JOBS Act Symposium: Lessons Learned from the Facebook IPO?

The panelists mostly agreed that the high-profile Facebook IPO debacle has cooled excitement for IPOs, at least within those private companies considering monetization.

Mr. Zwilling gave a brief summary.  He thinks many entrepreneurs are now saying, “I want nothing to do with this,” referring to the IPO process.  Zwilling noted, for example, Zuckerberg’s widespread criticism following the offering; he said many entrepreneurs are concerned that going public would risk losing control over important cultural aspects of his or her company.

Related to Facebook’s volatile early pricing experience, Professor Dibadj asked why there has not been more pressure (from entrepreneurs) to use a Dutch Auction format for pricing, instead of relying on the “black box” of underwriting?  Zwilling proffered that many entrepreneurs are simply naïve to the pricing system, and they don’t have much insight as to the underwriting process.  The entrepreneurs, by and large, think, “We don’t know how it works and we don’t have any control.”

JOBS Act Symposium: Which of the Title 1 provisions has the biggest potential impact to incentivize IPO offerings and will it work?

This morning’s first panel features Robert BartlettReza Dibadj, and Martin Zwilling, discussing the JOBS Act’s Title I provisions for initial public offerings.

The panelists were asked to predict which part of Title 1 of the JOBS Act will have the biggest impact on IPO offerings?

Reza Dibadj discussed the way in which the JOBS Act allows emerging growth companies to escape the onerous accounting and reporting required by the Sarbanes-Oxley legislation. Furthermore, companies are taking advantage of the opportunity to withhold executive compensation information.

Martin Zwilling emphasized that any changes to the law which decrease the number of regulatory hoops that have to be jumped through is beneficial to the IPO process. Some companies have had to dramatically increase their personnel and time resources to comply with Sarbanes-Oxley.

Robert Bartlett looked to the statistics about the parts of the JOBS Act actually being employed to understand which parts of the act are most effective. A Skadden, Arps study concluded that emerging growth companies are taking advantage of withholding executive compensation but are  still revealing three or more years of financial records even though the legislation permits them to offer with only two years of reports. Seventy percent of emerging growth companies are also taking advantage of the ability to submit their prospective IPO offer to the SEC privately.

Stay with The Network for further updates from the Berkeley Business Law Journal JOBS Act Symposium.

JOBS Act Symposium: Do Entrepreneurs Prefer IPOs or M&A Exit Strategies?

Is the IPO market depressed because M&A is becoming the preferred exit strategy for entrepreneurs?

Martin Zwilling opened by commenting that entrepreneurs today prefer M&A, because private acquisition is not as burdensome or costly as preparing for an IPO.  In addition, many startups have recently seen “huge premiums” paid via M&A, so their bottom-line return might approximate that generated by an IPO.  Mr. Zwilling also noted that many companies, including Intel and IBM, are beginning to look to buy their technology instead of creating it on their own—essentially outsourcing some of their product development.

Entrepreneurs prefer M&A’s speed, which allows them to ‘cash out’ and move on to creating a new company—what entrepreneurs love to do in the first place.

Professor Bartlett agreed with Mr. Zwilling, but argued that the dynamic has been in place for a long time.  Still, he acknowledged that M&A is preferred for many startups because entrepreneurs and VCs can monetize their investments immediately, whereas the IPO process locks up capital for six months and subject them to considerable market risk.  Even once the company has gone public, both are often prevented from quickly selling their equities because they’re considered ‘insiders.’  Prof. Bartlett concluded, “The thumb has always been on the scale, in my assessment, on the side of M&A” because VCs simply have more control over the process.

Professor Dibadj suggested that entrepreneurs might have become a bit more sensitive to the substantial underwriting costs associated with an IPO, which pushes them towards merger instead.  Marin Zwilling agreed—adding that VCs prefer business models with M&A exit strategies than IPOs.

JOBS Act Symposium: What IPO problems did the JOBS Act set out to solve?

This morning’s first panel features Robert BartlettReza Dibadj, and Martin Zwilling, discussing the JOBS Act’s Title I provisions for initial public offerings.

The panelists were asked to discuss the problems with IPOs antecedent to the passage of the JOBS Act and the problems that the Act set out to solve.

Reza Dibadj provided statistical evidence to support the fact that IPOs have significantly declined in the 2000’s. There was a significant fear on the part of policy makers that IPOs were declining or going overseas costing jobs here. But what wasn’t clear was the causation of the IPO decline. Statistics do not confidently show the cause of the demise of the IPO market and whether entrepreneurs are just preferring mergers and acquisitions instead.

