The document summarizes the JOBS Act and provisions around crowdfunding. It discusses how the JOBS Act came to be passed in response to concerns around startup funding. It outlines the key crowdfunding regulations including limits on investment amounts, required use of intermediaries, disclosure requirements for issuers, and liability provisions. The JOBS Act created exemptions to allow for crowdfunding of securities but with numerous investor protection regulations.

1. “The JOBS Act – Generating Jobs or
Getting Jobbed?”
Michael Kirwan, Foley & Lardner LLP
Tim Gillis, Akerman Senterfitt, LLP
Hamilton Traylor, Fisher, Tousey, Leas & Ball
May 17, 2012

2. Agenda
I. How the JOBS Act Came To Be – Hamilton
Traylor
II. Crowdfunding – Hamilton Traylor
III. General Solicitation for Private Placements
and Changes to Reg A – Tim Gillis
IV. Emerging Growth Companies and Revised
Shareholder Thresholds for Registration
Under the 1934 Act – Michael Kirwan
V. Questions and Answers

3. What is the JOBS Act?
• The Jumpstart Our Business Startups Act of 2012 is six
initiatives amending the ‘33 Securities, ‘34 Exchange and
Sarbanes-Oxley Acts
– Title I – Reopening American Capital Markets to Emerging Growth
Companies, which provides the so-called “on ramp” for IPOs
– Title II – Access to Capital for Job Creators, dealing with the changes to
the prohibitions on general solicitation
– Title III – Capital Raising Online While Deterring Fraud And Unethical
Non-Disclosure Act of 2012, or the CROWDFUND Act
– Title IV – Small Company Capital Formation, an effort to make the Reg.
A exemption viable, another topic that Tim will discuss
– Title V – Private Company Flexibility and Growth and Title VI – Capital
Expansion, both of which deal with increasing the number of
shareholders required for registration under the ’34 Act

4. How the JOBS Act Came To Be
• Background Environment
– Post Dodd-Frank Wall Street Reform pushback
• Issa-Shapiro Letters
– Facebook decision to stay “private” by offering to non-US residents only
over concerns regarding
– SOPA (Stop Online Piracy Act) backlash from Silicon
Valley
– Obama Administration Initiatives
• Treasury Department “IPO Task Force”
• President’s Council on Jobs and Competitiveness
• SEC Advisory Committee on Small and Emerging
Companies

5. The JOBS Act (cont’d)
• Timeline
– Passage of H.R. 2930, the Entrepreneur Access to
Capital Act in Nov. 2011 by 407-17 vote
– Obama “Statement of Administration Policy”
endorsing H.R. 2930
– Senate leadership stalls after H.R. 2930 in face of
concerns by institutional groups (SEC and organized
labor) over investor protection
– National Venture Capital Association, the Silicon
Valley Leadership Group, TechNet, U.S. Chamber of
Commerce and a handful of CEOs urge passage of
H.R. 2930

6. The JOBS Act (cont’d)
• Timeline (cont’d)
– Behind the scenes bi-partisan lobbying by Steve
Case, co-founder of AOL
– House rolls other securities initiatives into H.R. 2930,
which becomes the JOBS Act (H.R. 3606) and
passes it 390-23 on March 8, 2012
– Senate takes up H.R. 3606 on March 20 and Merkley-
Bennet-Brown amendment passed to address fraud
concerns in crowdfunding on March 22, 2012
– Senate leadership sends bill straight to floor where it
passes on March 22, 2012 73-26 (passes in House
380-41)
– President Obama signs JOBS Act April 5, 2012

7. Two Views of the JOBS Act
“Because of this, start-ups
and small business will now
have access to a big, new
pool of potential investors —
namely, the American people.
For the first time, ordinary
Americans will be able to go
online and invest in
entrepreneurs that they
believe in,” the president said
in a Rose Garden signing
ceremony. Finally, Obama
said the JOBS Act would
make it easier for business
owners to take their
companies public, noting
“that’s a big deal because
going public is a major step
toward expanding and hiring
more workers.”

