Regulation A : New and Improved after the JOBS Act or a Failed Revival?
44 Pages Posted: 3 May 2018 Last revised: 27 Oct 2018
Date Written: May 2, 2018
This piece is a follow-up to a previous article that I wrote on Regulation A. In April of 2012, then President Barack Obama signed into law the Jumpstart our Business Start Ups (JOBS) Act. Under the JOBS Act’s Title IV, Congress made revisions to a private offering exemption referred to as Regulation A with the intention of reviving an exempt offering option that was close to dormant. The primary Regulation A criticism being that issuers were required to do too much in terms of providing business and financial disclosure where the most the issuer could raise though a Regulation A offering was $5 million.
In response, the JOBS Act made several changes to Regulation A; the most notable change involved raising the offering cap from $5 million to $50 million. In my previous piece, I roundly criticized the Regulation A changes promulgated through the JOBS Act. In that previous article I argued that Regulation A was flawed at inception and that the changes to Regulation A in sum did nothing to make the regulation more appealing. The previous piece was speculative, however as the Securities and Exchange Commission had not drafted its final rules until the summer of 2015. Thus the piece was published before having the benefit of assessing how issuers might respond to Regulation A as revised.
This current piece is the rare occasion where I double-back on the assertions made in a previous article and see if in fact I was correct or whether I missed the mark. In writing this follow up article, my findings were educational. The effort taught me to be ever vigilant about the intersection between the theoretical and the practical. My research revealed that Regulation A has grown exponentially in terms of issuer use and popularity which is contrary to what I was expecting. Therefore, I was wrong in that regard and I am fine with acknowledging that.
To be fair and dispassionate - in this article I have concluded that Regulation A, as revised, while still having some flaws, is an example of Congress using its legislative powers to take something that was structurally flawed and problematic and making it into something that now appears to be viable, usable, and more appealing to emerging growth and start-up companies.
A word of caution, however. My findings also surfaced a call for a healthy dose of vigilance as well. There are storm clouds gathering over the Regulation A offering exemption. The increased offering sizes allowed under Regulation A coupled with the lack of investor sophistication (dynamics exclusive to Regulation A) could leave many investors exposed to investing in companies that in hindsight they would have been better off taking a pass on. These issues and the corresponding discussions unfold in the pages that follow.
Keywords: Regulation A, JOBS ACT, Private Offerings, Exempt Offerings, Exempt Transactions, Securities Offerings
JEL Classification: K22
Suggested Citation: Suggested Citation