WaPo: JOBS Act Is a Crashing Flop

Monday, 01 Apr 2013 07:55 AM

By John Morgan

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Nearly a year after it was signed into law with a flourish, major portions of the Jumpstart Our Business Startups (JOBS) Act are in limbo and other parts have not delivered on their shining promise of job creation, according to The Washington Post.

The legislation aimed to help small firms raise money so they could hire more workers. It was embraced in a bear hug by Democrats and Republicans alike with the election looming, and quickly signed by President Barack Obama.

The president hailed it in a Rose Garden ceremony as “exactly the kind of bipartisan action needed” to help the economy.

Editor's Note: An $87,500 Tax Loophole Discovered by Cherry Hill Accountant

But The Post said problems with the measure became apparent fairly early on.

Lynn Turner, a former chief accountant at the Securities and Exchange Commission, told the newspaper there was no mechanism to track the number of jobs created by the JOBS Act.

A key intent of the new law is to make it easier for private firms to go public so they can expand.

According to The Post, the JOBS Act lets “emerging growth companies,” defined as those with less than $1 billion in revenues, give regulators less financial information before they go public, to delay an audit of their internal controls and to allow investment banks to publish research about companies they are taking public.

But the Post reported only 29 percent of investment bankers say it has helped increase the number of initial public offerings (IPOs), down from 55 percent last summer, according to a December survey by consulting firm BDO. Forty-two percent said they saw no positive effect.

Investor advocates were unsuccessful in blocking a provision that allows private firms to solicit the public without regulatory oversight for the first time since the 1930s, The Post reported.

For instance, hedge funds will be able to advertise via email, billboards and Facebook, whereas before, they could only solicit sophisticated investors.

An important provision of the JOBS Act not yet in place would allow fledgling companies raise small sums from a large number of consumers on the Internet through “crowd-funding.” Investor advocates fear that provision will allow fraud and bogus appeals to unsophisticated investors, according to The Post.

Despite the controversy, Martin Wellington and Sarah Solum, corporate partners at Davis Polk & Wardwell LLP, estimated the JOBS Act has also yielded some positive results.

“So has the JOBS Act achieved its stated objectives of opening the IPO floodgates and jumpstarting startup activity? Of course not. The IPO market is ultimately driven by macroeconomic conditions and investor demand, not federal legislation,” they wrote in a commentary for Forbes.

“But assessed against more modest expectations we say two cheers: the JOBS Act has meaningfully improved and reduced the cost of the IPO process.”

Entrepreneur magazine predicted the JOBS Act will revolutionize the crowd-funding industry in a positive way.

Natalia Oberti Noguera, founder of the Pipeline Fellowship, a training program for teaching women philanthropists about angel investing, told Entrepreneur that crowd-funding could help women and minorities who would otherwise be shut out of starting or investing in new businesses.

Editor's Note: An $87,500 Tax Loophole Discovered by Cherry Hill Accountant

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