After three months since being nominated by President Barack Obama, the U.S. Senate on Monday approved Mary Jo White as the new chairwoman of the Securities and Exchange Commission. How will this affect the final steps of implementing the last two laws of the JOBS Act? Our prediction is that she will conclude Title 2 of the act which was due July 4, 2012 and which allows general solicitation under Reg D, 506 but not Title 3 of the JOBS Act for equity crowdfunding. The latter prediction is based on the SEC DC Circuit SEC Dodd Frank defeats stemming from insufficient cost/benefit analysis.
Last March, Ms. White received bipartisan support from the Senate Banking Committee with a strong 21-to-1 vote in her favor, thereby sending her nomination practically unhindered to the full Senate for a vote. Monday, April 8 she was inducted as the Chair of the SEC and now our attention turns to whether she will accelerate and conclude the outstanding JOBS Act bills.
As a New York federal prosecutor and the first female U.S. attorney in Manhattan, Ms. White carried out tough and aggressive crackdowns on terrorism and organized crime, and vows to take the same hard-line stand with Wall Street. At her confirmation hearing, she said that it would be a high priority throughout her tenure to further strengthen the enforcement functions of the SEC, adding, “It must be fair, but it also must be bold and unrelenting.”
I predicted her nomination would be a possibility in both my articles last December, entitled “Obama’s 10 Steps with SEC & FINRA to Legalize US Equity Crowdfunding” and in the follow up article in peHUB last month. This is an appropriate start for Mary Jo White as last April 5 was the 1st year anniversary of the JOBS Act and heavy discussions surrounded this topic. We expect Ms White to be up-and-running and fully informed as SEC Chair by May.
The JOBS Act has 2 out of it’s 6 underlying bills remaining to be implemented. As noted earlier, one is Title 2 which allows general solicitation of private shares under a Reg D, 506 offering - the most common offering for funds and companies in the US and these offerings represented $900 billion in 2011. Title 3 would allow equity crowdfunding and, while it is is not expected to move forward as quickly as Title 2, supporters are still hoping Mary Jo White will conclude Title 3 in 2013.
It’s unfortunate but Title 3 is now lagging as Italy’s CONSOB (SEC equivalent) announced last month that they were taking public comments on their first crowdfunding law for equity. This law is unique as it would be the first law implemented in the world specifically created for the phenomenon known as equity crowdfunding without a ceiling of $1 million as proposed under Title 3 of the JOBS Act.
Former SEC chairwoman Mary Schapiro stepped down from the SEC post last Dec. 14 and Commissioner Elisse Walter took the chair in the interim. Meanwhile, no proposal was then submitted until the new chairwoman was chosen.
Now that Ms. White is in place, the financial markets are eager to see her stance on these two fractional remaining laws which are now overdue by as much as nine months.
Ms White, we welcome you to the helm of the SEC. We expect strong enforcement and we hope for swift resolutions on the remainder of the JOBS Act. Mary Jo White may very well be the chair we need for the job.
However, her biggest obstacle to concluding the JOBS Act implementation is reflected in the challenges Dodd Frank Act has faced. The Dodd Frank Act regulation had imposed investor protection requirements and broker dealers sued SEC and won based on that the view that the mandatory Cost/Benefit Analysis SEC has to conduct by law was not robust enough and did not satisfy investor protection requirements. These lawsuits recently upheld by the DC Circuit Court challenges the SEC to efficiently continue perfunctory or pro forma manner analysis on regulation. This same argument applies to Title 3 and whispers indicate that the opposing faction to equity crowdfunding - the North American Security Administrators Association (NASAA) - may very well leverage it in their objections. This is a concern for Mary Jo White to consider as she takes office in May.
By David Drake, founder and chairman of LDJ Capital, a New York City private-equity firm, and of The Soho Loft, a global financial media company with 3 divisions in Publishing, Conferences & Expos and Consulting. For more updates on the crowdfunding industry and information on alternative investment events, or if you have comments about this article, you can comment here or reach out to me at David@LDJCapital.com directly.
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