Critics say small-business bill weakens investor protections
A House-passed bill that aims to make it easier for small businesses to raise money also weakens investor protections and could create the next generation of telemarketing boiler rooms, according a growing number of critics such as AARP and federal securities regulators.
Senate Democrats, in a bid to protect seniors and other potentially vulnerable investors, are working to toughen the legislation. The bill was passed by the GOP-controlled House last week in a rare display of bipartisanship.
But Democrats and the White House also want to make other changes that are running into resistance from Republicans. That puts the bill, which has the qualified backing of President Obama, on an uncertain path.
In a letter to congressional leaders, AARP’s Joyce A. Rogers, senior vice president of government affairs, warned: “We do not agree that the best way to create jobs is to weaken essential regulatory 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,” she said.
Mary Schapiro, chairwoman of the Securities and Exchange Commission, told senators that the legislation would roll back rules imposed after the dot-com bust a decade ago — and also create new areas of concern.
“We must balance our responsibility to facilitate capital formation with our obligation to protect investors and our markets,” Schapiro wrote in a letter to the Senate Banking Committee. “Too often, investors are the target of fraudulent schemes disguised as investment opportunities.”
White House spokeswoman Amy Brundage echoed those comments, saying that Obama supported efforts to improve the bill by beefing up safeguards “to prevent abuse and protect investors.”
The bill, Jumpstart Our Business Startups Act, known as JOBS, drew widespread support in the House, where GOP leaders said it would create jobs, a top election-year issue.
Obama had called on Congress to send him such job-spurring measures. And GOP leaders packaged some previously approved House bills into the JOBS Act, which was approved by an overwhelming 390-23 vote.
The legislation loosens various SEC regulations for start-ups, making it easier for them to hold initial public offerings of stock.
AARP, the seniors’ organization, took aim at a provision that would ease rules on soliciting investment funds, saying “individuals soon could be flooded with such high-risk and dubious ‘opportunities.’”
The SEC faulted a provision that would exempt from certain reporting requirements securities that stem from “crowd-funded” investment pools. A crowd-funded pool often is generated through social media and other Internet sites to obtain typically small amounts of money from a wide variety of investors.
The SEC also objected to a provision that it said would weaken rules put in place after the dot-com bust to regulate the activities of analysts and bankers working for the same financial institutions.
Democrats could not immediately say how they would strengthen investor protections, and House GOP leaders did not immediately respond to questions on potential changes.
However, one change that Democrats hope to make already is drawing objections from the GOP.
As part of Obama’s push to increase the nation’s exports, Democrats want to attach a provision to reauthorize $100 billion a year, plus an additional $10 billion a year for four years — a total of $140 billion by 2015 — to replenish the lending capacity of the nation’s Export-Import Bank. The current authorization expires in May.
Sen. Maria Cantwell (D-Wash.) called the bank “one of the most important tools America has to create jobs.”
The Export-Import Bank operates as a government financier for companies that sell goods overseas, but has drawn scrutiny from critics who say it is outdated in an era of global finance.
Republicans, particularly conservatives in the House, have objected to the size and duration of the reauthorization and are likely to object to the Senate’s approach.
Any changes to the legislation adopted by the Senate would need to be approved in the House.