8. Two Views of the JOBS Act
• It is a bad sequel to a bad movie. It shouldn’t be called the JOBS Act, it should
be called the Bring Fraud Back to Wall Street Act. Eliot Spitzer, former New
York attorney general
• We should not walk backwards here. Collusive behavior between analysts and
bankers cost investors huge sums, shattered confidence in the integrity of
research, and damaged the markets themselves. Mary Shapiro, Chairwoman,
SEC
• At best, this bill could make it easier for con artists to defraud seniors out of
their entire life savings by convincing them to invest in worthless companies. At
worst, this bill has the potential to create the next Enron or Arthur Andersen
scandal or an even worse financial crisis. Senator Bernie Sanders (D-VT)
• We are disappointed - and angry - that despite warnings from current and
former financial markets regulators, law professors, institutional investors and
consumer advocates, 73 senators voted for the cynically named “JOBS
Act.’”This is a vote against investors in the real economy and for Wall Street
speculators. When the next bubble bursts, Americans will know who to blame.
Richard Trumka, President, AFL-CIO

9. Two Views of the JOBS Act
The “Jumpstart Our Business Startups” Act, the comically forced
effort to create a catchy acronym, is the most cynical bill to emerge
from a cynical Congress and Administration. It is an exemplar of why
Congressional approval ratings are well below those of used car
dealers. The JOBS Act is something only a financial scavenger could
love. It will create a fraud-friendly and fraud-enhancing environment.
It will add to the unprecedented level of financial fraud by our most
elite CEOS that has devastated the U.S. and European economies
and cost over 20 million people their jobs. Financial fraud is a prime
jobs killer. Deregulation was the root of the financial crisis just past,
but no one in the administration seems to have gotten the memo.
This bill is astonishingly wrong-headed, which means it is par for the
course for Team Obama. Bill Black, Associate Professor of
Economics and Law, University of Missouri-Kansas City, and author
of The Best Way to Rob a Bank is to Own One

10. Title III - Crowdfunding
• What is “crowdfunding”?
– Broadly described as aggregating funds from a broad base towards a
common cause
• Old concept, although term is new
– Michael Sullivan, founder of fundvalog, coined the phrase on August 16,
2006
– 1700s, Jonathan Swift launched the Irish Loan Fund, an early micro-
finance project to provide credit to the poor of Dublin
– March 1885, publisher Joseph Pulitzer initiated an open-call donation-
based campaign in his newspaper The World to help finance the Statue
of Liberty’s massive pedestal
– March of Dimes is prototypical example of donation-based crowdfunding
– Barack Obama’s 2008 campaign fundraising approach, accepting
smaller than traditional contributions from a broader voter base,
probably should be considered a form of microfinance

11. Crowdfunding (cont’d)
• New Technology
– Similarities between the fundraising campaigns
described above and successful crowdfunding
campaigns today — the micro-pledge model, the
reward structure, the emotional draw — but there’s
one major difference: THE INTERNET
– Because of the web’s global reach, crowdfunded
ventures can target much narrower communities than
“Americans” in Pulitzer’s fundraising campaign for the
Statue of Liberty — say, webcomic fans or iPhone
photographers — and still raise a substantial amount
of money

12. Crowdfunding (cont’d)
• Crowdfunding Models
– Microfinance
• Microfinance is when contributors align to provide financial
services, often seemingly miniscule loans, to low-income
clients, particularly where the recipients generally lack
access to banking services
• Today’s microfinance model began when Nobel Prize winner
Muhammad Yunus began giving microloans in the 1970s to
help the poor in his native Bangladesh escape poverty
• Kiva.org is a prominent microfinance platform, having
facilitated over $300 million in loans

13. Crowdfunding (cont’d)
– Peer-to-Peer Loans
• Also known as P2P loans or social lending, peer-to-peer
lending enables individuals to borrow from a group of
lenders, without the use of an official financial institution as
an intermediary – the theory is that by removing the
overhead of banks, borrowers receive lower rates while
lenders earn higher returns than expected from savings
accounts
• P2P lending grew over 1,200%, from $118 million to $1.555
billion, in outstanding loans between 2005 and 2008
• P2P lending is highly regulated
• Leading platforms in this fast growing P2P field are
Prosper.com and Funding Circle

