Controversial small business IPO bill is one step closer to passage. Learn more about the issue.
A controversial bill paving the way for small business IPOs has been amended by the U.S. Senate and sent back to the House of Representatives for approval, according to news reports from Yahoo! Finance.
The bill, known as the Jumpstart Our Business Startups Act, or JOBS Act, was introduced by House Republicans to reduce the red tape surrounding small business capital formation. Among other things, the Act would create a new category of company called an “emerging growth company” able to raise funds online under less stringent oversight from the U.S. Securities and Exchange Commission, reports Yahoo!
The measure has met with widespread opposition from federal regulators, consumer advocates, and representatives from both labor unions and the business community. A coalition called Americans for Financial reform said in a recent statement, “JOBS Act supporters have tried to sell this as a non-controversial bill that will promote economic growth. Nothing could be further from the truth.”
Senate amendments address some opposition to H.R. 3606. For one, the changes further restrict a company’s ability to raise funds online through a method known as crowdfunding, said Yahoo!. The Senate version of the bill caps individual investment at $2,000 or 5 percent of an investor’s annual income or net worth up to $100,000. The House version of the bill would have allowed investments up to $10,000 or 10 percent of annual income.
According to Mary Schapiro, chairman of the U.S. Securities and Exchange Commission, legislation would significantly reduce the transparency of the IPO process by allowing companies to raise funds online without providing basic information about risks facing the business, ongoing status of the business, a description of the business plan and other information.
“Without adequate protections, investor confidence in crowdfunding could be significantly undermined and would not achieve its goal of help small business,” Schapiro said in a March 13 letter to the Senate Committee on Banking, Housing and Urban Affairs. Schapiro noted that the house bill would also eliminate safeguards, such as a mandatory quiet period, that are designed to eliminate conflicts of interest between research analysts and investment bankers.
Amendments approved by the Senate today would require emerging growth companies to disclose tax returns or financial statements to potential investors, said Yahoo! The House of Representatives, which approved the initial measure in a 390-23 vote on March 8, must now consider the Senate’s changes to the law.
A coalition of entrepreneurs and small business owners call the JOBS Act a practical reform that leverages new technologies to open pools of capital for small businesses. “The legislation provides a sensible regulatory approach that takes into account the power of technology and the ‘sunshine’ capabilities of social media in protecting investors,” said Karen Kerrigan, head of the Small Business & Entrepreneurship Council, or SBE Council, in a prepared statement.
Consumer advocates fear the measure would fail to protect consumers or the integrity of financial markets. One advocacy group, AARP, stated in a letter to Sen. Majority Leader Harry Reid, “We share the concerns expressed by the North American Securities Administrators (NASAA) and others who testified before the Senate Banking Committee that absent proper oversight and investor protections, the capital formation proposals now under consideration very well may, in varying degrees, open the floodgates to a repeat of the kind of penny stock and other “boiler room” frauds that have ensnared financially unsophisticated and vulnerable investors in the past.”