Reed Opposes Eliminating Rules to Protect Investors from Fraud
WASHINGTON, DC – U.S. Senator Jack Reed (D-RI) today spoke on the Senate floor opposing H.R. 3606, the so-called Jumpstart Our Business Startups Act, which would roll back critical accounting standards and investor protections on both small and giant companies that want to start selling stock to the public.
While the U.S. House of Representatives hastily and overwhelmingly passed the bill 390-23, and the White House signaled support for it, Reed stated today: “I want all of my colleagues to know that this legislation, as it is currently drafted, is not ready to become law – and if it does it could have unintended consequences that hurt investors, seniors, and average American families.”
Consumer advocates and Wall Street regulators, including Securities and Exchange Commission (SEC) Chairman Mary Schapiro, share concerns that the House bill will eviscerate critical investor protections that have been in place since the 1930s and loosen auditing restrictions for some small companies heading toward initial public offerings (IPOs).
On Friday, SEC Commissioner Luis Aguilar stated: “It is clear to me that H.R. 3606 in its current form weakens or eliminated many regulations designed to safeguard investors. I must voice my concerns because as an SEC Commissioner, I cannot sit idly by when I see potential legislation that could harm investors. This bill seems to impose tremendous costs and potential harm on investors with little or no corresponding benefit.”
In an effort to overhaul and improve the bill, Reed, along with Senators Mary Landrieu (D-LA) and Carl Levin (D-MI) has offered a substitute amendment known as the INVEST in America Act, which will provide new opportunities for small businesses and entrepreneurs to grow by raising capital in a way that protects investors; provides financing so businesses can expand and hire more workers; and encourages U.S. companies to export and compete in a global marketplace.
“Reducing consumer protection and market transparency is not a good way to create jobs -- it is a recipe for fraud and market failure. The House-passed bill could actually decrease capital formation and discourage job growth,” stated Reed. “Consumers should beware of something-for-nothing or get-rich-quick schemes and the American people should be aware that even though this bill has a snappy acronym for a title, it could end up hurting our economy in the long run. If Congress passes the House version of the bill it may be a boon for some venture capitalists, but it could be a very costly mistake for working families.”
Reed’s INVEST in America Act legislation seeks to make several key fixes to H.R. 3606, including:
- H.R. 3606 would allow companies to mass-market risky, less-regulated, unregistered private offerings to the general public using cold calls to senior living centers or other advertising methods. The Reed-Landrieu-Levin amendment would allow firms to advertise and sell such offerings only to investors with appropriate resources and sophistication to bear the risks.
- H.R. 3606 would tear down protections put in place after the late 1990s internet stock bubble burst that prevented conflicts of interest from tainting the quality of research about companies. The Reed-Landrieu-Levin amendment would continue the protections that make sure that research used to advise investors is not tainted by conflicts of interest. The SEC, pension funds, and even the U.S. Chamber are concerned the House bill’s research provisions go too far.
- H.R. 3606 would allow very large companies, with up to $1 billion in revenues per year to avoid financial transparency and auditing requirements designed to ensure they’re not cooking the books. Many of these protections were established to prevent the next Enron or Worldcom, and yet they would be cleared away for even large companies. The Reed-Landrieu-Levin amendment would ensure that essential investor protections apply to large companies by lowering the exemptions to companies with less than $350 million in revenues.
- H.R. 3606 would allow unregulated websites to peddle stocks to ordinary investors without any meaningful oversight or liability, which could give rise to fraud, money laundering, and other risks. This proposal violates our obligation to prevent money laundering, and has been described as the “Boiler Room Legalization Act.” The Reed-Landrieu-Levin amendment would protect the integrity of these markets by ensuring that these website intermediaries are subject to appropriate levels of oversight.
- H.R. 3606 would allow extremely large companies, with tens of thousands of shareholders, to evade SEC oversight. It would allow banks – with hundreds of billions of dollars in assets – to deregister and avoid SEC oversight and critical investor protections that ensure corporate transparency, integrity, and accountability. The Reed-Landrieu-Levin amendment would provide relief to companies that compensate employees with stock, but at the same time ensure that banks and other large companies, with lots of shareholders, are subject to basic transparency, integrity, and accountability protections.
- H.R. 3606 does not include authorization of the Ex-Im Bank. Time is of the essence to reauthorize Ex-Im. The Bank’s temporary extension expires on May 31st, and will hit its cap of $100 billion in lending before the end of April. Renewing Ex-Im Bank’s charter with increased lending authority is the only practical way of countering the predatory financing practices of other trading nations, many of whom devote a much larger share of their national wealth to assisting exporters than America does. It supports almost 300,000 jobs yearly.
- H.R. 3606 does not include the President’s request to expand the capacity of the SBA’s venture capital program, the Small Business Investment Company program (SBIC). The INVEST in America Act would allow another $1 billion in SBA guaranteed debt for smaller, fast-growing firms, and it also extends for one-year the SBA’s 504 refinance loan program to help firms refinance commercial real estate into long-term, fixed-rate loans. These modifications have created and saved hundreds of thousands of American jobs at no cost to the tax payer.