14. Crowdfunding (cont’d)
– Donation-Based Crowdfunding (DBC)
• DBC has exploded in the past few years, with hundreds of
platforms. DBC campaigns are often creative (movies,
music, art), community, or philanthropic projects. They can
also be business-oriented, like the Pebble watch that
recently broke the record for largest DBC campaign (cut off
at $10 million)
• Characteristics of a DBC crowdfunded campaign
– no financial return – generally a non-monetary reward related to the
project, like a T-shirt, pre-release CD or video game, etc.
– No financial returns mean DBC campaigns are not impacted by
securities laws – have generally been viewed as legal
• The DBC industry nearly quadrupled in 2011, from $32
million to $123 million
• Despite 100’s of platforms, Kickstarter.com dominates DBC.
IndieGoGo.com and RocketHub.com are also major sites

15. Crowdfunding (cont’d)
– Investment Crowdfunding
• With investment crowdfunding, the crowd purchases
securities – equity, debt or some hybrid – in exchange for
their contributions
• Investment crowdfunding has been legal in some other
jurisdictions, such as the U.K. and Australia, but not in the
United States
• Title III of the JOBS Act changes that by establishing a new
exemption, Section 4(6) of the Securities Act of 1933, from
registration of securities sold via crowdfunding offerings

16. CROWDFUND Act
• Limitation on Size of Offering
– no more than $1,000,000 may be raised via
crowdfunding in any 12 month period
• Limitation on Size of Individual Investment
– no single investor may invest more than a specified
amount in an offering, namely:
• the greater of $2,000 or 5% of the annual income or net
worth of the investor, as applicable, if the investor has annual
income or net worth of less than $100,000; or
• 10% of the annual income or net worth of the investor, as
applicable, if either the annual income or net worth of the
investor is equal to more than $100,000, capped at a max of
$100,000 invested

17. CROWDFUND Act
• Limitation on Means of Offering
– Companies must use an intermediary if they want to crowdfund,
and those intermediaries must be registered with the SEC and
will also be required to register with the Finance Industry
Regulatory Authority (“FINRA”)
– The intermediary must be a registered broker or “funding portal”
(a new term created under the JOBS Act)
– Precise registration requirements for funding portals have not yet
been determined by the SEC
– The requirement that the offering is conducted through a
registered broker or funding portal essentially forbids companies
from crowdfunding their own offering on their own websites

18. CROWDFUND Act
• Obligations of Funding Portals
– As evidenced by the requirements placed on
crowdfunding intermediaries, it is clear that Congress
does not intend for being a funding portal to be easy
– The main limitations on crowdfunding intermediaries
are:
• provide certain disclosures and investor education materials
to investors
• ensure that the investor has reviewed educational materials
and answers questions indicating that he/she understands
the risks involved
• perform certain background checks on the issuer
• provide a 21 day review period before any crowdfund
securities are sold

19. CROWDFUND Act
• Obligations of Funding Portals (cont’d)
– ensure that an issuer does not receive investment funds until its target
investment minimum has been reached, and that investors may cancel
their commitments to invest as provided by the SEC
– ensure that no investor surpasses the investment limits set forth above
in a given 12 month period in the aggregate – i.e. the limits described
above with respect to investors
– apply to all crowdfunding investments in a given 12 month period, not
just to individual investments, and the burden is on the intermediary to
monitor this
– take steps to protect the privacy of investors
– not pay finders’ fees to promoters or lead generators with respect to
investors (it appears to be okay to pay finders’ fees for issuer leads)
– not allow the intermediary’s directors, officers or partners to have a
financial interest in an issuer using its services

