A bill that started out as seven separate pieces of legislation intended to benefit business startups and stimulate job creation is coming in for criticism as it heads to the Senate, as opponents say that it does away with consumer protection.
The House passed, 390-23, H.R. 3606, the Jumpstart Our Business Startups Act on Thursday, but not without vocal opposition from critics that range from consumer advocates to former Securities and Exchange Commission officials. Bloomberg reported that Lynn E. Turner, a former SEC chief accountant, said the bill would do away with investor protections that have been in place since the formation of the agency in the 1930s.
Turner was quoted saying, “It won’t create jobs, but it will simplify fraud. This would be better known as the bucket-shop and penny-stock fraud reauthorization act of 2012.” Others have been critical of the bill as well, despite its support from the U.S. Chamber of Commerce, NYSE Euronext, Nasdaq OMX Group and Sen. Charles Schumer, D-N.Y. President Barack Obama has supported a number of provisions in the bill.
Former SEC Chairman Arthur Levitt has criticized the bill, as has Barbara Roper, director of investor protection for the Consumer Federation of America. John Nester, spokesman for Mary Schapiro, chairman of the SEC, said Schapiro “believes that portions of the legislation either unnecessarily eliminate important investor protections or are not balanced with sufficient safeguards.”
Provisions of the bill include crowdfunding and lower requirements for SEC registration for companies with less than $1 billion in revenue. The North American Securities Administrators Association sent a letter to Senate Majority Leader Harry Reid, D-Nev., and Minority Leader Sen. Mitch McConnell, R-Ky., asking that they address a number of what it said were shortcomings in the bill, particularly with regard to crowdfunding, before passage.
NASAA was also critical of provisions that lessen audit requirements as well as the ability of state regulators to oversee companies’ efforts to raise capital. In addition, it said that many thresholds for consumer protection were too broad and eliminated important provisions for all but the largest of companies. In the letter, NASAA President Jack E. Herstein urged the Senate to address what he characterized as several critical weaknesses of the House bill.
“While NASAA applauds Congress’ desire to facilitate access to capital for new and small businesses, the version of the bill that passed the House is deeply flawed,” Herstein wrote. “State securities regulators support efforts by Congress to ensure that laws facilitating the raising of capital are modern and efficient, and that Americans are encouraged to raise money to invest in the economy. However, it is critical that in doing so, Congress not discard basic investor protections. Investment fraud is real, and it can be particularly pervasive in small exempted offerings.”
Senate Democrats have said they plan to address a number of the concerns voiced by critics in their own version of the bill.