JOBS Act Would Revive Dot-Com Abuses, Official Claims
Congressional legislation aimed at encouraging the formation of new companies could revive the bad old days that preceded the bursting of the dot-com bubble in the 1990s, according to one commissioner at the U.S. Securities and Exchange Commission (SEC).
Called the "Jumpstart Our Business Startups" (JOBS) Act, the measure would remove the wall, erected after the dot-com debacle, between research analysts and investment bankers.
In addition, the House-passed bill before the Senate lacks safeguards for investors engaging in "crowd-funding," according to the Consumer Federation of America.
"Whether crowd-funding emerges as an innovative new way for very small companies to raise seed money or a new Internet-fueled mechanism for investment fraud depends heavily on how crowd-funding is regulated," the organization said in a statement PDF.
1. "The research scandals of the dot-com era and the collapse of the dot-com bubble
buried the IPO market for years," SEC Commissioner Luis A. Aguilar observes in a statement posted to the agency's website on Friday. "Investors won't return to the IPO market, if they don't believe they can trust it."
Making it more difficult to find reliable information about an up-and-coming company won't encourage investors to invest in capital markets favorable to start-ups, according to University of Florida Finance Professor Jay Ritter.
"In thinking about the bills, one should keep in mind that the law of unintended consequences will never be repealed," he said at a Congressional hearing earlier this month.
"It is possible that, by making it easier to raise money privately, creating some liquidity without being public, restricting the information that stockholders have access to, restricting the ability of public market shareholders to constrain managers after investors contribute capital, and driving out independent research, the net effects of these bills might be to reduce capital formation and/or the number of small EGC IPOs," he added.