While the JOBS Act rests in the Senate waiting to pass, many are upset by the delay in action since the act is set to ease regulations on small businesses. With less regulation, they can grow and expand more easily and thus create more jobs for the market. While many support the JOBS Act and want to see it pass as soon as possible, others are skeptical and say that the proposed act may make it easier for companies to cheat investors.
The JOBS Act, specifically Jumpstart Our Business Startups, has been a hot topic as of late. Spark News has covered it pretty extensively over last couple of weeks and according to reports it is currently waiting in the Senate with Majority Leader Harry Reid using it as a leverage for the passing of 17 judicial nominees. The politics around the Act are preventing it from being passed smoothly in the Senate, but for people like Securities and Exchange Commission (SEC) Chairman Mary L. Schapiro, that’s OK.
She was quoted in the Washington Post saying, “Too often, investors are the target of fraudulent schemes disguised as investment opportunities. As you know, if the balance is tipped to the point where investors are not confident that there are appropriate protections, investors will lose confidence in our markets, and capital formation will ultimately be made more difficult and expensive.” The general concern held by Schapiro and others that agree with her is the fact that under the JOBS bill, “investment banks that underwrite stock offerings” could publish their research reports before an initial public offering (IPO). This allows for companies to give investors information that may and could be different than regulated disclosures that are required by the SEC.
In other words, investment managers for companies could easily mislead an investor for their advantage. This makes investors vulnerable to being taken advantage of and would likely cause them to be more cautious with their investments and less confident that they are protected. This, in turn, could negatively affect the markets and have the opposite intended effect on the growth of small companies and the job market. Though the bill states that the target group that they want to benefit from this change is “emerging growth companies” or small businesses and start-ups, Schapiro points out that the definition of small business or emerging growth companies is so broad that investor protections for very large companies may be affected as well.
Another issue with parts of the jobs act include the “crowd funding” lifts. Under the bill, companies can raise up to $2 million by using social media to receive investments from a large amount of investors without having to file disclosure standards that are currently required. Schapiro believes that this part of the bill could work to undo the important regulations that were put in place years ago after the heavily publicized financial scandals such as Enron.
The bill is still waiting to pass through the Senate, but as it sits there the concerns and issues that many people have with the bill continue to swirl and grow. The issues Schapiro bring up are interesting and valid, however the benefits of the bill are as well. As many argue or support the bill, we will simply have to sit back and wait to see what the Senate does.