Massachusetts Sues SEC to Stop Regulation A+


On the Friday before Memorial Day weekend, William Galvin, the Secretary of the Commonwealth of Massachusetts (pictured above), filed a petition in Washington DC against the SEC requesting that the court stop the implementation and enforcement of the SEC’s changes to Regulation A. They are asking the court to hold that the rule was “arbitrary, capricious and otherwise not in accordance with the…law.”

The states have been very upset since the Jumpstart Our Business Startups (JOBS) Act was passed on 2012. In Title IV, Congress directed the SEC to implement changes to Regulation A that would, among other things, preempt state review of streamlined Reg A public offerings in sales to “qualified purchasers.” The bill left to the SEC to define who is qualified. In its rulemaking, the SEC declared that all investors are qualified because of the enhanced disclosure and reporting obligations in their new rule, and that qualified simply means able to take care of oneself. The SEC believed that any investor is so able if given the required offering statement and ongoing post-offering reporting.

Eight Democrat Senators wrote a letter to SEC Chair White during the rulemaking process strongly urging her to limit this preemption as much as possible. And now this lawsuit to try to stop it. As I have written here before, there is no unique local interest in allowing states to do a merit review of public offerings. The SEC staff does an excellent job, and the state reviews add too much unnecessary time, cost and hassle to the already burdensome process in going public. Let’s hope this lawsuit goes away quickly.

LATE DAY UPDATE: Montana has also filed a similar petition, don’t have it yet but if it is different we’ll let you know!

Let’s Press Pause. And Remember.

memorial day

Our lives are busy. Work, work, work. And now a federally mandated long weekend to spend with family and friends. Play, play, barbecue, play. But I hope we will all take some time this weekend to remember the reason we take this extra time every May to honor those who fought and gave everything for our Nation and our freedom.

Memorial Day became an official holiday in 1866 and was meant to honor the 620,000 Americans on both sides who died in the Civil War (though it was originally only to celebrate the fallen Union soldiers). USA Today notes that 644,000 Americans have died in all other US wars combined, making the Civil War the deadliest war in our history. Until 1971 Memorial Day was always celebrated on May 30, but after that it became the last Monday in May.

When I was a kid, my father, an Army vet, always put out the flag on Memorial Day and our family stood in front of it and recited the pledge of allegiance. We did this on July 4 every year as well. Not so much of that happening anymore (though we had a short resurgence of patriotic feelings after September 11). So how about a moment today or tomorrow to remember the fallen and all our troops and revel in our imperfect though awesome experiment started in the 18th Century still going strong and making us proud.

House Committee Passes Form S-1 Forward Incorporation by Reference


Kudos to the House Financial Services Committee. This week they unanimously (read: strong bipartisan support) passed a bill allowing all SEC reporting companies to incorporate by reference into registration statements on Form S-1 filings made after the registration goes effective. This will dramatically reduce small companies’ cost with both shelf offerings and completing private offerings followed by resale registrations. Maintaining and updating registrations is a big hassle, and the Congress is beginning to realize that it is unnecessary since all the information filed to update is already filed and publicly available. Therefore, investors remain fully protected and have all necessary information in connection with these registrations.

We will post more about the other bills passed by the Committee as part of a group of bills many are starting to call “JOBS Act 2.0.” Some passed strongly like the S-1 bill, but others were on strong partisan lines and have a tougher road ahead if they want to both pass Congress and expect the President to sign. The good news: the FSC is back on the case to improve the regulatory environment for small business. Many of these bills passed committee in the last Congress, and it’s terrific that these have moved back to the radar.

But just the S-1 bill is a very big advance for smaller companies and their costs as public companies. I’m honored to have assisted the Congressional staff in working on this bill. Given the unanimous vote, there’s now real hope that this one gets through the “I’m Just a Bill” process and to the President’s desk for signature.

SEC Proposes Disclosure on Executive Pay vs. Performance


The SEC released proposed rules required by the Dodd-Frank Act a few weeks ago. The proposal, if adopted, would require public companies to compare senior executives’ compensation with the actual performance of the company, measured by a shareholder return metric. “Emerging growth companies” (EGCs) will be exempt, and smaller reporting companies (many of which are also EGCs and therefore exempt) will have a lesser disclosure requirement. The disclosure would only have to be made in a proxy or information statement, not in regular periodic reports like 10-Ks and 10-Qs. This new information will have to be filed in XBRL format, the only non-financial information that would have to be reported this way.