20. CROWDFUND Act
• Requirements on Issuers
– Issuers must disclose any compensation paid by it to
any person promoting its offerings through a broker or
funding portal
– Issuers are not allowed to advertise the terms of the
offering except for notices that direct investors to the
intermediary
– Companies seeking to utilize the crowdfunding
exemption must file a substantial disclosure with the
SEC, the intermediary and all potential investors, that
must include:

21. CROWDFUND Act
• Requirements on Issuers (cont’d)
– name, legal status, address, website, etc.
– names of directors, officers, and 20% stockholders
– a description of the business of the issuer and the anticipated business plan of
the issuer
– prior year tax returns, plus financials (detail depends upon size of offering)
– description of intended use of proceeds
– target offering amount, deadline, and regular progress updates through the life of
the offering
– share price and methodology for determining the price
– a description of the ownership and capital structure of the issuer, including detail
about (i) the terms of the securities being sold, as well as any other outstanding
securities of the company, (ii) a summary of the differences between them, (iii)
disclosures about how the rights of shareholders can be limited, diluted or
negatively impacted, (iv) “examples of methods for how such securities may be
valued by the issuer in the future, including during subsequent corporate
actions,” and (v) a disclosure of various risks to investors

22. CROWDFUND Act
• Financial Disclosures
– Companies looking to raise $100,000 or less can provide
financials that are merely certified as true by the officers of the
company
– Companies looking to raise between $100,000 and $500,000
must provide “reviewed” financials (by a CPA)
– Companies looking to raise over $500,000 must provide audited
financial statements prepared by a CPA
– Every year after a successful crowdfunding offering, issuers
must file with the SEC and investors reports of the results of
operations and financial statements of the issuer

23. CROWDFUND Act
• Other Provisions
– Crowdfunded shares shall are exempted from the 500
shareholder cap
– Crowdfunded securities cannot be transferred or
resold for the first year after purchase, unless
transferred to (i) the issuer, (ii) an accredited investor,
(iii) as part of a registered offering, or (iv) to family
members in some circumstances (i.e. death, divorce)
– Only U.S. offerings are eligible for the crowdfunding
exemption

24. CROWDFUND Act
• Other Provisions (cont’d)
– Certain companies such as publicly listed companies,
investment companies, and private equity and hedge
funds may not use the 4(6) crowdfunding exemption
– Using the crowdfunding exemption does not preclude
the raising of funds through other means – i.e.,
companies may engage in a crowdfunding round
simultaneously with an angel investment or other
financing round under Regulation D 506

25. CROWDFUND Act
• Liability
– New Section 4A(c)(2) of the Securities Act provides
that an “issuer” will be subject to liability if it:
• by the use of any means or instruments of transportation or communication
in interstate commerce or of the mails, by any means of any written or oral
communication, in the offering or sale of a security in a transaction
exempted by the provisions of Section 4(a)(6), makes an untrue statement of
a material fact or omits to state a material fact required to be stated or
necessary in order to make the statements, in the light of the circumstances
under which they were made, not misleading, provided that the purchaser
did not know of such untruth or omission; and
• does not sustain the burden of proof that such issuer did not know, and in
the exercise of reasonable care could not have known, of such untruth or
omission

26. CROWDFUND Act
• Liability (cont’d)
– Investors in crowdfunding offerings may institute
actions for rescission or damages
– Defendants can defeat liability if they can
demonstrate an adequate due diligence defense, i.e.,
that they have conducted a reasonable investigation
as has been developed by the federal courts in their
interpretation of Section 12(a)(2) of the Securities Act

27. CROWDFUND Act
• Liability (cont’d)
– There is an expansive definition of the term “issuer”
for purposes of the liability provisions. The term
“issuer” includes any person who:
• is a director or partner of the issuer
• is the principal executive officer or officers, the principal
financial officer, and controller or principal accounting officer
of the issuer (or who occupies a similar status or performs a
similar function) that offers or sells a security in 4(6) exempt
offering
• offers or sells the security in such offering

