CHAPTER 3The JOBS Act and Its Genesis
“Old” Regulation A
Before 2012, as mentioned, Reg A was not utilized very much. Here are some of the highlights of how Reg A worked before the JOBS Act.
Limited Offering Amount and Mandatory Blue Sky
One of the big problems of Reg A was that only $5 million could be raised. As mentioned, this cap had been increased steadily from its original $100,000 limit in 1936, and some companies might have liked to raise $5 million. Most investment banking firms interested in IPOs, however, did not see sufficient potential commissions in raising such a small amount.
The other big problem, as mentioned: Every deal had to go through full state blue sky review, unless the company was considering a listing on a national exchange. Both the rules themselves, and the limited amount to be raised, made it all but impossible for a Reg A issuer before 2012 to consider a national listing.
As we have discussed, the blue sky review was time‐consuming, expensive, and unpredictable. This significantly enhanced the cost for IPOs in a situation where the amount to be raised was capped at a low level.
Simplified Disclosure and Reporting
One perceived advantage of old Reg A was that issuers had the option of using a simple Q&A format to provide disclosure. In addition, issuers were “non‐reporting” following their IPO. The stock could trade, but they would not become subject to the SEC reporting requirements. This meant lower compliance costs, but also greater difficulty ...