JOBS, Dodd-Frank and Sarbanes-Oxley: Together, Too Much to Succeed, Experts Say

Although the recently passed JOBS Act will likely result in an incremental change for U.S. businesses, it will not be transformative, experts said today during an American Bar Association Section of Administrative Law and Regulatory Practice panel program.

“You’ve all heard about the concept of too big too fail,” said Harvey Pitts, former chairman of the U.S. Securities and Exchange Commission and chief executive officer at Kalorama Partners LLP. “Having the JOBS Act passed on top of Dodd-Frank, which in turn is on top of Sarbanes-Oxley, has given rise to a new dogma: too much to succeed.”

The JOBS Act is one of a string of legislation previously passed by Congress to address, among other issues, the concerns over the declining number of public offerings.

IPOs are generally viewed as a measure for the health of the economy and private sector as well as a vehicle for job growth.

Prior to 2001, the number of IPOs in the United States ranged from 250 to 350 per quarter but after the passage of the Sarbanes-Oxley Act that number declined, ultimately reaching zero in 2008. That situation, combined with the lack of job growth after the passage of Dodd-Frank, resulted in the creation of the JOBS Act.

Created specifically to promote the increase of IPOs, the Act features IPO “on-ramp” provisions that make it easier and less costly for a company to go public.

Logistical benefits of the JOBS Act include provisions that allow companies to communicate with potential investors before, during and after a public offering.

“Typically the securities act prohibits companies from communicating with anybody until they file a registration statement,” said Thomas Quaadman, vice president of the Center for Capital Markets Competitiveness for the US Chamber of Commerce. “This new provision allows companies to go out and test the markets.”

Companies can also file statements and receive comments from the Securities and Exchange Commission confidentially. This can benefit companies who are trying to decide if they want to go public.

“Nobody will see it,” Zarb said. “You can submit a statement, get through the comment process, talk to investors about price or market and then decide if you’re going to go public or do a private offering.”

Under this process if a company decides to become public they can do so in around three weeks with a fully vetted document, Zarb said.

Despite how useful the JOBS Act could be to IPOs, panelists shared three main challenges in implementing JOBS Act regulations, including tight deadlines imposed by the Dodd-Frank Act and the new law; identifying the scope in which the law was intended to cover; and creating rules for crowd funding, which has not been worked with before, said Lona Nallengara, deputy director of the Division of Corporation Finance for the U.S. Securities and Exchange Commission, who indicated that she was not speaking on behalf of the SEC.

“Timelines are very challenging,” Nallengara said. “When you overlay existing Dodd-Frank deadlines and then you overlay rulemaking… all of that becomes difficult.”

“From our perspective the JOBS Act is great, but result in incremental non-transformative changes,” Mather said.