Deregulation of Wall Street - The JOBS Act

The Jumpstart Our Business Startups Act is a bipartisan bill that will drastically alter the landscape of equity investment and ease the registration and compliance requirements with the Securities and Exchange Commission.  Principally, there are three significant provisions of the JOBS Act that are purported to spur company growth and create jobs through ease of equity investment and securities deregulation.

First, the JOBS Act opens up opportunities for equity investment. Though crowdfunding was not previously illegal, it had limitations, namely that someone wanting to put money into a new venture had to do so either gratuitously or in exchange for some product or service. The JOBS Act effectively removes these limitations and allows small businesses to crowdfund equity investments, which should draw more investors into the trend.  I suppose, more equity investors provide more startups access to capital and enable more startups to move products and services towards commercial deployment; but the likelihood of investor abuse is significant.

Second, the JOBS Act also eases rules on public disclosures. Previously, private companies with over 500 shareholders and $10 million in assets were required to comply with SEC public disclosure rules.  The JOBS Act increases that number to 2,000 shareholders, which should give companies the ability to seek more funding and time to plan for an IPO.  While this provision will exempt many companies from some SEC regulation, it will also exempt many companies from SEC regulation.  While the SEC is not perfect, it can act as an agent for the protection of investors.  Removing a significant segment of companies from this type of oversight and these reporting requirements has the potential to lead to more cases of securities fraud.

Finally, going public is easier under the JOBS Act. The JOBS Act creates "emerging growth companies", those businesses with less than $1 billion in revenue. Emerging growth companies that wish to go public are exempt from some Dodd-Frank rules, and have fewer financial reporting requirements when filing an IPO.  I have always been under the assumption that going public was something to help in rather high regard.  The JOBS Act, on some level, compromises the exclusivity of Wall Street, which I guess is the intended result; but lessening the compliance burden on publicly traded companies in the wake of the collapse of the capital markets may not be the best way to reach that objective.