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JOBS Act Symposium: The IPO On-Ramp

This morning’s first panel features Robert BartlettReza Dibadj, and Martin Zwilling, discussing the JOBS Act’s Title I provisions for initial public offerings.

Professor Bartlett began with the political economy surrounding the legislation.  He noted the interaction between initial public offerings (“IPO”) and a well-functioning venture capital (“VC”) ecosystem.  Without accessible IPO requirements or other sources of secondary financing, many VCs may be unable to recover their invested capital or exit the market.  But when companies can sell equity to the public, VCs can recycle the capital—the VC ecosystem can then support more growing companies and, in turn, job creation.

Title I of the JOBS Act emerged out of an industry task force’s white paper, entitled “Rebuilding the IPO On-Ramp.”  It recommended an on-ramp for emerging growth companies (“EGCs”) using existing principles of scaled regulation.  The central principle was to lessen the regulatory and disclosure requirements for new companies – encouraging them to go public – by creating a new EGC category.  The transitional category that emerged applied generally to companies with less than $1 billion in annual revenue, for as long as five years.

Congress acted quickly, adopting most of the white paper’s recommendations.

EGCs are subjected to less cumbersome regulation while on the ‘on-ramp.’  For example, they need only include two years’ of audited financials in their regulatory statements (instead of three to five years).  Also, Title I allows EGCs and underwriters to communicate with qualified institutional buyers prior to filing regulatory statements; and companies considering an IPO can file a confidential registration statement, to protect sensitive information if they decide not to go public at that time.

Liveblogging from the 2013 BCLBE and BBLJ Symposium

The Berkeley Business Law Journal will be covering today’s symposium, The JOBS Act: Initiatives and Challenges of the New Legislation, hosted with the Berkeley Center for Law, Business and the Economy.

The event is taking place at Boalt Hall from 8:45a – 2:00p and will include two panel sessions:  First up, “The IPO On-Ramp” featuring discussion and insight from Robert BartlettReza Dibadj, and Martin Zwilling.  Our second panel, beginning at 11:00a, will critique the “Crowdfunding exception” for IPOs.  Earlier panelists will be joined by Eric Brooks and Mary Dent.

Visit The Network often to follow the event.  Our writers will be frequently posting throughout the morning.

Supreme Court Refuses to Extend Statute of Limitations for SEC Fraud Actions

On February 27, 2013 the Supreme Court handed down a unanimous decision holding that the Securities and Exchange Commission (“SEC”) may not invoke the “discovery rule” when bringing fraud charges under the Investment Advisors Act.  15 U.S.C. §§ 80b-6(1), (2).  The “discovery rule,” so often extended to plaintiffs in private actions, triggers the statute of limitations at the time fraud is discovered by the plaintiff.  The “standard rule,” on the other hand, triggers the statute of limitations when the alleged illegal acts occurred.

In the Supreme Court’s decision in Gabelli v. SEC, the Court chose not to extend the plaintiff-friendly discovery rule to the SEC.  The reasoning was based on the asymmetries between the discovery powers of private plaintiffs and the nation’s securities regulation agency.  The Court specified that the federal government had powerful discovery tools, such as the power to “subpoena data, use whistleblowers and force settlements” and that this should ensure “timely action.”  Moreover, the Court noted, “[T]he SEC’s very purpose is to root [fraud] out.”  The Court rested the distinction on the equitable nature of the discovery rule:  the SEC’s mission of discovering and prosecuting fraud, coupled with its powerful enforcement tools, “[are] a far cry from the defrauded victim the discovery rule evolved to protect.”  In the Court’s view, the SEC did not need the discovery rule.

The Supreme Court’s decision led to mixed reactions.  The result in Gabelli came with the approval of the Cato institute, which filed an amicus brief for the defendants.  In contrast, many investors were disappointed, concluding that those who contributed to the financial crisis will continue to go without sanction.  Members of the “Occupy the SEC” movement (whose amicus brief can be found here) called the decision a “boon for fraudsters.”

The Network first covered this story the day after the Court handed down its decision.  See the archived “Week in Review” post here.

The Week in Review: SEC Nomination, Symposium, DOJ and FDIC

Mary Jo White, President Obama’s pick to be the next S.E.C. chairwoman, took a tough stance on Wall Street regulation yesterday, testifying before the Senate Banking Committee.  Ms. White is a former federal prosecutor, although she has also worked as a corporate Wall Street defense attorney.  She appears likely to win confirmation (as early as next week).  If and when she does, banks should expect rigorous oversight from the government’s top securities regulation agency.  During her testimony, Ms. White said:  “I don’t think there’s anything more important than vigorous and credible enforcement of the securities laws.”  For more, see the NYTimes.  On a related note, Senator Warren (D-MA) has continued to push for increasing bank oversight and regulation.

