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JOBS Act, Title III: A Brief Update on What's Happening Behind the Scenes
editorial

JOBS Act, Title III: A Brief Update on What's Happening Behind the Scenes

It’s been a while since there’s been visible action around Title III of the JOBS Act, with the last notable date being February 3, the deadline to submit comments to the SEC on the proposed equity crowdfunding regulation.

But that doesn’t mean the rulemaking process is at a standstill. Quite the contrary: SEC staffers are working hard to sort through the comments already submitted and draft any changes they see fit to the proposed rules.

To get a better understanding of what’s currently going on at the SEC, we caught up with Sara Hanks, CEO of CrowdCheck, a company that “delivers due diligence and disclosure services for online investments.” Hanks has been an active member of the crowdfunding community and previously served as the Chief of the Office of International Corporate Finance at the Division of Corporate Finance of the SEC. One of her responsibilities was to lead the regulation drafting process, so Hanks is closely familiar with the way SEC rulemaking functions.

Related:
- SEC Proposes Rules on Equity Crowdfunding in Unanimous Vote

Here are her thoughts on a number of topics, which help shed some light around what’s currently taking place at the SEC.

On comments coming in past the deadline: “[The late comments] are absolutely still being reviewed. And there are still a couple of people who will get the SEC’s attention who haven’t filed yet, including the Federal Securities Committee of the American Bar Association (ABA). Because of who they are, the SEC will pay attention to them. The deadline is never set in stone, and it’s not like they ignore stuff that comes in late, it’s just that the later comments come in, the less time there is for action. They read each and every comment letter, and take them seriously, even if they don’t deserve to be taken seriously.”

On what the ABA’s potential comment may be: “If you look at the ABA’s original comments... it’s generally a positive take on crowdfunding. I think what you can expect to see from the ABA is very technical stuff. Stuff that only lawyers would understand or appreciate.”

On how long the comment review period may last: “It’s always going to be months rather than weeks. It’s not something that you can turn around that fast. There’s an internal process of analyzing the comments. The way it works is that the staff in Corporation Finance and Trading and Markets will read the comments to see what they think needs to be changed. It’ll go up internally through the various levels of staff in those two divisions before it even gets to the commission. I’d be really surprised if it was anywhere close to the commission right now. I’m guessing somewhere around Memorial Day [May 26] might be reasonable. But it’s a guess, and I’ve been wrong on all my guesses so far.”

On how closely do the commissioners oversee the process, and would it be likely that the commissioners would be presented with proposed rules that they’d shoot down: “That generally wouldn’t happen. The chairman would never put something on the calendar if they knew that the rules weren’t going to be approved. There’s an iterative process at the commission level, as well. Before any meeting is set, the process is: the divisions will agree that they’ve finished their various staff work, and then they would present what they think they’re going to go out with to the various commissioners. And some commissioners comment more than others. Every single one is different in terms of the intensity of their comments, and whether they themselves do the work, or whether they have one of the staffers do it. But there is always a give and take between the staff and the commissioners.”

On input from FINRA: “[There’s a unique] relationship between the SEC and FINRA. FINRA reports to the SEC, FINRA rules must be approved by the SEC, so the SEC is very much the senior partner in this relationship. They are working closely together. The usual way of doing these things would be the SEC finishing its process and then FINRA does its, but in this case, for the whole of the Title III of the JOBS Act, they have worked far more in tandem than we usually see. I would expect the FINRA rules to get adopted at the same time, as was the case with the proposed rules. But we have to bear in mind that once the rules have been adopted, then all of the portals have to go through a registration process with FINRA. So it’s not like things can happen as soon as the adoption process is finished. If we look at the adopting meeting somewhere around Memorial Day, then the rules will go into effect around 60 to 65 days later, 60 days after publication in the federal register. Hopefully, FINRA will manage to get companies registered as funding portals within the 60 days, but it’s a very heavy lift for them.”

On concerns about the cost of raising money via equity crowdfunding: “It is a legitimate concern. We’ve seen a lot of speculation about prices. All I can say in response to that is, this is America, this is a free market, people will find solutions at a price point that works for them. But the big things that do worry us are the audit requirement, and specifically, we are concerned that it’s not just auditing, but the SEC decided that the financial statements should be provided in accordance with US GAAP (Generally Accepted Accounting Procedures). That is expensive.”

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