The JOBS Act and securities analyst research practices

On April 5, Pres Barack Obama signed the Jumpstart Our Business Startups Act (JOBS Act) into law. Among other things, the JOBS Act contains a number of provisions that are intended to facilitate the publication of research by investment banks on "Emerging Growth Companies" (EGC), including investment banks who underwrite the initial public offering (IPO) of common equity securities of an EGC. Because the JOBS Act effectively carves out permitted research reports from the definition of "offer" under Section 5(c) of the Securities Act and the definition of "prospectus" under Section 2(a)(10) of the Securities Act, written research is not subject to "prospectus" liability under Section 12(a)(2) of the Securities Act. It remains to be seen whether and how investment banks will change existing pre-IPO research practices in light of possible liability and other concerns. Pre-IPO research is not uncommon outside the US, and some have pointed to such practices as a potential model for the US.