capital markets to support healthy capital formation and productive economic activity, and an even worse betrayal of those suffering real financial hardship as a result of this crisis.”
This article originally appeared in the January 19, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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