The JOBS Act (Jumpstart Our Business Startup Act) was initially passed in April 2012.  According to Mr. Sagalow, it was designed to make it easier for companies to raise capital with minimal oversight by the Securities and Exchange Commission (SEC).  While the SEC was also not happy with the loss of regulatory oversight,  D&O underwriters faced increased pricing pressure and potential losses.

The SEC is responsible for implementing the JOBS Act, but it has taken over three years to issue the first regulations in relation to Title IV – the Small Company Capital Formation title.

Prior to the JOBS Act, private companies were able to raise up to $50 million through a private placement memorandum.   Companies could solicit credible investors and the SEC had oversight over the entire process.     According to Mr. Sagalow, “the privately held D&O market was very comfortable with private placement memorandums and they were routinely covered…with a privately held D&O policy.”  Another way to raise capital was through Regulation A which had less regulatory oversight, but only companies to raise up to $5 million.

Title III Crowdfunding, another section of the JOBS Act, allows companies to raise up to $1 million through online portals with little SEC oversight and without using securities brokers. In addition, companies could to solicit unqualified investors.  Regulations for Title III have not been issued for over 700 days, according to Mr. Sagalow, but the SEC is expected to issue new rules in October 2015.

In March 2015, a new regulation called A Plus was issued by the SEC, and increased the amount that could be raised to $50 million with less regulatory oversight than Regulation D.  Regulation A Plus also eliminated the General Solicitation ban, so companies are now able to advertise for investors.  These changes, said Mr. Sagalow, have caused the D&O carriers to review their policies in order to make changes in terms of additional amendments and exclusions.

For more on Innovations in Insurance with Ty Sagalow, visit the WRIN.tv On Demand Library.

https://www.wrin.tv/why-are-do-underwriters-so-concerned-about-sec-changes-to-the-jobs-act/

Title III of the JOBS Act provide a registration exemption for limited-size offerings ($1 million per year) sold in small amounts to a large number of investors possible through the Internet. Basically, Crowdfunding will allow the average American to invest small sums of money into small businesses in their communities either as a loan or in return for a small equity stake in the company.  Currently, SEC regulations — written over 80 years ago — do not allow this type of investing.

Finalization of this exemption is still waiting for implementation regulations to be published by the Securities and Exchange Commission.  The original deadline for such publication was December 31, 2012 but the SEC is promising that there work will be done “soon”.

Meanwhile, states have stepped in to fill the gap.  Beginning with Georgia and Kansas, and now expanding to North Carolina, Wisconsin with others are not too far behind, states have adopted their own version “intrastate” securities-based crowdfunding.

Elsewhere in the Jobs Act, title II greatly expands the ability to issue private placement securities offerings including the lifting of the decades old prohibition of general solicitation and advertising.

These provisions can do much to enable small companies to raise funds and permit the “small investor” to get into some of the action previously available only to the large “well connected” investors.  But it doesn’t come without major concerns:

• What does all this mean for the D&O industry?
• What restraints will the SEC put on the will of Congress?
• How useful will Intra-state crowdfunding be in the meantime?
• What Insurance protection options exist today or should be created?