The Berkeley Center for Law, Business and the Economy and the Berkeley Business Law Journal will be hosting their 2013 symposium on the JOBS Act this Friday, March 15.  Registration is required.  See a previous post for a complete description of this year’s symposium lineup.

Federal prosecutors recently caught a break in an ongoing offshore tax evasion investigation, centered around Swiss financial advisor Beda Singenberger.  In a letter mailed to the United States, Singenberger unintentionally included a list of approximately 60 U.S. ‘clients.’  “The government has mined that list to great effect and prosecuted a number of people who were on that list,” according an assistant U.S. Attorney working the case.  The government continues its crack-down on unreported foreign accounts, which included a $780 million settlement with UBS, Switzerland’s largest bank.  For more, see Bloomberg. 

A recent Los Angeles Times report shows that the FDIC has been quietly settling actions against banks involved in unsound mortgage loans—including “no press release” terms that have kept the matters quiet unless and until it received a “specific inquiry.”  The newspaper claims that this practice constitutes “a major policy shift from previous crises, when the FDIC trumpeted punitive actions against banks as a deterrent to others.”  Under a Freedom of Information Act request, the Times recovered more than 1,600 pages of FDIC settlement documents “catalog[ing ] fraud and negligence.”  Yesterday, Forbes picked up on the story, asking, “Is the FDIC Protecting Banks from Bad Press?”  For more, see the LATimes and Forbes.

 

FRB Governor Raskin Urges Banks to Take Proactive Role in Dealing with Reputational Risk

[Editor’s Note:  The following post is from Goodwin Proctor’s recent Financial Services Alert by Eric R. Fischer, Jackson B. R. Galloway, and Elizabeth Shea Fries.  This and other updates from Goodwin Proctor are available here.] 

On February 28, 2013, FRB Governor Sarah Bloom Raskin made a presentation entitled “Reflections on Reputation and its Consequences” to the 2013 Banking Outlook Conference at the Federal Reserve Bank of Atlanta.  Governor Raskin noted that, in the aftermath of the 2007-2009 financial crisis, financial institutions of all sizes have seen a decline in the public’s perception of their reputation and trustworthiness (and she added that the quality of their reputation is of particular importance to financial institutions).  Governor Raskin stated that the decline in public trust of, and confidence in, financial institutions has been increased recently by, among other things, “the Occupy Wall Street movement, payday loans, overdraft fees, rate-rigging settlements in London Interbank Offered Rate [LIBOR] cases, executive compensation and bonuses that seem to bear no relationship to performance or risk, failures in the foreclosure process, and a drumbeat of civil litigation.”

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BCLBE and BBLJ 2013 Symposium — The JOBS ACT: Initiatives and Challenges of the New Legislation

A new frontier in securities law, but how will people use it?

The Jumpstart Our Business Startups Act (JOBS Act) offers new avenues for investors and small companies to participate in the market.  Leaders in business and law will be gathering at the University of California, Berkeley, School of Law on March 15, 2013, to discuss the Act’s opportunities and risks.  The Berkeley Business Law Journal and Berkeley Center for Law, Business, and the Economy are proud to present their 2013 symposium—The JOBS Act: Initiatives and Challenges of the New Legislation from 8:45a – 2:00p at Boalt Hall.  Registration is required.  The symposium will bring together prominent speakers from the fields of law, securities regulation, and venture capitalism to discuss two critical areas of the Act.

The first panel session will explore “The IPO ON-Ramp.”  In response to the decrease in companies applying for initial public offerings, the JOBS Act incentivizes companies to make an offering and introduces a gradual five-year plan to scale up to full public status.  Panelists including Robert Bartlett and Reza Dibadj from UC Berkeley, School of Law, as well as Martin Zwilling from Startup Professionals, will discuss the reason for the decline in IPOs and whether the steps taken in the JOBS Act will arrest and reverse this decline.  The IPO ON-Ramp panel runs from 9:00 – 10:45a.  Further readings about the IPO panel discussion are available on the BCLBE website.

The second panel will discuss the widely-publicized “Crowdfunding” public offering exception.  The panelists will demystify the types of small money investments that are permitted under the crowdfunding exception.  Having discussed the newly permitted activities, the panel will engage in a cost-benefit discussion of the opportunity for new investment avenues weighed against the potential for fraud inherent in this up-tempo investment frontier.  Panelists from the first session will be joined by Eric Brooks from the SEC and Mary Dent from Silicon Valley Bank.  The “Crowdfunding” panel will present their thoughts from 11:00a – 12:45p.  More information on the Crowdfunding panel discussion is available on BCLBE’s website.

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