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JOBS Act Improves Access to Capital Markets for Issuers of Real Estate Securities

Prepared by Michael R. Ray, Esq. and Steven H. Shapiro, Esq.
April 5, 2012

Today President Obama signed the “Jumpstart Our Business Startups Act” (JOBS Act), improving access to the capital markets for certain real estate issuers as well as other issuers. Specifically, the legislation codifies significant reforms designed to, among other things, encourage initial public offerings (IPOs) by “emerging growth companies” and ease restrictions on issuers seeking to raise capital through private placements of securities.

IPO On-Ramp

The most notable component of the JOBS Act concerns immediate reforms to the IPO process for companies that qualify as “emerging growth companies.” This category of issuer includes any company with total annual gross revenues of less than $1 billion in its most recent fiscal year (except an issuer that commenced its IPO on or prior to December 8, 2011). If qualified, an emerging growth company can elect to take advantage of certain exemptions and reduced disclosure, financial reporting and auditing requirements, including:

  • fewer requirements for audited financial statements and presentation of financial data in registration statements and periodic reports;
  • increased flexibility in communicating with institutional investors and research analysts throughout the course of a securities offering;
  • confidential nonpublic review by the Securities and Exchange Commission (SEC) of the company’s registration statement for its IPO;
  • exemption from the internal controls audit attestation requirement under Section 404(b) of the Sarbanes-Oxley Act (SOX);
  • exemption from newly-adopted or revised accounting standards unless those standards apply to companies that are not “issuers” under SOX;
  • exemption from rules requiring mandatory audit firm rotation and auditor discussion and analysis in financial statements that the Public Company Accounting Oversight Board may adopt; and
  • exemption from requirements under Dodd-Frank Wall Street Reform and Consumer Protection Act concerning Say-on-Pay and executive compensation disclosure

Easing of Restrictions for Private Placements

The JOBS Act also instructs the SEC to modify Regulation D of the Securities Act of 1933 to permit general solicitation and general advertising in connection with the private sale of securities to accredited investors pursuant to Rule 506 of Regulation D and qualified institutional buyers (QIBs) in Rule 144A offerings. These new rules will apply to all issuers (not just emerging growth companies), who would continue to take reasonable steps to verify the accredited investor or QIB status of any purchaser of its securities. Unlike the IPO reforms discussed above, the changes related to private placements of securities are not immediate. The legislation requires the SEC to complete its rulemaking process within 90 days.

If you have any questions or comments concerning this Legal Update, please feel free to contact us:

William H. Jackson, Esq.
Michael R. Ray, Esq.
Andrea H. Bricker, Esq.
Barry A Brust, Esq.
Pircher, Nichols & Meeks
1925 Century Park East
Suite 1700
Los Angeles, California 90067
(Tel.) 310.201.8900
wjackson@pircher.com
mray@pircher.com
abricker@pircher.com
bbrust@pircher.com

Steven H. Shapiro, Esq.
Pircher, Nichols & Meeks
900 North Michigan Avenue
Suite 1050
Chicago, Illinois 60611
(Tel.) 312.915.3112
sshapiro@pircher.com

*Mr. Ray’s admission to the California Bar is pending. He is a member of the Alabama and Missouri Bars.

The PN&M Legal Update is published as a service to our clients and friends. It is intended to provide general information and should not be acted upon without first obtaining professional advice appropriately tailored to your individual needs.