These rules add to the “say on pay” rules passed by the SEC on its own a few years ago. Those rules require a non-binding vote on executive compensation. It is clearly part of a trend in the regulatory environment seeking to enhance accountability for the structure and amount of compensation paid to senior executives. There has been a concern among some that compensation packages have continued to grow even during times of market pullback or turmoil.

My thoughts? The US seems to be the one industrialized nation where the relationship between the lowest and highest paid employees is so large. Proponents say this is the free market, and top talent is expensive and requires these arrangements, often including big payouts when terminated. And that shareholders can vote with their feet and sell their stock if they disagree. Opponents believe the system is broken, boards are ineffective rubber stamps and even more regulation limiting compensation is appropriate. I think these laws and rules strike a reasonable balance allowing companies to do what they feel is necessary so long as the deals are fully disclosed and even subject to an advisory vote.

Why Entrepreneurship is Like Love


Spring is in the air, and those of us in the tougher winter states could not be more happy. It is of course also the season of love, and it started me thinking about how much in common entrepreneurship has with your personal romantic relationships. So as April showers give way to May flowers, here are five reasons entrepreneurship and love have much in common:

1. You need passion. Of course the most successful love affairs have great passion, and the greatest keep that passion alive even over many years. And there is no question that the best entrepreneurs are those with the greatest passion and drive for their business.

2. You need commitment. For true love to really work, the couple needs to be fully committed to each other. That includes not only loyalty but emotional support and always being there day-to-day. To build your own business, the commitment has to be real and substantial. When new ideas come along, it’s important to think hard before moving your attention away from the main original effort.

3. Picking the right partner is key. Well duh. In love too many people “settle” because of timing or circumstance and end up unhappy and/or divorced. Some of the happiest couples I know are those who waited until a little later in life, or second marriages where people have a better sense of what they really want. I believe one of the three key reasons businesses fail is bad partner choices. Don’t settle in love or business!

4. Finding balance is essential. Even in love it’s healthy to spend time pursuing individual passions separate from your mate. Or the occasional night with friends. In business, what I call “work/less work” balance is also critical to keeping perspective and having the greatest chance to make it through the marathon that is building an exciting company.

5. Be honest. Keeping secrets from your loved one can be stressful and create a distance between you. Great couples can be truly honest both with themselves and their SO which enhances their intimacy and relationship. Entrepreneurs need to be honest with themselves as they pursue growth, hire the right people and acknowledge their strengths and challenges.

Keep many of these in mind and you’re more likely to avoid “corporate divorce” and create a successful and growing enterprise.


Vietnam and the Cold War and Business


We are approaching the 40th anniversary of the end of the Vietnam War back in 1975. As a teenager at the time (yes I’m that old), I transitioned from regular nightmares about getting drafted and wading through rice paddies to relief. But the Cold War, with concomitant fear of potential mutual nuclear destruction, continued for another 15 years after that. Vietnam, in hindsight, was likely provoked artificially and didn’t seem to result in anything good, especially since we were clearly not the victor in the end, and so many lives lost. The Cold War, unfortunately, appears to be re-emerging. Vietnam, however, is emerging in a different way, as an interesting place to do business.

What does all this mean on a finance and entrepreneurship blog? That business opportunities are often shaped by world events and geopolitics. During the War, defense contractors and the like made out like bandits. Fear of nukes created an industry building fallout shelters. When the Berlin Wall fell and the USSR broke up, many US companies rushed into Russia to seek opportunities there. Similarly, after September 11, homeland security-based businesses thrived. Now President Obama has signaled a desire to re-open trade with Cuba, creating the ability to assist the struggling island with infrastructure and technology.

The challenge with depending on world events is their unpredictability. Business with Russia, for example, has suddenly come to a near standstill thanks to their recent incursions into the Ukraine. Very few saw that coming. If you have a business that is subject to normal economic cycles, you can at least count on one thing. The economy will go up and then down and then up again. The only uncertainty is when and to what extent. But developments in the political world can be counted on only for the ability not to count on them. So tread carefully if the whims of a government can impact on your bottom line.


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