CQ TODAY ONLINE NEWS
March 7, 2012 – 11:12 p.m.
Regulatory Relief Package Finds Life as Jobs Bill
By Benton Ives, CQ Staff
Overwhelming congressional support all but guarantees enactment of legislation to roll back securities regulations for smaller, privately held companies as part of a plan to boost investment in new ventures and, in theory, generate jobs.
The tide of good will and good intentions has drowned out any concerns that investor protections might be compromised in the rush to spark investment. Even if some lawmakers share those concerns, they have kept quiet, for fear of being accused of expressing anti-business sentiment.
The latest package (
The bill would relax several registration and regulatory requirements for companies looking to sell shares of the business, in the hope of fostering an increase in initial public stock offerings and the hiring surge that often follows an IPO.
Not to be outdone, Senate Democrats have insisted that they are right behind with a similar package, which is likely to be released soon. Details are still being worked out, although Majority Leader
The White House has thrown its weight behind the broad effort, although a close reading of the administration’s statements suggests that some issues still need to be ironed out.
“Given the level of bipartisan support for many of these proposals, passage in the Senate appears not to be a question of if, but when,” New York Democrat
Schumer’s point about investor protection worries Lynn E. Turner, former chief accountant at the Securities Exchange Commission and an experienced business operator. “It removes critical investor protections put in place to protect against a repeat of past scandals,” Turner said at a Senate Banking hearing on March 6. “The proposed legislation is a dangerous and risky experiment with the U.S. capital markets and the savings of over 100 million Americans who depend on those markets.”
Turner, along with other former SEC officials, also doubts that the legislation will do much to spur job growth or IPOs. The number of initial public offerings tends to track closely with the relative strength of the economy rather than regulatory burdens, according to Turner and other analysts.
“If jobs are created,” Turner said, “it will come from growth in the economy, not this legislation.”
Under a Jobs Banner
The bill’s swift progress shows the potency of job creation rhetoric on Capitol Hill, particularly in an election year with the unemployment rate still painfully high. “There seems to be a window of opportunity around our JOBS Act,” House Majority Leader
“It’s too difficult right now to start up a business, to retain and create jobs,” Cantor, R-Va., said. “What this bill does is it removes some of the red tape to allow entrepreneurial activity to flourish and investment to start so we can see jobs created.”
Regulatory Relief Package Finds Life as Jobs Bill
Cantor’s message is working. Several components of the package previously passed the House with more than 400 votes, including one bill (
Another piece (
With enactment of a package of regulatory measures all but certain, the question is what, exactly, will be in the final bill. Concerns about some of the components tend not to be publicly stated, especially in the Senate.
A White House statement on Feb. 28 was noteworthy for the bills it highlighted and for the measures on which it was silent. The administration explicitly praised the crowdfunding legislation and the bill that would raise the filing threshold to $50 million.
The administration also signaled its support for a central plank of the House package, which would create a transitional category for some small and medium-sized companies. Called the “on ramp,” the classification would phase in regulatory requirements for qualifying companies to help reduce the costs of selling shares to the public. It was the original version of
But the White House did not comment on lifting the SEC ban on advertising solicitations, nor did it mention another element of Cantor’s bill (
Columbia Law School Professor John Coffee told the Senate Banking panel in December that allowing crowdfunding might lead to a resurgence of boiler-room brokerage shops across the country. Coffee also objected to raising the registration threshold to 1,000 shareholders. That change might, “in its broadest form, represent a major retreat from the principles of full disclosure and transparency, which have long characterized our capital markets,” Coffee said.
Supporters of the legislation have worked to accommodate such concerns. For example, the crowdfunding bill in the House package encourages the use of intermediaries in the transaction, which sponsors say would reduce the chances for fraud. An intermediary would have to run background checks on the principals at a company issuing securities, among other requirements.
‘On Ramp’ Companies
Schumer, a champion of the “on ramp” legislation, made sure to highlight that the bill would provide only short-term regulatory relief for new companies. “Our IPO ‘on ramp’ is designed to be temporary, transitional and limited,” he said.
To get on the “on ramp,” a company could not have gross revenue in excess of $1 billion in the fiscal year prior to its IPO. It would retain its regulatory exemptions for a maximum of five years, or until it reached $1 billion in annual gross revenue or $700 million in publicly traded shares.
At any one time, only about 11 percent to 15 percent of companies with IPOs would qualify for the “on ramp” exemptions, according to Schumer. “Neither Groupon nor Zynga would have qualified, and Facebook is not even in the ballpark,” he said.
That point is an important one for Schumer to make, given that the bill would offer exemptions from some cornerstone financial rules.
Regulatory Relief Package Finds Life as Jobs Bill
A qualifying company would be exempt from outside auditing requirements under section 404(b) of the 2002 Sarbanes-Oxley corporate accounting law, as well as other standards in the law. A qualifying company would also be exempt from current law requirements that shareholders approve executive compensation and “golden-parachute compensation” for retiring executives.