By Ralph Nader
As you know, this country has recently faced one of the worst financial crises in our history. In the aftermath, millions were left unemployed, without a home, saddled with enormous college loans, and struggling to get by. The economy continues to lag to this day, and many millions of Americans remain out of work and looking for a job. For that reason, voters have been desperate for their national elected officials – you and Congress – to take decisive action to create more jobs. The so-called JOBS (Jumpstart Our Business Startups) Act is not a true job creation bill – it is a ravenous beast in sheep’s clothing.
The mis-named “JOBS” Act is riddled with cuts in investor-protection regulation, glaring giveaways, and monster-truck sized loopholes. Republicans claim that the “JOBS” Act will create jobs by lowering the cost of capital for “small” start-ups to raise money by offering IPOs. But what do the bill’s authors consider a “small” start-up (referred to in the bill as “emerging growth companies”)? According to Title I of the bill, any company that makes up to $1 billion in revenues! Companies that reach revenues of this size are not small businesses. Kathleen Smith, the chairwoman of Renaissance Capital (a firm based in Greenwich, CT that deals with IPOs) recently stated, at a Senate Banking Committee hearing, that this would apply to more than 90 percent of companies that go public! At the same hearing, Lynn Turner, formerSEC chief accountant and accounting consultant at LitiNomics, stated that by this standard, 98 percent of IPOs since 1970 would have been considered “emerging growth companies.”
Furthermore, by raising the ceiling for these exemptions to such sky high altitudes, you know many companies considering IPOs will come up with – and use – accounting gimmicks to keep their revenues below the benchmark. Richard Eskow, of the Campaign forAmerica’s Future, even suggests that some companies may split in two to remain below the $1 billion threshold. Contrary to claims from the proponents of the “JOBS” Act that small businesses and start-ups are strangled by regulation, Bloomberg News reported that theSEChas “long exempted companies with less than $75 million in sales from some of the law’s [Sarbanes-Oxley] most onerous provisions”. Raising the ceiling to such an astronomical level will open the door to a variety of financial shenanigans.
As a President who was left to pick up the pieces in the devastating aftermath of the policies of your predecessors that deregulated and failed to properly oversee Wall Street, one expects you would act prudently and veto this fraud-centric legislation. Start-ups can be some of the riskiest investments since they haven’t had the opportunity to establish themselves, may require large initial quantities of capital, and often see large losses in the time it takes them to become profitable (or in many cases, bankrupt). The “JOBS” Act would allow these risky companies to launch without proper regulator’s safeguarding. It would eliminate much of the personnel and financial disclosure for these start-ups that is typically in place to protect investors and consumers.
More disturbing, this bill might not just create loopholes for these newly defined one billion dollar “emerging growth companies” – but for larger corporations as well. Title V of the bill loosens requirements for companies to register with the SEC. It increases the number of “shareholders of record” that require a company to register with the SECfrom 500 to 2,000. The New York Times has quoted John C. Coffee, Jr., a prominent securities law professor at Columbia, explaining that many “individual stockholders are not shareholders of record but beneficial owners whose shares are held by a brokerage firm, which is the owner of record.” Consequently, larger corporations worth many billions of dollars (and which may have thousands of beneficial owners instead of shareholders of record) would be able to avoid registering with theSEC and the transparency that comes along with it.
Did we learn nothing from the “dot com” bust, the Enron scandal, or the home mortgage financing debacle? In light of the fact that some of the major causes for the recent financial crises were the lack of openness in certain financial markets and products, and the failure to understand these complex financial products, their risk, or the risks involved in these markets, it is shocking that both indentured Democrats and Republicans have allowed the so-called “JOBS” Act to get so far. It tears down regulations put in place after these recent financial disasters that lost millions of Americans their jobs and trillions of dollars of their savings and pensions. And by removing crucial transparency, it throws a shroud of uncertainty over the operations of these “emerging growth companies.”
The list of individuals and organizations that are opposed or have voiced their concern about this legislation is long. It includes formerSECCommissioner Arthur Levitt and formerSECChief Accountant Lynn Turner; Academics like Columbia Law School Professor John Coffee, Harvard Professor of Business and Law, John Coates, and University of Florida Finance Professor, Jay Ritter; Consumer and investor advocates that include the AARP, the Americans for Financial Reform, the Consumer Federation of America, the Council of Institutional Investors, and Public Citizen, among others; Unions, including theAFL-CIO, AFSCME, and the NEA; and even members of the business community have warned of the consequences of this bill, including Bloomberg News, the Main Street Alliance, the Motley Fool Mutual Fund Manager Bill Mann, and Renaissance Capital’s K. On top of all of that, the current chairwoman of theSEC, the ever-cautious Mary Schapiro, has warned about the potential for this legislation to actually undermine investor confidence and make it harder for start-ups to raise capital – presumably something that would harm job creation.
I urge you to look past the title of the bill – the “JOBS” Act – and consider the serious consequences of signing such legislation into law. Slapping the acronym “JOBS” on the bill does not mask the damage this legislation will produce. If you bow to political pressure of the worst kind and sign this bill into law, the beacon of hope that many Americans have been waiting for in the past three years will be further dimmed. So will your legacy in this area. The “JOBS” Act, presents you with an opportunity: you can stand with the American people and protect consumers and investors, or you can yet again defer to the moneyed interests of avaricious corporations and enable more of their corporate crime wave.
I urge you to defend the American people from certain future fraud and abuse in this Congressional attack and destruction of existing law and safeguards of many years standing by vetoing the “JOBS” Act.
Repeat – Veto this Congressional enabler of corporate crime, fraud, and deception.
Sincerely, Ralph Nader