House passes bipartisan bill aimed at start-ups
In a rare moment of bipartisanship, the House overwhelmingly passed a bill Thursday aimed at making it easier for small companies to grow and go public.
The House voted 390-23 to pass the bill easing certain rules that the Securities and Exchange Commission enforces on small companies going through the process of becoming a publicly traded company. The Senate is working on a similar version of the bill, and President Obama has indicated he supports it.
That said, the bill isn’t without critics. Union groups, consumer advocate groups and advocates for retired people AARP have written to lawmakers saying they’re concerned parts of the measure may strip valuable protections for those looking to invest in initial public offerings, or IPOs.
The bill is named the Jumpstart Our Business Startups Act and Republicans have been referring to it as the JOBS Act, the same acronym as a different and more ambitious White House initiative aimed at spurring jobs.
“This bill makes it easier for start-up businesses to happen again in America,” said House Majority Leader Eric Cantor after the bill passed. “By having a win like this, I think we can demonstrate that (both political parties) really can work together.”
The bill would relax SEC rules on small and medium sized companies with less than a billion dollars in gross revenue that go public, putting new rules into effect over five years instead of all at once. After five years, or if the company’s gross revenue exceeds $1 billion, the company would have to abide by SEC deadlines and rules.
The bill would also allow small companies to advertise and solicit investors when going public, which is currently prohibited. And it would allow them to raise more money from larger numbers of small, less sophisticated investors.
Republicans took turns on the House floor making promises that the bill would help jump start the economy. The measure would be “creating new growth opportunities for America’s small businesses, for start-up companies and for entrepreneurs,” said Rep. Spencer Bachus, an Alabama Republican who chairs the Financial Services Committee.
However, experts who testified at a Senate hearing Tuesday on similar measures said they doubted the bill’s ability to create jobs and were concerned about easing of important investor protections.
Lynn E. Turner, a former Securities and Exchange Commission chief accountant, said the package would fundamentally change the kind of information companies provide the public in an IPO and make it easier for sell-side analysts to pair up with investment bankers.
“The problem is they’re not going to create jobs. IPOs don’t drive the economy, the economy drives IPOs,” said Turner. “You’re creating a much easier situation for fraudsters to step in and take advantage of people.”
In a March 7 letter to Senate Majority Letter Harry Reid, an AARP lobbyist opposed efforts to open the door for more investing by all shareholders, saying it could lead to “the new turbo-charged pump-and-dump boiler room operations of the Internet age.”
“Money that could have been invested in small companies with real potential for growth would be siphoned off into these financially shakier, more speculative ventures,” wrote Joyce A. Rogers, senior vice president for government affairs at AARP. “The net effect would likely be to undermine rather than support sustainable job growth.”
Democrats groused about the legislation’s “JOBS” acronym. And House Minority Leader Nancy Pelosi called the bill’s impact “meager” on Thursday, when asked by CNN.
Economist and former White House adviser Jared Bernstein said time would tell whether the bill would fuel job growth.
“Start-ups that survive are very important to job growth,” Bernstein said. “The question here is whether these measures will help support the growth of start-ups in ways so they can make a much bigger contribution to employment. We won’t know the answer on that for a while.”
The Senate Banking Committee has been working on similar bills and Majority Leader Harry Reid indicated the Senate would take them up next week. If the Senate passes the bill, then the two chambers would work out the difference in a conference committee, according to a Senate aide. By Jennifer Liberto