Redrawing the Public-Private Boundaries in Entrepreneurial Capital Raising by Robert Thompson, Donald Langevoort

This scholarly article offers a review of the regulatory history around securities offerings: the Securities Act of 1933, the Securities Exchange Act of 1934, and the JOBS Act of 2012; providing an overview of how these laws interact with each other and whether they achieve their purposes.

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  • Topic Tags

Securities regulation in the US, securities registration, registration exemptions

  • Relevant questions addressed

What are the laws regulating securities offerings?

When does a company need to register securities? Are there exemptions?

How did the regulatory environment evolve?

  • Summary bullet points
  • The Securities Act of ‘33 introduced regulation around public offerings, including
    • Public disclosure of details on the company and its intentions on capital raising
    • A review of the public disclosure documents by the SEC. Only after this review the issuer can sell the securities.
    • Restrictions on the marketing of securities and guidelines for third parties involved in the process (bankers, accountants, etc.)
    • High liability standards beyond the SEC’s pre-existing bureaucratic tools
  • The Securities Exchange Act of ‘34 main role is to further the requirements outlined by the Securities Act of ‘33, as well as to regulate “secondary distributions,” or sales by shareholders, and to regulate the behavior of market makers.
  • Milton Cohen argues they should be enacted in a coordinated fashion with the ‘34 Act as the guiding light.
  • Exemptions to public disclosure requirements exist in the case of private offerings.
    • SEC Regulation A provides a degree of exemptions for smaller offerings to nonaccredited investors
    • SEC Rule 506 of Regulation D provides for the private sale of restricted, unregistered securities to an unlimited number of “accredited investors” (based on wealth alone) and no bounds on capital raised
    • Other exemptions can be based on company size, quality of investors, size of the offering, or a combination of these and other characteristics.
  • The JOBS Act of 2012 and the current environment
    • Allows for more aggressive and direct solicitation in private sales to accredited investors through changes to Rule 506
    • Makes it easier to qualify for exemptions to disclosure requirements
    • Private, unregistered offerings present much less regulatory oversight - and liability
    • The crowdfunding exemption, differently from what was originally intended (something similar to Rule 504 of Regulation D), increased the regulatory burden around crowdfunding
    • Regulate offerings up to $50 million through “Regulation A+,” which is set to use a similar framework of “mini-registration” as Regulation A. Document requirements for “Reg A+” were still to be decided when the paper was published.
  • Follow-up links

The Laws That Govern the Securities Industry -