Section 501 of the Jumpstart Our Business Startups (JOBS) Act amended Section 12(g)(1) of the Securities Exchange Act of 1934 to increase the thresholds for mandatory registration of a class of equity securities. The Securities and Exchange Commission describes the amendment as follows:
The holders of record threshold for triggering Section 12(g) registration for issuers (other than banks and bank holding companies) has been raised from 500 or more persons to either (1) 2,000 or more persons or (2) 500 or more persons who are not accredited investors.
Jumpstart Our Business Startups Act, Frequently Asked Questions – Changes to the Requirements for Exchange Act Registration and Reregistration (April 11, 2012).
“Is this not something more than fantasy?”
That, however, is not what Section 12(g)(1)(A) literally states. Congress was quite specific. The shareholder trigger is either 2,000 persons or 500 persons who are not accredited investors. There is no “or more” in the statute. Read literally, an issuer would have to have a class of equity security (other than an exempted security) held of record by either exactly 2,000 persons or 500 non-accredited persons.
Surely, Congress did not intend such an odd rule. It must have meant, as the SEC states, 2,000 or more or 500 or more. However, it is difficult to explain how a court might read that result into the statute. Congress’ words are plain, unambiguous and intelligible. Congress, moreover, manifestly knows how to say “or more”. In fact, Congress included “or more” as part of the shareholder tests when it added Section 12(g) in 1964. The recent omission of “or more” from Section 12(g)(1)(A) could be viewed as nothing more than an unfortunate oversight, but Congress included the phrase in Section 12(g)(1)(B) in specifying the shareholder threshold for banks and bank holding companies: Is “or more” in Section 12(g)(1)(B) to be regarded as a mere surplusage? If not, how does a court know that the omission of “or more” in Section 12(g)(1)(A) was not intentional? The absence of “or more” in Section 12(g)(1)(A) is all the more mysterious because the Congress was clear that an issuer must have total assets “exceeding $10,000,000″.
