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SEC Looks to Expand Yet-to-Be-Implemented JOBS Provisions

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By Mari Serebrov
Washington Editor

2012 came and went, leaving many investors and emerging growth biotechs still waiting for the opportunities promised in the Jumpstart Our Business Start-ups (JOBS) Act, as the SEC has missed its deadlines for implementing major provisions of the legislation, which was passed last year to provide new fundraising options and ease the burden of complying with securities laws.

There's still no final rule on lifting the ban on general solicitation, and a rule to allow crowdfunding – due Dec. 31 – has yet to be proposed. The SEC also hasn't proposed a rule to raise the Regulation A cap from $5 million to $50 million. (See BioWorld Today, July 6, 2012.)

But even though all the rules don't exist yet, the agency's Small Business Advisory Committee is recommending that the SEC extend the JOBS Act reporting exemptions to smaller reporting companies (SRCs) that don't meet the law's definition of an emerging growth company.

The JOBS Act defines emerging growth companies as those with total annual gross revenues of less than $1 billion during their most recently completed fiscal year and that had an initial public offering (IPO) after Dec. 8, 2011.

That start date and the five-year anniversary conditions laid out in the law make it so SRCs, which may have "revenue that is considerably less than the $1 billion threshold for the emerging growth company category . . . are unable to take advantage of the provisions of the JOBS Act," the committee said.

Extending some of the JOBS Act's regulatory relief to SRCs would help "facilitate innovation and job creation by smaller companies without adverse effects on investor protection," the committee added. The draft recommendation is one of several the committee will discuss at its Feb. 4-5 meeting.

Raising the Float

The committee also would like to revise the SEC's definition of an SRC, which currently applies to companies with less than $75 million in public float or those with less than $50 million in annual revenue, if their float can't be calculated.

The committee thinks that threshold is too low and recommended raising it to $250 million to "encourage more robust smaller company participation in the capital markets."

Of the 8, 100 companies that filed Form 10-K annual reports with the SEC in 2011, about 59 percent had a public float of less than $75 million, 11 percent had a float between $75 million and $250 million and 6 percent had a float between $250 million and $500 million, according to the commission.

Raising the public float would incrementally ease the burden for many biotechs, William Hicks, a partner with Mintz Levin, told BioWorld Today. While it wouldn't be a profound change, he said it could save companies reporting time and money. And it would be consistent with the push to streamline SEC rules.

As for the commission's delay in drafting the rules to implement the rest of the JOBS Act, Hicks said, "I don't think people are really waiting for salvation from this legislation." While several biotechs have taken advantage of provisions that allow them to test the waters before diving into a public offering, some of the other provisions – like allowing general solicitation – need more thought to ensure investors are adequately protected, he said. (See BioWorld Insight, July 23, 2012.)

Besides, he added, while parts of the JOBS Act may help biotechs, the legislation can't address the underlying problem with IPOs – that is, finding interested investors. "I don't think it's fair to expect new legislation to solve a shortage of IPOs," Hicks said. "We don't need to pray for help from Congress."

Meanwhile, some members of the SEC are blaming Congress for the missed deadlines. Speaking before the U.S. Chamber Center for Capital Markets Competitiveness Wednesday, Commissioner Daniel Gallagher noted that the SEC is still trying to churn out the rules required by the Dodd-Frank Act, which was passed more than two years ago.

So far, the commission has adopted final rules implementing nearly a third of the 400 mandates included in Dodd-Frank and is continuing "to devote tremendous amounts of resources to drafting additional proposals, completing required studies and implementing the new rules," Gallagher said.

Facing 10 times its normal rulemaking load, "the SEC . . . is now dealing with the problem of rushed, inadequate rule proposals that were pushed out in a bid to meet arbitrary congressional deadlines," Gallagher said, noting that there is a difference in getting rules done and getting them done right.