28. CROWDFUND Act
• Liability (cont’d)
– As is the case with any securities transaction, crowdfunding
exempt offerings also will be subject to the general anti-fraud
provisions of Section 10(b) of the Securities Exchange Act and
Rule 10b-5 thereunder
– Although CROWDFUND preempts state blue sky laws, this
amendment does not affect any state’s enforcement authority
over an issuer, broker, dealer, or funding portal for fraud or
deceit or unlawful conduct in 4(6) offerings or the filing or fee
requirements of the securities regulator of the state in which the
issuer maintains its principal place of business or in which
purchasers of 50% or greater of the aggregate amount of the
securities issued are residents

29. CROWDFUND Act
• Final Thoughts on 4(6) Crowdfunding
– The Securities and Exchange Commission has 270 days to write
the rules and establish a new type of intermediary called a
“funding portal” so investment crowdfunding will not be viable
until Q1 or Q2 of 2013
– The start-up community had hoped for a way of raising money
that would avoid complex legal and financial compliance and
regulation. It is obvious that crowdfunding transactions will
require both the advice of lawyers and accountants. Well they
did not get what they wanted and chances are that once the
SEC rules are promulgated, the process will be even more
arcane and less straight-forward

30. General Solicitation for Private
Placements and Changes to Reg A

31. Repeal of Ban on General Solicitation or
General Advertising for Rule 506 Offerings
• Title II of the JOBS Act
– Not currently effective - Directs the SEC to
amend its rules within 90 days of enactment
(July 4, 2012)

32. Repeal of Ban on General Solicitation or
General Advertising for Rule 506 Offerings
• Rule 502 currently prohibits general solicitation or general advertising
• What is general solicitation?
– Advertisement in Wall Street Journal
– In the Matter of Kenman Corp. (SEC 1985)
• Materials sent to several different lists of potential investors (thousands of individuals)
– Executive officers of Fortune 500 companies, physicians in California, etc.
• SEC held that, because no “pre-existing relationship” the offer was general solicitation
– Mineral Lands Research & Marketing Corporation (No-Action Letter, 1985)
• Only pre-existing relationships that allow the issuer to determine the “financial
circumstances or sophistication or are otherwise of “some duration and substance”
– Mere prior social relationships do not meet criteria
• “pre-existing relationship” is an important factor (but not only factor)
– “Pre-existing Relationship” test may be met by someone working for the issuer
• Interjects a gatekeeper into the process

33. Repeal of Ban on General Solicitation or
General Advertising for Rule 506 Offerings
• Repeal will allow general solicitation and
general advertising in Rule 506 offerings
– when sales (not offers) are only to accredited
investors
– Issuers must take reasonable steps to “verify”
that investors are accredited (steps to be
determined by the SEC)
• Comparable changes to be made to Rule
144A(d)(1)

34. Repeal of Ban on General Solicitation or
General Advertising for Rule 506 Offerings
• Any Rule 506 offering that uses general
solicitation or general advertising will not
be deemed a “public offering”
• These changes will be available to all
issuers

35. Repeal of Ban on General Solicitation or
General Advertising for Rule 506 Offerings
• Pending SEC final rules implementing
Title II of the JOBS Act, issuers should
continue to comply with existing
requirements.

36. Repeal of Ban on General Solicitation or
General Advertising for Rule 506 Offerings
• Broker-Dealer Status
– The JOBS Act clarifies that a persons that maintain
online or other platforms to conduct Rule 506
offerings that will use general advertising or general
solicitation will not be required to register as a broker-
dealer provided:
• No transaction-based compensation;
• Does not take possession of customer funds or
securities; and
• Is not subject to a 1934 Act statutory
disqualification

37. Repeal of Ban on General Solicitation or
General Advertising for Rule 506 Offerings
• Most debate likely to focus on the extent
of an issuer’s verification of accredited
investor status
• Today – mostly rely on self-certification
and representations and warranties
• Waiting for SEC rules, but consequences
of even one non-accredited investor would
be severe

38. Exempt Public Offering Process –
Reg A+
• Title IV of the JOBS Act
• Dubbed Regulation A+ by come commentators
• Not currently effective - directs the SEC to
amend its rules (no deadline for adoption)
– With current pressure on the SEC related to
Dodd-Frank and other JOBS Act provisions, it
may sit on the back-burner as the SEC tries to
meet other tight rulemaking deadlines

