“Publicness” in Contemporary Securities Regulation after the JOBS Act

The JOBS Act of 2012 reflects the largest deregulatory change to the Securities Exchange Act of 1934 over its more than 75 year history. It contracts the coverage of those companies subject to the obligations of ‘publicness” and it introduces an “on ramp” that will permit most newly-public companies to meet a lesser set of disclosure, internal control and governance obligations for up to five years. We set these changes against a larger discussion of when a private enterprise should be forced to take on public status in securities regulation, a topic that has been entirely under theorized. We conclude that the change from 500 to 2000 shareholders of record made by the JOBS Act, while entirely clear in its deregulatory thrust, misses a key point: “record” ownership is an antiquated metric for any measuring of publicness and Congress needs to find a better one, such as public trading. More broadly, we observe that Congress increasingly has defined public obligations in securities regulation less by the traditional touchstone of investor protection and more by ways that our largest companies affect constituencies beyond their investor base. Our boundary-setting thus should include two tiers of public companies with the smaller tier limited to core disclosure and governance obligations. Finally, our review of these boundary questions reveals a larger pattern that ought to inform how we understand securities regulation. Entrepreneurs and their advisors regularly occupy new unregulated space created in the wake of technological change or by gaps in regulation revealed as markets evolve. Government response, seemingly inevitably, is piecemeal and reactive. The result is a regulatory process that is more informal than administrative law theory usually suggests and more opaque than we might want in contemplating regulatory change