Jumpstart Our Business Start-Ups Investment Liquidity Act Summary

This Act will facilitate investment liquidity of Securities, including those issued in JOBS Act and other small company transactions. The principal features of the Act are to amend sections 4(1), 18(a)(1), and 18(2) of the Securities Act of 1933 and to change the definition of “Penny Stock” in the Securities Exchange Act of 1934 to exclude from it JOBS Act and other small reporting issuers:

• Enables investors in crowd-funded, Regulation A and SCOR, Regulation D, and other exempt offerings to re-sell their securities after 1 year whether or not the issuer has publicly posted its financial information (combines former SEC Rule 144(k), which was terminated in February 2008, which allowed all securities to be free trading after two years regardless of whether the issuer was current in information disclosure requirements, with current SEC Rules 144(c) and (d), which allows all securities held for one year to be publicly sold so long as the issuer of the securities is current in information filing or posting requirements but which offers no relief for investors in companies who do not release financial information). The statutory change frees non-affiliate investors from being locked up under current Rule 144 by issuers who, for whatever reason, do not post their current financial information and removes a substantial obstacle to their willingness to invest and ultimate ability to re-sell after complying with a reasonable holding period
• Clarifies that private re-sales of securities by non-affiliates in transactions not involving a broker or dealer acting as the purchaser’s agent are permitted as an exemption from registration and eliminates to that extent the need for the judicially-created “Section 4(1)1/2”
• Expands the definition of covered securities to include: securities offered pursuant to an effective registration statement filed under the Securities Act of 1933, which will protect small company interstate securities offerings from being required to also register in each state, saving significant processing and approval time and significantly reducing the costs of obtaining capital but leaves intact the states’ ability to investigate and prosecute antifraud violations; includes in the definition securities registered as a class pursuant to Section 12 of the Securities Exchange Act of 1934, and dividends and other issuance’s of securities of the same class that is registered.
• Eliminates from the definition of “penny stock” the JOBS Act and other small company offerings and securities registered by smaller reporting companies. Under present law, all companies whose stock price is less than $5.00 per share and which do not meet large company revenue and asset requirements are deemed to be penny stock. The revision to the statutory definition limits the penny stock definition to those companies that are non-reporting and whose securities are traded over-the-counter and are not JOBS Act or similar exempted offerings. Such companies appear to have been the true target of Congress’ penny stock fraud cleanup when it created the stock bar remedy in 1995. Redefining the definition will prevent the SEC from continuing to impose penny stock bars against small company executives in private capital raising transactions, predicated upon the plain and over-expansive language of the current statute. See, e.g., In re Ralph W. LeBlanc, SEC Admin. Proc. File No. 3-10065, 2003 SEC LEXIS 1793, 56 S.E.C. 800 (Jul. 30, 2003)
  (imposing penny stock bar against executive of small, non-trading, stock