Ed's Blog

Investor rights on chopping block in U.S. Senate (updated)

By Ed Mierzwinski
Consumer Program Director

Update: (Thursday): The Senate is about to vote on two PIRG-backed amendments, by Sens. Jeff Merkley (OR) on adding oversight to crowd-funding and Jack Reed (RI) on public reporting reforms. We support these pro-investor amendments, but as our new U.S. PIRG letter to the Senate states, we still oppose the underlying, so-called JOBS Act, even if the amendments are added:

"Even with these changes, however, other provisions of the bill would unleash a new wave of damaging fraud in the private offering market, make it easier to commit accounting fraud, reignite the abusive securities analyst practices that fueled the tech stock boom and bust, undermine comparability of financial reporting, enable the Regulation A small offering exemption to be gamed by mid-sized companies seeking to evade public reporting requirements, and create a myriad additional problems.  As a result, even with these changes, this bill does not deserve your vote.  We urge you to vote NO on H.R. 3606’s dangerous invitation to fraud and abuse in our capital markets."

Update (Tuesday):The PIRG-backed Reed-Landrieu-Levin amendment failed on a largely party line vote (60 votes required) -- but, consideration of the underlying bill has been delayed until Wednesday. Only 41 NO votes are needed to defeat the JOBS Act cloture motion; if it fails to get 60 YEA votes, then improving amendments -- including pieces of Reed-Landrieu-Levin -- will be in order and each will then only need a simple majority of Senators voting, not a super-majority of 60. So, we still have a chance to improve the bill.

ORIGINAL: Today, the U.S. Senate will consider the House-passed "JOBS" Act, which weakens investor protections -- many passed after the Internet bubble burst and Enron's follow-on bankruptcy destroyed jobs and retirement savings. Its supporters claim the bill to make it easier for small companies to navigate SEC rules and  thereby promote small company growth (which theoretically creates, you guessed it, jobs), has already been thoroughly vetted. Yet, the bill is opposed by some of the Senate's most thoughtful investor champions and opposed by U.S. PIRG and numerous consumer and investor organizations. We support a substitute proposal to be offered by Senators Jack Reed (RI), Mary Landrieu (LA) and Carl Levin (MI). But if the substitute fails to get 60 votes, the Jobs Act will be non-amendable under an ill-advised special fast-track system set up to speed it through.

Here is U.S. PIRG's letter opposing the underlying JOBS Act and supporting the Reed-Landrieu-Levin substitute. Excerpt: "This legislation will leave seniors and family retirement savings at greater risk of fraud and speculative losses, and will strip accountability and transparency requirements that make markets work better for investors and businesses alike. We are writing to urge you to seize this last opportunity to address the flaws that create these problems."

The good news, so far, is that the first vote has been delayed until 4pm. Opposition to the bill continues to heat up. Last week, the New York Times columnist Gail Collins derided the bill's potential to create telephone boiler room stock sales swindle operations, often targeted at older Americans  and sometimes called bucket shops, when she called it the "Just Open Bucket Shops" Act. Today, the New York Times editorial board, in its editorial "You Scratch My Back..."  says: "JOBS, named in Orwellian fashion, is not about jobs. It is about undoing investor safeguards in federal law, including parts of the Sarbanes-Oxley law and other landmark protections, so that companies can raise money without having to follow rules on disclosure, accounting, auditing and other regulatory mainstays."  Professor and former S&L regulator William Black writes at the Huffington Post: "The JOBS Act Is So Criminogenic That It Guarantees Full-Time Jobs for Criminologists." The Portland (ME) Press-Herald reprises an editorial in the St. Louis Post Dispatch and says:  "The effect almost certainly will be more fraud than jobs."

While the proponents of the legislation claim that the President backs it, here is what the latest Statement of Administration Policy says: "The Administration looks forward to continuing to work with the House and the Senate to craft legislation that facilitates capital formation and job growth for small businesses and provides appropriate investor protections."

Our colleagues at the Americans for Financial Reform continue to compile other statements and reports in opposition to the bill.

Carl Levin is the Chairman of the Senate Permanent Subcommittee on Investigations who held landmark hearings on Goldman Sachs and the role of investment banks in the financial crisis. Mary Landrieu is Chair of the Senate Special Committee on Aging. Jack Reed chairs the Senate Banking Securities Subcommittee with jurisdiction over investor protection. If these Senators are opposed to the bill because they say it harms investors, including older Americans, shouldn't that matter to the rest of the Senate? We will see.

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