Small businesses could have an easier time raising money and going public, say supporters of the JOBS (Jumpstart Our Business Startups) Act that President Barack Obama has signed into law.
The U.S. Senate passed the bill by a 73-26 margin. It then went to the U.S. House, which voted 380-41 for the bill. Obama strongly backed the measure and signed it April 5.
A late amendment to the bill aimed to address warnings from opponents that the “crowd funding” allowed in the bill could increase fraud. Crowd funding is the term used to describe allowing small companies and entrepreneurs to sell equity online.
Supporters say crowd funding would give businesspeople access to millions more investors and loosen the grip big Wall Street firms have on business investment.
‘Will Democratize Investing’
“The JOBS Act will create jobs, but it will do so much more. It will democratize investing away from the current Wall Street-centric model, unleashing the power of crowd funding and online communication to bring emerging entrepreneurs together with the investors who wish to back them,” wrote John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute, at the OpenMarket.org blog.
“Fraud will still be vigorously prosecuted under federal and state law, but investors will be more able to choose the level of risk they wish to assume,” according to Berlau. “They will be more able to vote through the marketplace on whether laws like Sarbanes-Oxley and Dodd-Frank are serving them well, or are simply burdening the firms they own with costs that reduce shareholder return.”
Americans for Financial Reform has an opposite view. AFR is a coalition of more than 250 national and state organizations working together for greater federal financial regulation.
‘New Round of Fraud’
“We are deeply disappointed by the Senate passage of the so called ‘JOBS Act,'” said AFR Executive Director Lisa Donner, in a statement. “With the country still suffering from high unemployment and hard times in the wake of the financial crisis, it is almost unbelievable that the Senate would rush passage of measures that will undermine transparency and accountability in the capital markets, and expose our families to a new round of fraud and abuse. But that is what they have done.”
She said lawmakers have chosen to “move forward on measures that will make it easier to rip investors off, threaten households’ hard-earned savings, and eliminate standards that help markets function with integrity. Our members will remember this vote.”
Eased Reporting Requirements
Among other things, the bill eases reporting requirements that many businesspeople have complained of over the years. It allows the phasing in of federal reporting requirements over five years, or when the company reaches more than $1 billion in annual revenue, and allows more investors to put money in a company without triggering SEC regulations. It also allows businesspeople to advertise for investors.
Though the bill had broad bipartisan support it still came in for sharp criticism from some party leaders, including Sen. Dick Durbin (D-IL), who said on the Senate floor, “”We will rue the day we rammed this through the House and Senate.”
But White House spokesman Jay Carney said, “We are heartened by the important investor protections added to the crowd funding provision and will be vigilant in monitoring this and other elements to ensure the overall bill achieves its goal of helping entrepreneurs while maintaining protections for investors.”