Wednesday, March 21, 2012

House Financial Services Committee Details HR 3606 Investor Protections

As the Senate considers the JOBS Act, the House Financial Services Committee issued a report detaiing the numerous investor protections in the Act in both the on ramp and crowdfunding titles. Although emerging growth companies would benefit from certain temporary exemptions under H.R. 3606, the majority of compliance obligations associated with public company status are still applicable during the on-ramp transition period. For example, on-ramp companies that are listed on a national securities exchange must have a majority of independent members on their boards of directors, just as large companies do. They are also required to provide management discussion and analysis and executive compensation disclosure.

A on ranp company’s certifying officers can be held personally liable for any untrue statement of material fact or material omission necessary to ensure that statements contained in the reports or other statements to the SEC are not misleading. Also, Sections 11 and 12 of the Securities Act still impose liability for any material misstatements or omissions made in connection with registered offerings conducted under the Securities Act.

Section 5(b)(1) of the Securities Act prohibits the use of any prospectus that does not satisfy SEC requirements. In addition, Section 5(b)(2) of the Securities Act prohibits any registered sale of a security unless the security is preceded or accompanied by a prospectus that satisfies SEC requirements.

Further, under Section 13(a)(2) of the Exchange Act, companies must, within 90 days of the end of each fiscal year, file with the SEC annual reports that include: Audited Financial Statements; Description of the Company’s Business; Market Information; and a description of the company’s Corporate Governance Policies.

On ramp companies must also maintain an audit committee and retain an independent auditor and will have a duty to deliver poxy statements. Like other public companies. emerging growth companies must comply with Regulation FD’s prohibition on selective disclosure of material nonpublic information.

On ramp companies must still comply with Section 404(a) of Sarbanes-Oxley and,thus, Certifying officers are responsible for establishing, designing and maintaining effective internal controls, must annually assess and report on the effectiveness of the internal controls, and must disclose any change in the company’s internal controls in annual and quarterly reports.

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