Thursday, April 12, 2012

Why Obama's JOBS Act couldn't suck worse

President Barack Obama signs the Bill for the HR 3606, the 'Jump start Our Business Startups (JOBS) Act.

Matt Taibbi, Rolling Stone:

The "Jumpstart Our Business Startups Act" (in addition to everything else, the Act has an annoying, redundant title) will very nearly legalize fraud in the stock market.

Ostensibly, the law makes it easier for startup companies (particularly tech companies, whose lobbyists were a driving force behind its passage) to attract capital by, among other things, exempting them from independent accounting requirements for up to five years after they first begin selling shares in the stock market.

The law also rolls back rules designed to prevent bank analysts from talking up a stock just to win business, a practice that was so pervasive in the tech-boom years as to be almost industry standard.

Even worse, the JOBS Act, incredibly, will allow executives to give "pre-prospectus" presentations to investors using PowerPoint and other tools in which they will not be held liable for misrepresentations. These firms will still be obligated to submit prospectuses before their IPOs, and they'll still be held liable for what's in those. But it'll be up to the investor to check and make sure that the prospectus matches the "pre-presentation."

The JOBS Act also loosens a whole range of other reporting requirements, and expands stock investment beyond "accredited investors," giving official sanction to the internet-based fundraising activity known as "crowdfunding."

When I first read this, I asked myself: how does a law exempting a Silicon Valley startup from independent accounting actually encourage investment? If American companies have to have their internal processes independently verified before and after they go public, doesn't that give investors all around the world a big reason to put their money here, instead of investing in, say, Mobbed-Up Siberian Aluminum LLC, or Bangalore Sweatshop Inc.?

In other words, how does letting www.investonawhim.com go to market (and stay on the market for five years!) without publishing real numbers actually help the industry attract more financing in general, when the whole point of all of these controls is to make investment a less risky experience for the investor?


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