The JOBS Act: Unintended Consequences of the “Facebook Bill”

The Jumpstart Our Business Startups Act (“JOBS Act”), in part, amended § 12(g) of the Securities Exchange Act of 1934. Originally enacted to impose mandatory disclosure requirements on non-reporting companies with a significant volume of trading, § 12(g) became dysfunctional due to changes in the market landscape. The JOBS Act amended § 12(g), first, by raising the shareholders of record threshold, and second, by excluding from the threshold number persons who received securities pursuant to certain employee compensation plans. This note argues that the JOBS Act’s retooling of § 12(g) fails to adequately resolve fundamental problems with the rule. Specifically, the amendments will promote a dysfunctional standard for the mandatory disclosure triggering requirements, which will enable public companies to manipulate the rule. Additionally, it will reduce the number of IPOs, which is not the best policy for spurring job growth and economic growth. These unintended consequences can be avoided by changing the § 12(g) triggering requirements to a two-tiered approach that regulates the private and public spheres using different metrics. These metrics should reflect trading volumes and beneficial ownership of public and private companies, respectively