Why Obama’s JOBS Act Couldn’t Suck Worse

Matt Taibbi bursts the bubble of all those gogo Internet companies and their bankers who are celebrating the JOBS Act, in Rolling Stone:

Boy, do I feel like an idiot. I’ve been out there on radio and TV in the last few months saying that I thought there was a chance Barack Obama was listening to the popular anger against Wall Street that drove the Occupy movement, that decisions like putting a for-real law enforcement guy like New York AG Eric Schneiderman in charge of a mortgage fraud task force meant he was at least willing to pay lip service to public outrage against the banks.

Then the JOBS Act happened.

The “Jumpstart Our Business Startups Act” (in addition to everything else, the Act has an annoying, redundant title) will very nearly legalize fraud in the stock market.

In fact, one could say this law is not just a sweeping piece of deregulation that will have an increase in securities fraud as an accidental, ancillary consequence. No, this law actually appears to have been specifically written to encourage fraud in the stock markets.

Ostensibly, the law makes it easier for startup companies (particularly tech companies, whose lobbyists were a driving force behind its passage) to attract capital by, among other things, exempting them from independent accounting requirements for up to five years after they first begin selling shares in the stock market.

The law also rolls back rules designed to prevent bank analysts from talking up a stock just to win business, a practice that was so pervasive in the tech-boom years as to be almost industry standard.

Even worse, the JOBS Act, incredibly, will allow executives to give “pre-prospectus” presentations to investors using PowerPoint and other tools in which they will not be held liable for misrepresentations. These firms will still be obligated to submit prospectuses before their IPOs, and they’ll still be held liable for what’s in those. But it’ll be up to the investor to check and make sure that the prospectus matches the “pre-presentation.”

The JOBS Act also loosens a whole range of other reporting requirements, and expands stock investment beyond “accredited investors,” giving official sanction to the internet-based fundraising activity known as “crowdfunding.”

But the big one, to me, is the bit about exempting firms from real independent tests of internal controls for five years…

[continues in Rolling Stone]

, , , , ,

  • Liam_McGonagle

    I don’t disagree that this lowers the bar.  But fact is, that bar was pretty f*ing low to begin with.

    Who gives a flying f*ck about auditors’ reports on internal controls?  Did that do any of the account holders at MF Global any good?  Or any of the myriad of other firms who went belly up, leaving small-fry investors holding the bag?

    Nope.  And the accounting firms got away with it, too.  All this bill does is eliminate the long, tedious and desultory class action suit after the fact.

  • Auto5734955

    In other words business as usual on Wall St. and in D.C. 

  • http://www.facebook.com/profile.php?id=1246466135 James Volin

    Investors will be responsible for their own decisions? What is wrong with that?

    I agree that businesses should be honest with investors, but at the same time, investors should be held responsible for their poor investments.

    • Liam_McGonagle

      What if a bank “trustee” does the active management in your portfolio for you?  That describes 90+% of people with regard to their 401k and other retirement vehicles.  Guess it’ll just just be “Oops, I did it again!” when the next train wreck comes along. 

      Which is no big deal, considering people are living longer than ever now.  You’ll have at least another 20 years to work to make up the difference.  Provided your new employer pays enough for you to save, since he definitely won’t be making any enhancements to the contribution formula.

      Then again, your new employer won’t offer heath insurance, either.  So maybe the point’s all moot.

      • 1947

        >You’ll have at least another 20 years to work to make up the difference.

        Look at any 20 year period of any stock index. You’ll discover that over the last century, any market index increases over any 20 year period. the average annual rate of increase over any 10 year period is ~10%.

        The market has held to this pattern through two world wars, a great depression, the cold war, the vietnam war, and innumerable more minor crises, including misanthropic nihilists on Disinfo.

        • Liam_McGonagle

          And the Bronze Age lasted 2,000 years, but somehow fluctuations in the economy are no longer driven by discoveries of new copper and tin deposits in Cornwall.  Perhaps that obvious fact, the fact that economic paradigms are clearly ephemeral, should make the serious reader suspect just how reliable your notions are.

          But let’s take an actual look at the history of market crashes, and not just trust your rather pithy blanket statement as Gospel.  It’ll be quite useful, as you clearly have no idea what you’re talking about.

          The NYSE is less than 200 years old and has repeatedly suffered disasterous crashes: 1819, 1837, 1847, 1857, 1869, 1873, 1882, 1884, 1893, 1896, 1901, 1907, 1929, 1937, 1973, 1980, 1982, 1987, 1989, 2003, 1992, 1997, 1998, 2000, 2001, 2002, 2007, 2008, 2009, 2010, and 2011.

          The perspicuous observer will note both that:

          1.)  These crashes average considerably less than 20 years apart.  Whether your factual inaccuracy is the result of a reckless ignorance, childish fantasy or a willfull procrustean cherry picking designed to mislead unwary readers, you certainly got your facts badly fudged up.  Hope you’re not managing anyone’s portfolio.

          2.)  The longest period between crashes was actually the 36 years between 1937 and 1973–the first 40 years of SEC regulation, before the “Reagan Revolution” cult of capital over labor led to undermining its diligence and rigor.

          So having exposed your poor grasp of history, do you care to offer an alternate explanation for your unwavering belief in the Free Market Fairy?

          Personally, I don’t see a $30 trillion bailout as a particularly good indication of the health of the unregulated market fantasy.

  • Okarin

    ” exempting them from independent accounting requirements for up to five
    years after they first begin selling shares in the stock market.”

    will help speed up the bubble

  • Disinfo_censors_dissent

    on the bright side, the small cap portion of my investment portfolio will probably see a dramatic spike in value.

    hie thee to an investment broker, suckers. 

    • Liam_McGonagle

      Doesn’t surprise me that you’re heavily into “small caps”.  I’ve read your stuff, and the cranial capacity it demonstrates isn’t too impressive.