M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, April 11, 2012

M&A and JOBS Act

Most analysis of the JOBS Act has focused on its implications for capital markets activity.  Now, Davis Polk has a short client alert focusing on the implications of the JOBS Act for private company M&A. Worth a quick read.

- AA


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Pretty much a memo in search of a purpose. All over the place.

Posted by: JJones | Apr 11, 2012 9:30:49 AM

As you know, the JOBS Act modifies Section 12(g) of the Securities Exchange Act of 1934 by increasing the shareholder limit to 2000 before an issuer must report. I think this definitely has potential implications for the systemic risk generated by hedge funds as it will encourage hedge funds to increase their number of investors and their levels of equity capital. Previously, hedge funds kept their investors (qualified purchasers) at no more than 499 to keep from coming under the reporting requirements of the Exchange Act. Given the expanded exemption from reporting, I think the federal gov't has just created the potential for many more Long Term Capital Portfolios (the fund managed by LTCM that cause so much trouble back in the late 90s) to be be created and that will in turn create significantly more nodes of systemic risk in the financial sector. In regard to this issue, I recently posted the following comment on the SEC's web page:

Dear SEC Staff,

One indirect or unintentional benefit of the 500 shareholder rule was helping to keep a lid on how much hedge funds could raise in primary capital. Now that this limit is being raised to 2000, it would appear that many more hedge funds have the ability to grow very large in size, especially if they leverage their capital like Long-Term Capital Management (LTCM) did in structuring Long Term Capital Portfolio. If so, I believe the Congress and President Obama has just put into place the foundation for the creation of many more nodes of systemic risk. This statutory change is quite baffling given that we just went through a financial crisis where we all became very aware of how systemic risk generated by the financial sector can bring down our economy as well as the economies of other countries. I guess our federal government has forgotten how LTCM almost created a major financial crisis back in the late 1990s. Perhaps I am missing something, but it appears that Congress needs to revise the law so that the increase in shareholder limits does not apply to hedge funds unless other safeguards are put into place that limits an increase in potential systemic risk.

Best regards,

Bernard S. Sharfman

Posted by: Bernard S. Sharfman | Apr 27, 2012 12:19:25 PM

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