Congress passes bill easing rules for small firms to raise funds

Mar. 28, 2012
Congress passes bill easing rules for small firms to raise funds
Lisa Mascaro | McClatchy-Tribune News Service

WASHINGTON — Congress gave final approval to a popular but increasingly controversial bill designed to make it easier for small businesses to raise money, even as consumer advocates warned that the measure could usher in a new era of investor fraud.

In a rare burst of bipartisanship, the House approved the measure, 380-41, on Tuesday, sending President Barack Obama legislation that represents one of his job-creation priorities.

The legislation would loosen regulations on small businesses and start-up firms seeking to attract needed capital, including through public stock offerings.

Although the bill sailed through the House, it attracted twice as many "no" votes as an earlier version, even though the Senate had added beefed-up protections for investors.

Still, most Republicans and Democrats pushed for swift passage, intent on scoring a political victory on legislation that backers said would spur job growth.

The White House said it was "heartened" that the GOP-led chamber agreed to the Senate's changes and pledged to monitor the effect once the bill becomes law.

Many experts have said the Jumpstart Our Business Startups, or JOBS, Act, would not immediately create jobs. After the president signs the bill into law, it won't take full effect until new investment rules are written by the Securities and Exchange Commission, a process that could extend into next year.

Consumer advocates had warned that the legislation will weaken regulatory oversight of stock offerings to private investors, and they were particularly concerned about the emerging practice of soliciting investors online and through social media, called crowd funding.

They also warned that easing advertising regulations could lead to fraudulent schemes targeting seniors and other vulnerable investors.

The Senate responded by adding language to the bill requiring crowd funding offers to be registered with the SEC.

Nevertheless, the bill remains a "fundamentally flawed product of a rush to legislate," according to the North American Securities Administrators Association, which represents state regulators.

House Majority Leader Eric Cantor, R-Va., who championed the legislation, has dismissed concerns about the bill as "phantom" worries. He had an ally in entrepreneur Steve Case, the AOL co-founder, who supported passage of the legislation.

"We'll see how it goes," said Rep. Spencer Bachus, R-Ala., chairman of the Financial Services Committee. He said the legislation could help foster the next Google Inc. or Amazon.com Inc. "You take the risk out, you take out the reward."

Several lawmakers who had supported an earlier House-passed version of the bill switched their votes Tuesday as the warnings from watchdogs became more publicly known.

"The more I looked at it, I decided the previous vote was a rush to judgment and this was more deliberate," said Rep. Raul M. Grijalva, D-Ariz., co-chairman of the Congressional Progressive Caucus, who voted against the bill Tuesday. No Republicans opposed the bill.

One provision will postpone for five years certain SEC reporting requirements for companies with less than $1 billion in annual revenue. SEC Chairman Mary Schapiro sought a lower threshold, saying the bill will exempt even large firms from standard reporting.

Lisa Mascaro writes for the Tribune Washington Bureau.