39. Exempt Public Offering Process –
Reg A
• Holds the most promise for smaller
company capital raising
• Issuer will be able to sell up to $50 million
in securities within a 12-month period
without 1933 Act registration
• Said securities will not be “restricted
securities”

40. Exempt Public Offering Process –
Reg A
• Said securities:
– will not be “restricted securities”
– can be offered and sold publicly
– issuer may “test-the-waters”
– Will be considered “covered securities” for MSMIA
purposes (not subject to state securities review) if: (i)
offered and sold on a national securities exchange; or
(ii) offered or sold only to “qualified purchasers”
– Any person offering or selling has Securities Act 12(a)
(2) liability

41. Exempt Public Offering Process –
Reg A
• SEC may impose other conditions
– Requirement that issuer file with the SEC/distribute to
prospective investors and offering statement
• Description of issuer’s business and financial condition
• Corporate governance principles
• Intended use of proceeds
• Other appropriate matters
– SEC may require Staff review of materials that are filed
– SEC may require filed annual audited financials
– SEC may require periodic disclosures
• SEC may either amend existing Reg A or adopt an
entirely new exemption

42. Exempt Public Offering Process –
Reg A
• SEC may either amend existing Reg A or adopt an
entirely new exemption

43. Emerging Growth Companies
• JOBS Act is intended to make it easier for companies to
access capital markets by reducing the costs of going
public – creates an “on-ramp” for companies to phase
into certain of the compliance obligations associated with
being a public company. Such companies are called
“Emerging Growth Companies.”
• Phase in period lasts for five years or until the company
has:
– $1 billion in annual revenues;
– becomes a large accelerated filer (market value of common
equity held by non-affiliates exceeds $700 million as of the last
business day of the company’s most recently completed second
quarter); or
– has issued more than $1 billion in non-convertible debt in rolling
3 year period.

44. Emerging Growth Companies
• “On Ramp” / Phase In
– Auditor attestation for Sec. 404(b) of Sarbanes-Oxley
extended from current transition period of 2 years to
up to 5 years
– Prior to registration, only need to provide 2 years of
audited financials
– Preempts any effort by PCOAB to require audit firm
rotation for emerging growth companies (does not
change audit partner rotation)
– Any new rules adopted by PCOAB will not apply to an
audit of an emerging growth company unless the SEC
determines its in the public interest

45. Emerging Growth Companies
• “On Ramp” / Phase In (cont.)
– Emerging Growth Companies are exempt
from “Say on Pay”
– Exempt from disclosing median employee
comp vs. CEO comp (still waiting on final SEC
rules for non-Emerging Growth Companies)
– Issues regarding selective opt in/out

46. Emerging Growth Companies
• IPO Process
– Research reports now may be issued before or at the same time
as an IPO
– Greater ability to gauge interest of investors prior to IPO – can
communicate with QIBs and accredited investors who are
institutions prior to filing registration statement
– Registration Statement can be kept confidential with SEC until
21 days before IPO road show begins
– SEC has 90 days to study Decimalization – should Emerging
Growth Companies be quoted at prices greater than $0.01 but
less than $0.10 per share
– SEC has 180 days to study Reg S-K to update, modernize and
simplify the registration process

47. Revised Shareholder Thresholds
for Registration Under the 1934 Act
• Old rule – companies with 500 shareholders and $10
million in assets must register under the ’34 Act
• New rule (effective April 5, 2012) – shareholder count
raised to 2,000 but no more than 500 can be non-
accredited investors
• New rule does not count persons who received securities
pursuant to an employee compensation plan in
transactions exempt from registration requirements
• New rule exempts crowdfunding investors from
shareholder cap (SEC to adopt rules within 270 days)
• Banks and Bank Holding Companies have had
thresholds raised to 2,000 shareholders and may de-
register if drop to less than 1,200 shareholders

48. Questions