Meet the JOBS Act ◾ 237
led condential submissions must be led as an exhibit to the publicly
led registration statement. Accordingly, even condential submissions must
be drafted with an eye toward eventual public disclosure (assuming the
IPO is pursued).
11.8.3 Relaxed Restrictions on Investor Communications
The JOBS Act also eases restrictions on communications with investors
before and after the registration statement becomes effective.
Generally, the solicitation of orders to buy securities before a registra-
tion statement becomes effective (sometimes referred to as “gun-jumping”) is
prohibited under the Securities Act. However, under the JOBS Act, EGCs and
their authorized representatives will be permitted to communicate orally or
in writing with QIBs and IAIs to determine interest, or “test-the-waters,” in
a potential offering, whether before or after the ling of a registration state-
ment for the offering. Such communications may only be with these types of
investors; communications with any investors that do not qualify as QIBs or
IAIs remain subject to the traditional prohibitions on gun-jumping. This new
“testing-the-waters” exception is intended to allow an issuer to gauge interest
in an offering prior to undertaking the signicant expense of initiating the
IPO process. Testing-the-waters communications are not limited to the EGC’s
IPO, but are also permitted during subsequent offerings, if the issuer still
meets the qualications of an EGC at such time. Issuers should be aware,
however, that these activities will only be preempted from state blue sky
laws if the securities will be “covered” securities when issued, that is, listed
on the NYSE, AMEX, or Nasdaq.
In addition to testing-the-water communications, the JOBS Act loosened
the restriction on communications by research analysts. Under the JOBS Act:
◾ Investment banks will be permitted to publish research on an issuer
during the pendency of such issuer’s public offering, even if the bank is
also serving as an underwriter in the offering
◾ The research analyst conict of interest rules related to marketing of
IPOs and “three-way” communication between research, investment
banking, and management will not apply
◾ There will be no post-pricing quiet period or booster shot restrictions
on research reports or other communications
238 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
These changes are intended to increase the availability of analyst research
coverage of EGCs that may not otherwise receive attention from the invest-
ment community. These provisions override certain restrictive provisions of
FINRA and the NYSE, but other Securities Act, FINRA, and NYSE restrictions
will continue to apply.
Please note that despite these changes instituted by the JOBS Act, dis-
closures during the IPO process will still be subject to existing regulations
against fraud. Accordingly, issuers are advised to take care that any disclo-
sures during this period are consistent with the information provided in the
IPO submissions and lings. This potential for liability, especially in light of
other continuing restrictions, may limit the overall impact of these provisions.
References
1. http://ww2.cfo.com/growth-companies/2013/10/
the-jobs-act-crowdfunding-and-emerging-businesses/
2. http://www.forbes.com/sites/tanyaprive/2012/11/27/
what-is-crowdfunding-and-how-does-it-benet-the-economy/
3. http://en.wikipedia.org/wiki/Crowdfunding
4. http://en.wikipedia.org/wiki/Jumpstart_Our_Business_Startups_Act
5. http://www.sec.gov/divisions/marketreg/tmjobsact-crowdfundingintermediar-
iesfaq.htm
6. Xia, E. The JOBS act: risks for investor protection. Columbia Business Law
Review. http://cblr.columbia.edu/archives/12083
7. http://blogs.law.harvard.edu/corpgov/2012/03/29/
congress-passes-the-jumpstart-our-business-startups-act/
8. http://www.troygould.com/index.cfm?fuseaction=content.contentDetail&id=9206
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