THE JOBS ACT – Is it Securities Regulation that Really Hurts Small Business? Part One of Five

Written by: Phil Feigin

The news came Thursday morning Las Vegas time, March 22nd, as dozens of securities and corporate lawyers trekked around the oceanic acreage that is the Caesar’s Palace conference center, searching for meeting rooms. The Senate had passed the JOBS Act. Panelists making presentations on securities and small business issues at the ABA’s Business Law Section Spring Conference scrambled to make last minute changes to their prepared remarks. Comments about what the new Act would mean had to be wedged into earlier prepared talking points aimed at deciphering still unsettled questions raised in Dodd-Frank.

Mark your calendars and circle April 5, 2012. That’s the day President Obama signed the JOBS Act into law. Proponents of the Act hope it will inject new life and reinvigorate the economy. As a former state securities administrator, I fear April 5th is also the day that thousands of gallons of deregulatory gasoline were poured on the destructive flames of investment fraud.

The boom and bust gave us Sarbanes-Oxley and analyst reform. The collapse of mortgage-backed securities, derivatives and swaps gave rise to Dodd-Frank. We have never fully implemented Sarbanes-Oxley, and have yet to fully digest and implement Dodd-Frank. Now we have the JOBS Act, weakening or reversing many of the reforms brought about in Sarbanes-Oxley, and more. Added to the pile of Dodd-Frank rules the SEC is still trying to plow its way through, to say nothing of the Commission’s own agenda (remember 12b-1 reform?), the SEC is now tasked with promulgating at least 12 more rules by my count, either completely new rules or amendments to rules already in place (and a bunch more if you count rules they are merely empowered to adopt). Once again, the SEC must try to make regulatory sense of the jumble Congress has created in this most recent spasm of politically motivated economic and regulatory legerdemain.

The JOBS Act is touted by its proponents as a means to jumpstart the economy, to make it easier for small businesses, the purported engines of prosperity and job creation, to raise capital, go and remain publicly traded, and generally get the economy moving again. This is to be accomplished by easing (gutting?) rules deemed too burdensome to small business. Will it work? No one knows, and don’t believe anyone who says they think they do. I argue we have relied to excess on people who profess to know what the future holds. See Alan Greenspan, Standard & Poor’s and Moody’s.

The Franklin Delano Roosevelt administrations of 1932-1940 brought about many fundamental changes that we now take for granted, like Social Security and federal bank deposit insurance. However, the alphabet soup of other programs that comprised the New Deal, meant to pry the U.S. economy out of the Great Depression, probably didn’t work all that well in achieving their overall purpose. It is rather well accepted that the ultimate turnaround came with the end of the economic cycle and the advent of the Second World War, and not the government programs. (Even so, try telling that to the legions of men and women who were able to put bread on their families’ tables given the Civil Conservation Corps, projects of the Works Progress Administration, the Tennessee Valley Authority and more.) The programs and “safety nets” made some difference, and eased the most extreme distress, but were no panacea. It took a long time and a lot of factors to precipitate the Depression, and a long time and a lot of factors to work our way out of it.

So it is and will be, I believe, with this recession, the creeping rebound and all the efforts to spur it. Looking back in later years, we will never know if the JOBS Act or any of the other Congressional and Presidential efforts to induce our economy to robust recovery had any real effect, or if we simply had to endure the trough and upswing of another economic cycle. We can’t run the “tape” again, this time without the programs and laws, to see if they made much of a difference. However (in full recognition of my dissing of prognosticators in general above), I predict the JOBS Act will do much more harm than good, and I will describe why in my next blog.