A good rule of thumb is never to reason from an acronym but here’s this Bloomberg article about how Dan Loeb’s Third Point Reinsurance is making use of the JOBS Act in its IPO even though it creates no JOBS in America so hahaha irony. It’s not entirely clear what Third Point Re is doing to take advantage of the JOBS Act – it filed its initial draft prospectus confidentially, and it’s being a little coy about its plans for financial disclosure and internal-control certification. Nor is it clear who is harmed by these potential omissions, or how; the main harm seems to be a devaluation of the acronym which I guess is a thing? How will we ever be able to trust an acronym again? Next you’ll tell me the PATRIOT Act is unpatriotic.1
Of course the point of the JOBS Act was not to create jobs, which you can tell because (1) it begins with the words “An Act To increase American job creation,” which is pretty suspicious, and (2) it otherwise has nothing to do with jobs, there are no requirements for employees or hiring or anything in it, it’s just the name, not even the name, the name doesn’t mention jobs, just the acronym, honestly.2 Read more »
We don’t make the law, folks, we just help you follow it. Comply with your regulatory requirements right here.
Or I guess you could read Dan Primack’s summary of the SEC’s vote to allow general solicitations for private placements, but don’t take him too seriously when he says “Issuers do not need to generally solicit. They may continue to do business the old way, which many of the top-performing fund managers are likely to do.” You may not be absolutely required to advertise on Dealbreaker, technically speaking, but sources at the SEC assure me that it’s sort of an informal best-practices requirement. Certainly the safer course is to buy a banner ad today.
One thing about the new rules is that they’re not really rules about hedge funds. At their core, they let people with cockamamie money-making schemes publicly advertise to raise money from “accredited investors” – rich people – without going through the bother of SEC registration and being a public company. One particular category of cockamamie money-making scheme is running an investment fund exempt from the requirements of the Investment Company Act of 1940, but there’s an infinity of other schemes. The SEC’s vote comes too late for Great Idea Corp., which has already filed to go public, but presumably the next entrepreneur with a Great Idea and a burning desire not to tell his investors what it is will avail himself of the new general solicitation rules.
Also though: people with legitimate businesses? Read more »
There’s a great story in the Journal this morning about how the JOBS Act, which allows small new public companies to do various lazy things in their financial reporting, actually isn’t having that effect, because the companies hold themselves to a higher standard. Here is a representative passage:
Thanks to the law, Vienna, Va.-based software company Eloqua Inc.met with a large mutual-fund company to gauge interest in its stock about a month before its August IPO. The JOBS Act allows smaller companies to engage in such discussions with select investors before the SEC gives companies its approval to market an offering.
The meeting helped executives hone their pitch to investors ahead of the company’s “roadshow” to market its shares, Eloqua Chief Executive Joseph Payne said. But the company won’t take advantage of another provision allowing it to put off hiring a public accounting firm to audit its internal controls, though Eloqua estimates the audit could cost up to $400,000 each year. “We might look like a little-boy company when we worked really hard to be a big-boy company,” he said.
ISN’T THAT ADORABLE? I want to give Eloqua a hug.
This story fills me with warm feelings about not just Eloqua but also America and our capital markets and our investors and our regulators and, just, everyone, group hug guys. One story you could tell about IPOs is that they are a thing that unscrupulous stock promoters do to trick dumb investors into giving them money to support their frauds, and that without strict SEC standards for accounting and offering-document review all of our grandmothers would be losing their money on ideas that sounded great but were actually not great. An alternative story is that the investors who drive the success and pricing of IPOs tend to be big intelligent institutions and are unlikely to be conned into parting with their money by a few lame magic tricks. Evidence is perhaps somewhat mixed – things about Facebook go here1 – but little – sorry! big! – Eloqua is good evidence for story #2. Read more »
SEC Not Going To Let Bankers And Research Analysts Nod Hello To Each Other In The Hallway Just Because Congress Told It ToBy Matt Levine
The SEC had a feisty week last week, telling off Congress with cheery abandon. Darrell Issa sent them a pretty crazy letter a few months back demanding that all IPOs be Dutch auctions for some reason, and last week Mary Schapiro sent him a deeply researched 32-page letter telling him, with appropriate condescension, that that wasn’t happening. Also a few months back Congress passed a JOBS Act demanding that the SEC allow much more fraud in connection with sub-$1bn-company IPOs, in particular by occasionally allowing bankers and analysts to be in the same room with each other, and last Wednesday the SEC released a Q&A saying that that wasn’t happening either.*
There is much to ponder but let’s talk about the overall tone, which is:
- the SEC wants to make sure you don’t get bad information, but
- it’s not so concerned with you getting good information, or at least, not all the information you might want, or at least, not all the information that somebody richer and better-looking than you might get.
