U.S. House Republicans prepare a second JOBS Act bill; critics see dangers
WASHINGTON, April 9
WASHINGTON, April 9 (Reuters) - Lawmakers in the U.S. House of Representatives are drafting measures to further ease regulatory obstacles for small companies, but critics warn the move will only reduce investor protections already eroded by a 2012 law.
The House Financial Services Committee on Wednesday vetted seven legislative proposals aimed at loosening various federal securities laws to help startups raise money and eventually go public.
Wednesday marked the latest public hearing to explore numerous proposed changes to the Securities and Exchange Commission's rules for both public and private companies.
Eventually, House Republicans hope to merge many of the proposals into a larger "JOBS Act 2.0" bill, a follow on to the 2012 Jumpstart Our Business Startups Act.
Some measures in the original 2012 bill, such as a provision allowing "emerging growth companies" with less than $1 billion in annual revenue to file confidential draft IPO documents with the SEC, went into effect automatically.
But other parts of the bill, such as permitting companies to raise small amounts of money over the internet through crowdfunding platforms, have not yet taken effect because the SEC is still working to adopt final rules.
The delays have frustrated many in Congress, and helped inspire a push for additional reforms to further reduce regulatory costs for small businesses.
"America's startups and small businesses continue to encounter difficulties accessing U.S. capital markets to finance their operations," said New Jersey Republican Scott Garrett, who chaired Wednesday's hearing.
"The costs to these companies of going and staying public remains unacceptably high."
Whether a JOBS Act 2.0 bill has a prospect for becoming law remains to be seen.
Little appetite for such a measure has been seen so far in the Democratically-controlled U.S. Senate, and passage of sweeping new legislation is generally difficult in an election year.
In addition, Democrats and Republicans are likely to be divided on just how far Congress should scale back federal securities rules amid concerns it may tip the balance against investor protection.
"I am concerned the bills before the committee do not strike fully the right balance and may end up doing serious damage to investor protection," said Massachusetts Democrat Stephen Lynch.
"What we are talking about here is a zero-sum game. Reducing regulatory requirements ... means that investors will have less information on which to base investment decisions."
Some of the legislative proposals considered Wednesday are more likely to have bipartisan support than others.
One measure with support from Democrats and Republicans would correct what some say was an unintended error in the 2010 Dodd-Frank law by exempting advisers who provide investment advice to both venture capital funds and small business investment companies from SEC registration.
Currently, an adviser to one of these types of firms is already exempt, but advisers who provide services to both kinds of firms are not.
Today's current rules make little sense, New York Democrat Carolyn Maloney said.
But other measures left lawmakers and outside experts who testified sharply divided.
The most divisive bill discussed Wednesday involves a plan to lower the threshold so that smaller public companies can be deemed "well-known seasoned issuers."
This category affords companies certain regulatory benefits. One such benefit permits them to qualify for automatic shelf registration, a more relaxed and less costly process that allows companies to immediately raise a certain amount of money from securities deals and avoid an SEC review of the offering documents before the sale.
John Coffee, a professor of law at Columbia University, called this measure the "most radically deregulatory" plan of the seven being discussed, and estimated it could effectively block the SEC from reviewing the offerings of roughly two-thirds of publicly-listed companies.
"It is a fairly radical step to deny the SEC's staff any opportunity for a pre-offering review," Coffee said. "It both invites misbehavior if an issuer knows it will not be subject to prior review and encourages costly litigation if errors are discovered later."
Tom Quaadman, a vice president at the U.S. Chamber of Commerce's Center for Capital Market Competitiveness, disagreed and said only companies with a solid compliance record are generally eligible for special treatment as a well-known seasoned issuer.
"This would give businesses more flexibility to meet their capital raising needs," he said. (Reporting by Sarah N. Lynch; Editing by Meredith Mazzilli)