Risk & Compliance

JOBS Act Filings Depend on Snail Mail, DVD

The SEC's Edgar filing system isn't equipped to process pre-IPO filings in private.
Sarah JohnsonApril 12, 2012

The Securities and Exchange Commission has had to scramble to enable small companies on the verge of going public to enjoy some of the regulatory breaks under the week-old Jumpstart Our Business Startups (JOBS) Act.

On short notice, the SEC had to create a way to accept drafts of registration statements that it could guarantee would remain private. Under the act, companies with less than $1 billion in revenue can secretly run by the regulator their documents related to an initial public offering.

Two companies, in fact, were so eager to realize key benefits of the new law that they called the SEC within hours of President Obama’s signing of the act, which gives so-called emerging growth companies a break on regulations.

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“We have cobbled together a system that we are very comfortable will allow us to maintain confidentiality,” Shelley Parratt, deputy director of the SEC’s Division of Corporation Finance, told listeners of a Practising Law Institute webcast Wednesday. As of yesterday afternoon, the SEC still had just those two confidential registration submissions.

Under the act, after being sent back and forth between the company and the regulatory reviewers, the information will be shared publicly. But in the meantime, a younger, smaller company’s first foray into public financial filings can be kept behind closed doors and avoid some of the preliminary angst of going public.

However, such submissions will be slightly more complicated from a logistics point of view. That’s because the SEC’s Edgar filing system isn’t equipped to accept such filings without them being made public. To solve that problem, the SEC is asking companies to submit the information on a DVD or even via paper mail labeled “Draft Registration Statement.”

The new law added items to an SEC’s to-do list that is still running long as a result of the 2010 Dodd-Frank Act. During the same event, Meredith Cross, who heads the corporate finance division, said the staff was “already flat out before the JOBS Act.” On Tuesday, the SEC published a list of FAQs on its website for the parts of the new law that are already in effect and is soliciting feedback in advance of rulemaking for other provisions.

The law enables emerging growth companies to wait up to five years before having to comply with a number of SEC rules. (Companies will no longer be exempt if they issue more than $1 billion in debt or become a large accelerated filer.) Besides the draft IPO registration, such companies can submit two audited financial statements instead of three, can avoid holding say-on-pay votes, and are not required to get their auditors’ sign-offs on internal controls over financial reporting. Still, the SEC staff stressed that the agency would not examine IPO registrations that are incomplete. “Just like we would [for nonemerging growth companies], we would not review it and we would let you know that we will defer reviewing it,” Cross said.

As of the end of the first quarter, at least 50 companies were registered with the SEC to go public. Some of those may be eligible to go “in the dark,” so to speak, and continue the review process with the regulator. Rather than requiring those companies to deregister, the SEC said they can simply begin submitting the confidential documents as described above. 

But there’s a caveat: the initial registration statements and amendments will remain in the Edgar system for public viewing. If the company decides later on to extract some information that ran in the original statements, it will need to provide some disclosure that acknowledges the omission.