THE JOBS ACT HITS ITS 5 YEAR ANNIVERSARY – WITH A NEW ADMINISTRATION AND SEC CHAIRMAN, MORE CAN BE DONE

It’s hard to believe that the Jumpstart Our Business Startups Act or the JOBS Act was signed into law five years ago. On April 5, 2012, I attended the White House Rose Garden signing of the JOBS Act and remember having a conversation with both the then CEO of the New York Stock Exchange Duncan Niederauer and Wawa CEO Chris Gheysens. This was literally a meeting with Wall Street and Main Street and both organizations played leading roles in the passage of the JOBS Act.

But where much of it really started was on April 8, 2011 – 6 years ago this past Saturday - during my first week of working for Senator Pat Toomey, a Republican Senator from Pennsylvania. On that day, The Wall Street Journal had run a front page article titled, U.S. Eyes New Stock Rules. The story was about the SEC examining the possibility of increasing the 500 shareholder limit set in 1964 for a company to remain private. Increasing the shareholder limit would make it easier for a private company to raise capital, grow and create jobs. Senator Toomey handed me that article and said, “I want to get this done.” From that day on, that Wall Street Journal article sat on my desk as a reminder of what Senator Toomey wanted to get done. Coincidentally, I received a call about a month later from the Philadelphia Chamber of Commerce on behalf of Wawa – a convenience store headquartered in Pennsylvania - about increasing the shareholder limit. Wawa was hitting up against the limit because of the company’s family ownership and its employee stock ownership plan. Little did I know that the legislation increasing the shareholder limit from 500 to 2000 would become the engine for the JOBS Act that we have today.

At Senator Toomey’s request, I then began to work on small pieces of “capital formation” legislation on a bipartisan and bicameral basis. Some of the legislation originated in the Senate and the House introduced a similar version and vice versa. Working on a bipartisan basis and especially on a bicameral basis is somewhat rare and unique, and this was during a timeframe when Democrats controlled the White House and the Senate. Senator Toomey told me that he wanted to be constructive and that he wanted to get something done. We introduced three bipartisan bills that were rolled together in the JOBS Act by then House Majority Leader Eric Cantor. The three bills comprise the bulk of the JOBS Act and are as follows:

• The Small Company Capital Formation Act with Sen. Jon Tester (D-Mont.) (S. 1544) or more commonly known as Regulation A+ - This legislation was considered noncontroversial and was mainly driven by the biotech industry.
• The Reopening American Capital Markets to Emerging Growth Companies Act with Sen. Charles Schumer (D-N.Y.) (S. 1933): This legislation was designed make it easier for growing firms to go public by reducing the hurdles of an initial public offering by phasing in many of the costliest obligations over time. This legislation was based off a proposal developed by the IPO Task force that was established by the U.S. Treasury Department in March 2011. It received strong support from the New York Stock Exchange and the National Venture Capital Association.
• The Private Company Flexibility and Growth Act with Sen. Tom Carper (D-Del.) (S. 1824): This legislation would raise the shareholder limit from 500 to 2,000 for community banks and non-banks and would exempt employees from this cap. As a result, small businesses have the flexibility to focus on long-term growth, job creation and creating better environments for their employees without having to worry about the regulatory burdens of SEC reporting requirements.

S. 1824 and its House companion, H.R. 2167 attracted the most support and had the largest coalition pushing for its passage. The coalition was comprised of private trading share platforms like Barry Silbert’s SecondMarket (now NASDAQ Private Market) and Vince Molinari’s Gate Technologies (now Ouisa Capital) and a diverse set of startups. Most importantly, the coalition included community banks and old-line companies including Wawa, Wegmans, and W.L Gore & Associates – the company that makes Gore-Tex – to name a few. Throughout the deliberations on the JOBS Act, we continued to grow the coalition of private companies and startups. These household name private companies were hitting up against the shareholder limit and are widely respected in Washington. Who doesn’t love their Wawa or Wegmans?

While working on the JOBS Act, what struck me the most was how arcane and antiquated U.S. securities laws are as compared to banking laws which have been modernized over the years. Since a great deal of securities law is rooted in the 1933 and 1934 Acts, I had visions of living in the 1930s trading pieces of paper on the streets of New York City. While the JOBS Act is a major achievement that has allowed companies to grow including equity crowdfunding and Fintech, much more can be done. Some modest reforms include:

• Increasing the crowdfunding dollar limits by requiring a public match or accredited investor dollar for dollar match for different levels of investment.
• Ensure that the SEC’s accredited investor requirements do not undermine Title II of the JOBS Act which eliminates the ban on general solicitation under Regulation D.
• Pass commonsense bipartisan legislation including H.R. 1219, Supporting America’s Innovators Act of 2017 and H.R. 1343, the Encouraging Employee Ownership Act of 2017.

The news media, the Administration and Congress are focused on hot button issues including the Affordable Care Act, tax reform, and immigration policy. All of these are important but difficult to achieve. Changes to Dodd-Frank will also be difficult and will mainly happen through the agencies with Congressional oversight. Nonetheless, with a new Administration and incoming SEC Chairman Jay Clayton, there is a huge opportunity for the SEC and Congress to work with industry and other interest groups on regulatory reforms and a Securities Law Modernization Act. These are esoteric and arcane changes that don’t usually make headlines and most people don’t understand but could have a significant impact on job creation and the economy.