So there is a lot of protection against research analysts shading their analysis to win IPO business, and a lot of discussion in the letter to Issa about the danger to investors of getting incomplete information if they are given anything other than the 200-page chock-full-o-risk-factors prospectus for an IPO. But there is not much discussion of the fact that some people get more information – in particular, the fact that in the Facebook IPO the company seems to have told the banks’ analysts to revise their estimates downwards, and the analysts seem to have done so and then told their biggest customers (and nobody else), and then those big customers seem to have piled out of the deal leaving it to retail investors who didn’t know any better. Read more »
You are doing that aren’t you? Now you have no excuse if they’re not perfect:
Ms. Schapiro, in prepared testimony before a panel of the U.S. House oversight committee, said that the SEC would not meet a July 4 deadline set by Congress to complete the rules lifting the longstanding ban on publicizing private securities offerings.
She said the SEC’s work on this issue is more complicated than it would seem because Congress directed the SEC to require issuers of private offerings to take reasonable steps to verify that purchases are accredited investors.
So I’m excited to see your ads on Dealbreaker for which you will pay top dollar, but as I idly looked for the MAAX zips documentation today it occurred to me that there’s another interesting possibility in this rule change that could also redound to Dealbreaker’s benefit, which is that it might dramatically increase the amount of information out there on private offerings.
Right now companies in the U.S. – and for “companies” read “companies, hedge funds, structured credit vehicles, and other what-have-you” – offer their securities in one of two ways:
(1) publicly, and
(2) not. Read more »
We’ve talked a little before about how I don’t understand Wall Street research. Let’s start slow: why publish research? There are I think three, or three-ish, possibilities:
1. To inform your investing clients (asset managers and such) about your best views on how they should manage their money, so that they can manage their money well and thus one day have more of it,
2a. To induce your investing clients to do trades that generate trading revenues for you,
2b. To induce your investing clients to do trades that optimize your book (i.e. slapping a Buy on whatever you need to sell and vice versa), or
3. To induce banking clients (corporate issuers) to pick you as an underwriter.
So, #1, ha ha ha. Choosing between #2 and #3 is harder and if you wanted to be serious about it you might ask questions like how much revenue does trading bring in versus underwriting (more!), how good is that revenue (market making for pennies using your capital: probably not as good as risk-free 7% IPO gross spreads), and how much does research influence trading (meh?) vs. how much does it influence underwriting (meh?).
This weekend, though, we got kind of a strange data point via this FT article about the JOBS Act and the research settlement. In brief, as we’ve discussed, the JOBS Act lets banks basically do whatever they want for research on “emerging growth” companies, including in particular publish research pre-IPO and have bankers and analysts and the company all in the same room pitching business and generally scheming. But there’s a catch, which is that the ghost of Eliot Spitzer, in the form of the global research settlement, still restricts that activity, so all the banks subject to the settlement (the bulge-bracket ones) are disadvantaged vis-à-vis their smaller cousins. But, the FT points out, the big banks have a trick up their sleeves, which is to make all the small banks sign an agreement preventing them from publishing research ahead of the big banks, as a condition of joining the syndicate for any deal: Read more »