Question of the Week: Should the JOBS Act Become Law?
The controversial JOBS Act passed a significant procedural vote in the U.S. Senate today, virtually guaranteeing that it will win final passage in the Senate later this week and be signed by President Obama, a supporter of the bill.
Venture capitalists and tech entrepreneurs have been vocal proponents of the JOBS Act, which already passed the House as HR 3606.
“Easing the path to IPO for our country’s most promising companies – companies that have grown under our watchful eye and have achieved agreed upon milestones for years – will produce rewards that are well worth the risk, and we believe that HR 3606 does so in a way that maintains significant investor protections,” venture capitalists Jon Callaghan, Jeff Clavier, Josh Kopelman and Jason Mendelson wrote in a column for peHUB Tuesday.
Still, a small but vocal chorus of critics is warning that the JOBS Act will end up hurting public investors by easing regulations. For example, the act would allow companies with annual revenue of less than $1 billion to avoid full compliance with Sarbanes-Oxley regulations for five years or until their annual revenue exceeds $1 billion. It would also amend the Securities Act of 1933 to provide an exemption for startups that raise capital through crowd-funding and permit investment banks to publish research reports about private companies before they go public, even if the banks underwrite the IPOs of those companies.
“I cannot emphasize enough the danger of such an ill-advised move [passage of the JOBS Act], especially given the still-bruised reputation of U.S. financial markets,” former SEC Chairman Arthur Levitt said Wednesday. ”A decline in regulatory standards always is followed by damage to public investors.”
Likewise, Carl Levin (D-Mich.) urged his fellow senators to vote against advancing the bill so that modifications could be made to protect investors. ”We would, far from encouraging job growth, endanger job growth by endangering the investments that help America’s businesses grow and create new jobs,” Levin said.
Levin’s peers were largely unswayed, voting 76-22 to advance the bill.
It’s understandable that few would vote against a bill called the JOBS Act at a time when unemployment is above 8% nationwide. But I’m not convinced that the bill in its current form is a good thing. I have the same concerns as my colleague Mark Boslet, who cast a critical eye on the bill last week.
Where do you stand, dear reader?
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cas127 said on March 22, 2012
At least with regard to the crowdfinancing component, it is hard to believe that the popularity of Kickstarter, etc. (where there is a guaranteed *absence* of financial return and no onsite policing of *any* promises made) has not had an impact on the debate.
If millions of micro-financiers are willing to throw $100 away on thousands of indie films that may never get *completed* – let alone *shown* – let alone *succeed*…is it so much worse to have a couple thousand thrown away on thousands of internet startups…which can at least *conceivably* hold out the promise of a financial return?
I think the US is better off with another mobile app than another mumblecore film…
Lawrence J. Aragon said on March 22, 2012
Point well taken, cas127. I think we’re rushing into this without fully considering all of the potentially negative consequences. I don’t doubt that the JOBS Act will have a positive impact on VC firms, I-banks, startups, etc. in the near term. But I have to wonder if Washington will have to step back and re-regulate in several years. Seems to be a pattern, doesn’t it?
Lawrence J. Aragon said on March 27, 2012
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