Obama is expected to sign the so-called JOBS Act into law this moring in Washington D.C. In doing so, the President, in a misguided effort to obtain a “bi-partisan” win will open the door for more financial fraud and enable unscrupulous financial firms to bilk unsuspecting investors of their money. The public rationale touted by the administration is that the law will make it easier for small “emerging” companies to obtain the capital required to grow, and eventually take the company public in an IPO. The law guts the the current regulatory reporting requirements that provide transparency to both investors and regulators for companies with less than $1 billion in annual revenue. He is also making it much more likely that equity research firms will engage in behavior that creates a conflict of interest between the firms seeking capital and themselves, at the expense of investors and the public. The large banks that currently underwrite IPOs will also have an incentive to engage in perfidious behavior in an attempt to win over potential IPOs in order to generate fees.
While regulators are still examining the law, even the SEC chief, Mary Schapiro, hardly a dutiful advocate for investor rights, is dubious. She said that the law will simply “weaken investor rights,” and:
We should not walk backwards here…. Collusive behavior between analysts and bankers cost investors huge sums, shattered confidence in the integrity of research, and damaged the markets themselves.
Too often, investors are the target of fraudulent schemes disguised as investment opportunities…. As you know, if the balance is tipped to the point where investors are not confident that there are appropriate protections, investors will lose confidence in our markets, and capital formation will ultimately be made more difficult and expensive.
Eliot Spitzer, who is responsible for part of the existing rules the new law nullifies had some choice words for those in power:
It is a bad sequel to a bad movie…. It shouldn’t be called the JOBS Act, it should be called the Bring Fraud Back to Wall Street Act.
After the recent rampant fraud that led to the largest depression since the 1920′s, President Obama has made decision to further loosen the rules regulating those who caused the disaster, placing himself in the familiar position of abandoning his progressive and Democratic base in favor of Wall Street.
You can read further coverage from the New York Times here.