Thursday, April 02, 2015

The First Step in Correcting 80 Years of Discrimination Against “Regular Joe” Investors - Free Market America on the comeback trail.

Tectonic Changes in US

Investor Regulations
Part One of Two

Breaking the Hold of the Corrupted Banking System.

This past week was the beginning of a sea change in the small business financial markets.  1070 days after it became law the SEC finalized Title IV of The JOBS ACT of 2012. Though it got little attention from the press the new law is expected to have a significant impact on both private investors and on of how small businesses access capital, a very positive impact that could benefit the vast majority of Americans.

At times it’s been called Reg. A+ and sometimes called IPO-Lite  the new law dramatically changes investor limitations enacted nearly 80 years ago at the beginning of the Great Depression.  The new investor regulations overcome some of the limits and impediments that one of the original exemptions to the primary securities laws, referred to as "Regulation A", faced. 

Ben and Jerry's Ice Cream Company was an Exception

With the notable exception of the business Ben and Jerry’s Ice Cream which did use Regulation A to go public the regulation has rarely been used by business'. This was due to restrictions in both the amount of money that could be raised and the cumbersome requirement that issuers such as Ben and Jerry's faced when using the exemption, in particular,  individual state filings and approvals to raise money in each of the states.  

The new regulations overcome these impediments and enable companies to issue securities throughout the country with just the SEC’s approval and the amount of money that can be raised in a single year has been increased from $5 million dollars under the old rules to $50 Million dollars (this limit can be increased by the SEC as it deems warranted).

The potential value of the original regulation A to ‘regular ol' Joe’ investors was that you are not required to be an accredited investor to participate in these offerings. This differs from most early stage offerings where it is required that investors are accredited. Since Reg A was rarely used the ol' Joe had few opportunities to benefit. In practice most businesses seeking growth capital over the past 80 years were pushed into or chose the Private Equity markets where ol' Joe investors were not eligible to participate. Thus, these high return and often times tax favored opportunities were reserved for Americas more privileged "Banker Class'. 

In this writers view it is this discriminating law that in large part has led to the bifurcation of our society into the “banker class” and the regular ol' people.  It has done great damage to our society and this step taken last week by the SEC is hopefully the first step to help rectify that. Looking ahead the next step is for the SEC to release the regulations on Title III of the Jobs Act, which will be covered in more detail in part two of this article. Suffice to say here that Title III will enable Regular ol' Joe investors to participate in the private equity markets also through crowdfunding. 

The regulations for Title III is anticipated to be released by the SEC this fall. Remember it has been over a thousand days since the law was passed and the SEC released regulations on the first two sections Title I and Title II years ago these sections established the rules for  Equity Crowdfunding and lifted the prohibition on “General Solicitation”. Since then Crowdfunding has led to the cost efficiencies of Equity Crowdfunding in particularly benefiting the commercial real estate capital markets. 

These are very complex issues and I suggest that whether you are an investor or a company seeking growth capital you are advised to seek competent financial and legal council before investing or embarking on a fundraising effort for your company. 

In the next article we'll review the details of the yet to be finalized Title III including the potential benefits that may come for the regular ol' folks. It is time long overdue for the destructive class bifurcation that these arcane securities laws have helped to cause in America. These laws are at the heart of the Divided state of America today.

Final note: At the core of crowdfunding of all types is getting the word out to the masses, I specialize in PR and Marketing associated with all forms of Crowdfunding. For more information you are welcome to subscribe to our newsletter found on the contact page of our website.

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