May 2012

 Social media is all the rage and seems to be rearing its head in just about every aspect of daily life. Turn on any television news program, whether CNN, ESPN, or any other, and you’ll be sure to be brought up to date with who has “tweeted” what to whom or what someone’s latest facebook status update means to the future of the world as we know it. However, there is more to social media than providing additional outlets to those persons and businesses already in the limelight. The fact of the matter is that these new social media tools allow just about anyone to widely disseminate information across the world at little to no cost. Naturally, organizations have realized the power of social media for promoting their cause and for fundraising purposes, particularly charitable organizations and political campaigns, many of which have raised significant amounts through a crowd-sourced approach.

Entrepreneurs have also recognized this potential and have sought to utilize social media for their own capital raising purposes. Unfortunately, many of the entrepreneurs may not realize that raising capital in this manner has securities laws implications which, if not sufficiently addressed at the outset, could be extremely detrimental to their business. Accordingly, these social media-based capital offerings are required to be registered with the SEC or offered pursuant to an exemption from registration. Until recently, there did not exist a specific exemption for crowdfunded offerings. However, the recently enacted Jumpstart Our Business Start-ups Act, or “JOBS Act”, created a crowdfunding exemption as the result of a successful campaign by small business advocates who saw crowdfunding as a useful tool to help small businesses in need of capital while at the same time minimizing investor protection concerns by imposing a small per capita investment limit. Many blogs and business-oriented publications have been creating a buzz about the new crowdfunding exemption and have been touting it as a boon for small businesses in need of capital. But as the title, of this post implies, we feel that this excitement is generally misplaced. Continue Reading The new crowdfunding exemption: much ado about nothing

The SEC Advisory Committee on Small and Emerging Companies has announced a public meeting to be held at 9:00 a.m. on Friday, June 8, 2012 in Multi-Purpose Room LL-006 at the SEC’s Washington, D.C. headquarters.  The meeting will be webcast on  The agenda for the meeting will be to focus on the JOBS Act and other rules and regulations affecting small and emerging companies.  The notice provides several ways to submit comments in advance of the meeting. 

For more information about how the JOBS Act may apply to your business, contact David C. Scileppi.

Find out more about Gunster’s Emerging Growth Companies Task Force.

Facebook’s IPO seemed like a sure thing only a short time ago. This iconic leader in the technology space led by a charismatic CEO seemed destined to have a blockbuster IPO. The IPO encountered a number of substantial problems and challenges, however, and the stock’s post-IPO performance has been far less than stellar, with none of the big increase in the stock price that was widely anticipated. This IPO is now widely viewed as flawed and as a failure in many respects.

 After three full trading days, Facebook’s shares are trading about 16% below the IPO price. The stock closed slightly above its IPO price on its first day of trading, but this only happened because the underwriters bought enough shares to support the stock. A variety of problems contributed to this poor debut, including the sale of large blocks of stock by existing Facebook shareholders, General Motors’ last minute decision to curtail substantial advertising on Facebook, a negative assessment of Facebook’s second quarter revenue forecast by analysts for the lead underwriter (which was allegedly only shared with potential large institutional purchasers), strange technical glitches at NASDAQ and the underwriters’ decision to increase both the number of shares sold and the offering price. Facebook’s final IPO prospectus can be found here.

The stock’s performance suggests that the underwriters’ original valuation ($34 per share) was only slightly higher than the company’s valuation as perceived by investors. The decision to take the IPO price to $38 per share increased the valuation beyond this perceived fair value. The subsequent decline in the stock value has taken the stock price down to a level that the market perceives is reasonable.

While Facebook’s current and prospective problems are daunting, the company was able to raise a huge amount of money at a premium to its actual value, so the IPO transaction was beneficial to the company. This is understandable given the tremendous demand for the stock that existed prior to the IPO, even in light of the problems that existed. The post-IPO results so far, while disappointing when compared to other technology IPOs, are short term and will correct themselves if the company increases its value. I’m actually surprised that the IPO price was as low as it was given the extremely high profile of this offering, but the significant negative factors that surrounded the offering contributed to this. In any case the company’s final valuation was still a huge multiple of historical earnings.

Continue Reading The Facebook IPO – From Sure Thing to Big Mess

The SEC has been busy over the past several weeks rapidly issuing interpretations and procedures to implement the JOBS Act.  Because the JOBS Act is such a fundamental change to securities law, especially for middle market companies, we wanted to spend this blog catching you up to speed on how the JOBS Act looks since we issued our Special Summary White Paper.  While longer than our normal blogs, we think this information is useful and best kept in one place. 

Confidential Submission Process

The SEC has implemented a secure e-mail system that allows a registrant that qualifies as an Emerging Growth Company (as defined in the JOBS Act) to confidentially file draft registration statements with the SEC.  Commencing this past Monday, May 14th, the secure e-mail system will replace the procedures announced on April 5, 2012.  Instructions on how to use the secure e-mail system are fairly easy to follow.

The change to allowing confidential submissions is a fairly radical, and welcome, change to companies filing their initial public offering.  Whether the confidential submission process becomes widely used is still up for debate.  While there are large advantages for keeping initial submissions private (keeping information secret from competitors until you decide to go forward with the IPO, shortening the “in registration” period to better time the markets, and avoiding embarrassing registration statement withdrawals), there are also some potential disadvantages.  For example, often companies filing initial registration statements are simultaneously reviewing other strategic options such as selling the company.  Filing the registration statement publicly effectively alerts the markets that your company is “in play.”  In addition, the initial filing of a registration statement usually prompts potential plaintiffs with claims to file their lawsuits, which gives management time to amend the registration statement to disclose the risks of the lawsuit.  By not filing a publicly available registration statement until 21 days before the road show, Continue Reading JOBS Act update: Keeping current with the SEC’s interpretations

The SEC has been issuing a steady stream of FAQs on the newly enacted JOBS Act.  On Monday, the SEC’s Division of Trading and Markets issued a set of FAQs on the JOBS Act addressing crowdfunding intermediaries.  Last week, the Division of Corporation Finance issued more FAQs on JOBS Act issues such as qualifications for emerging growth companies, confidential submissions of initial registration statements for emerging growth companies, and the extent of relief from disclosure and accounting rules for emerging growth companies.

The SEC Division of Corporate Finance recently issued guidance to smaller financial institutions concerning Management’s Discussion and Analysis and accounting policy disclosures. The guidance can be found in CF Disclosure Guidance: Topic No. 5, dated April 20, 2012 and amounts to rules to follow for future filings that should not be ignored.

The Division focused on the following areas:

  • Allowance for Loan Losses
  • Charge-off and Nonaccrual Policies
  • Commercial Real Estate
  • Loans Measured for Impairment Based on Collateral Value
  • Credit Risk Concentrations
  • Troubled Debt Restructurings and Modifications
  • Other Real Estate Owned
  • Deferred Taxes
  • Federal Deposit Insurance Corporation Assisted Transactions

The Division made it clear that the guidance is not one-size-fits-all so registrants will need to carefully analyze the guidance and how it may apply to them. While the guidance is too lengthy to summarize here, the Division appears to be focused on making the disclosures in the areas above more transparent and meaningful. For example, the Division wants more disclosure on how a registrant calculates the allowance for loan losses and the components of the allowance. Given the financial difficulties facing financial institutions over the past several years, this guidance is not surprising.

The guidance essentially provides a list of issues for each category above that needs to be addressed in a registrant’s Management’s Discussion and Analysis and accounting policy disclosures. This roadmap will be a useful tool for small financial institutions with their future SEC filings. Make sure to consider it when drafting your next registration statement or periodic report to help avoid comments from the SEC.