Last week, the House gave bipartisan approval to a JOBS Act that is opposed by a growing number of current and former securities regulators, investors, consumer groups, unions, seniors, market experts and legal scholars because it would undermine important investor protections without promoting meaningful, sustainable job growth. Opponents of the House bill are looking to the Senate to adopt a more balanced and thoughtful approach, one that narrowly targets legitimate barriers to capital formation without taking a hatchet to regulations that are essential to protecting investors and promoting the transparency and integrity of our capital markets. That will only happen if members tell Senate Leadership that they want a jobs package that preserves important investor protections. We urge you to contact Senate Majority Leader Reid to let him know that you want to see a bill that doesn’t expose our markets to a new round of damaging financial frauds.
Below is a sampling of recent articles that highlight the current legislation’s many flaws and explain why so many different groups and individuals have come out in opposition. Please contact CFA Director of Investor Protection Barbara Roper (bnroper@comcast.net, cell: 719-569-9159, office: 719-543-9468) if you have any questions about our position on the legislation.
- A more detailed discussion of the various “capital formation” bills is available on the CFA website here and here.
- A list of changes we are seeking in the Senate is available here.
- A partial list of organizations that have opposed the JOBS Act’s attack on investor protections is available here.
JOBS Act Coverage Shows Broad Opposition to Bill’s Anti-Investor Provisions
Short Memories: A New York Times editorial (“They Have Very Short Memories,” March 11, 2012) calls the JOBS Act “a terrible package of bills that would undo essential investor protections, reduce market transparency and distort the efficient allocation of capital.” Citing “reams of Congressional testimony, market analysis and academic research” refuting the claim that regulation has been an impediment to raising capital, the article notes that, on the contrary, “too little regulation has been at the root of all recent bubbles and bursts — the dot-com crash, Enron, the mortgage meltdown. Those free-for-alls created jobs and then imploded, causing mass joblessness.”
Imaginary Problems: In a letter to shareholders (“Imaginary Problems: Who Really Benefits from Lower Regulatory Burdens?” February 2, 2012), Motley Fool mutual fund manager Bill Mann thoroughly debunks the premise behind a central plank of the JOBS Act, that American companies are finding it difficult to go public. Mann warns that, on the contrary, proposals that roll back important investor protections threaten to destroy jobs. “As international investors, we deal with lots of markets that are essentially or functionally closed to new companies. That would not include the United States,” he writes. As evidence, he notes that 2011 was actually a very good year for IPOs, particularly in terms of dollar amount raised, and that “some companies were able to go public despite the absence of either a) meaningful revenues, or b) sustained profitability.” Mann adds that, “It wasn’t so long ago that the main requirement for a company to make it onto the stock market was to take a word and add ‘.com’ to it. The losses from that experience were in the hundreds of billions of dollars … No job creation will be generated through the process of socializing capital destruction to the general public.”
http://www.foolfunds.com/commentary/2012/02/letter-to-shareholders-february-2012.aspx
Strong Criticism for IPO On-Ramp: A Wall Street Journal article on House passage of the JOBS Act (“Jobs Bill Loosens IPO Regulations,” March 8, 2012) documents broad opposition to the bill’s so-called IPO On-Ramp. Industry data shows that all but a handful of IPOs would qualify for the bill’s exemptions from basic financial reporting and corporate governance requirements. The article quotes Kathleen Shelton Smith, a principal with IPO research and investment management firm Renaissance Capital as saying that the bill essentially “covers the entire IPO market” and needs to be scaled back. Lise Buyer, founder of Class V Group LLC, a firm that advises companies who are planning IPOs, warned that, “Making it easier to list on a stock exchange won’t necessarily attract the IPO investors who are supposed to boost firms’ capital and spur job creation.” The article quotes Shelton Smith and others pointing out that “investors, who remember getting burned by early-stage Internet stocks in 2000 and who lost money during the 2008 economic crisis, are cautious about buying shares in unproven companies.”
Regulations Gutted: A column by Kathleen Pender in the San Francisco Chronicle (“Financial Regulations Gutted in New Bill,” March 11, 2012) asks why Democrats, who supported Dodd-Frank and created the Consumer Financial Protection Bureau, are “solidly backing a bill that would weaken or obliterate many regulations designed to safeguard investors.” Pender writes that the bill “would make it easier for companies to raise money from the public without fulfilling some – or in certain cases virtually all – of the obligations designed to protect investors in public companies” without offering any guarantees “that companies would use any of the money to hire a single person.” Pender notes that Consumer Federation of America, AARP, the North American Securities Administrators Association, and Americans for Financial Reform have all opposed aspects of the bill, and she quotes former SEC Chairman Arthur Levitt saying, “The bill is a disgrace.”
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2012/03/11/BUPU1NIGVF.DTL&ao=2
Raising Risks: A Wall Street Journal article on a recent Senate Banking Committee hearing (“IPO Skids to Get Greased,” March 6, 2012) quotes U.S. securities regulators, legal experts and others who have raised concerns that the JOBS Act “may expose investors to greater risk” without increasing jobs. Among those testifying at the hearing was University of Florida Finance Professor Jay Ritter, who disputed IPO-related jobs claims and said “increasing the number of IPOs isn’t going to automatically spur an enormous amount of job growth.” According to the article, the foundation that oversees the Financial Accounting Standards Board has also raised concerns that the legislation “raises serious issues about the continued independence of the standard-setting process” and jeopardizes the integrity of the accounting standards on which investors and other stakeholder rely.
Outpouring of Opposition: In a blog at The Huffington Post (“Extraordinary Delusions and the Madness of Crowd(Funding),” March 6, 2012), CFA Director of Investor Protection Barbara Roper documents the broad opposition to the supposedly non-controversial JOBS Act. She points to letters from investor advocates and unions, testimony by leading securities law experts, and statements by state securities regulators to show that the measures in the JOBS Act “are ‘non-controversial’ in precisely the same way that the Gramm-Leach-Bliley Act was non-controversial when it sailed through the Senate on a 90-8 vote and the House on a 362-57 vote: They have strong support from a business community chafing at what they see as outdated regulations and from political leaders of both parties intent on ignoring warnings that the regulations being rolled back were adopted for a purpose that is still relevant today.” Warning that the bill, as adopted in the House, “would undermine market transparency, roll back important investor protections, and, if investors behave rationally, drive up the cost of capital for the small companies it purports to benefit,” Roper called on the Senate to adopt a more thoughtful and balanced approach “that narrowly targets legitimate barriers to capital formation without taking a hatchet to vital investor protections.”
http://www.huffingtonpost.com/barbara-roper/jobs-bill_b_1314131.html