By Cydney Posner
This article from The Wall Street Journal argues that the absence of guidance regarding some provisions of the JOBS Act is leading companies to "tread carefully."
In addition to the mechanics of confidential SEC submissions, the article identifies the other "biggest unknown" as the change that allows EGCs to meet with securities analysts ahead of their IPOs. The new law gives EGCs "greater leeway to communicate with securities analysts, giving stock research a potential boost." However, commentators cited in the article expect that, given the current regulatory uncertainties, the SEC and securities lawyers will be watching to avoid conflicts of interest and potential litigation. According to the article, Meredith Cross, director of Corp Fin, has said that Corp Fin "is working with other divisions to clarify its thinking on research conflicts." The new test-the-waters rules will also allow more exploratory conversations with potential investors, although, commentators noted that "companies are expected to stay cautious in such talks and in how they follow the law's other provisions. For example, they may be hesitant to use written documents in meetings with potential investors, as the JOBS Act allows, for fear that they will run afoul of requirements that they include such documents in their prospectuses.…" The article also notes that the JOBS Act "undoes some provisions of the Sarbanes-Oxley law of 2002 by letting emerging growth companies avoid external audits of their internal controls for longer. Taking advantage of those provisions, however, could put off some investors."