[Congressional Record Volume 158, Number 46 (Tuesday, March 20, 2012)]
[Senate]
[Pages S1822-S1823]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                                JOBS ACT

  Mr. REED. Mr. President, I rise again today to discuss H.R. 3606, the 
so-called JOBS Act. As chair of the Subcommittee on Securities, 
Insurance, and Investment, I want all of my colleagues to know that 
this legislation, as it is currently drafted, is fundamentally flawed. 
We need to stop, slow down, carefully amend this legislation, and send 
something to the President that will not only encourage capital 
formation, but also protect investors.
  I am not alone in my analysis. Some of the most sophisticated 
security analysts, experts, and commentators in the country are telling 
the Senate to slow down and work to improve it. We have received 
letters or testimony or comments from SEC Chairman Mary Schapiro; SEC 
Commissioner Luis Aguilar; the North American Securities Administrators 
Association; former SEC Chairman Arthur Levitt; former SEC Chief 
Accountant Lynn Turner; AARP; Americans for Financial Reform; the 
Consumer Federation of America; the Council of Institutional Investors; 
the National Association of Consumer Advocates; Public Citizen; U.S. 
PIRG; the AFL CIO; AFSCME; the National Education Association; the 
American Institute of CPAs; the CFA Institute; and the Main Street 
Alliance, just to name a few of the broad spectrum of experts who feel 
this bill is, as they say, not ready for prime time.
  In an op-ed in the Washington Post on March 14, two Harvard 
securities professors, John Coates and Robert Pozen, stated:

       [T]his bill does more than trim regulatory fat; parts of it 
     cut into muscle. Small businesses will have a harder time 
     raising capital if investors do not receive sufficient 
     disclosures or other legal protections.

  In his ``Motley Fool'' column on March 19, Ilan Moscovitz states that 
there are four really problematic things about the JOBS Act. And, as we 
all recognize, ``Motley Fool'' is one of the most perceptive in its 
columns about the securities markets, analyzing the securities markets 
from many different perspectives. They point out some of the fairly 
significant faults in the House bill. In sum, they say the legislation 
as currently written would exempt 90 percent of current IPOs from 
important corporate governance and accounting requirements because it 
defines ``small companies'' as anything valued below $700 million and 
earning less than $1 billion in annual revenues.
  Those aren't exactly small companies, and those companies can in fact 
and should in fact be following the procedures we have laid out in 
order for a company to go public.
  Our amendment recognizes the need to provide more streamlined 
processes for smaller IPOs, but we restrict these streamlined 
procedures to companies with less than $350 million in annual revenues, 
much closer to the notion of a small company beginning the process of 
becoming a publicly held entity.
  There is also a problem in this legislation with accounting. When 
investors lose faith in accounting standards, they are less willing to 
buy stocks. In fact, one of the great strengths of our security markets 
is the feeling that your money is well protected. It is scrutinized; 
there are accountants; there are audits. If we lose that, then the 
investing public worldwide will say the United States is not the place 
to put their money. Our amendment does not interfere with independent 
accounting standards, and limits the number of companies that get 
exempted from accounting rules.
  There is another big issue in the House bill. It contains a provision 
that would increase the number of investors who could own shares in 
private companies, and excludes employees from the count. That has some 
merit. But by counting shareholders of record instead of the beneficial 
shareholders--there is a legal owner on the books of the company, but 
that legal owner may represent thousands of actual owners. The 
beneficial owners are the ones who get the dividends, the ones who get 
the right to vote on the shares--if we preserve this loophole going 
forward, this

[[Page S1823]]

could potentially create a situation where an unlimited number of 
investors could be involved in a company and that company would still 
be able to remain private and not have to provide periodic reports 
under the Exchange Act.
  Last year, for example, Goldman Sachs planned to create a special-
purpose vehicle, basically a fund that could pool money from its 
clients, that would count as only one holder of record in Facebook. You 
can see how this could clearly circumvent the notion of how necessary 
it is to provide the reporting requirements for large companies, 
companies with a large shareholder basis. Our bill eliminates this 
loophole by clarifying that recordholders must be beneficial owners, 
while at the same time raising the shareholder cap from 500 to 750, to 
make it more contemporaneous. But we exempt employees from this 
recordholder trigger for public registration, and that will allow 
private companies that want to remain private, but want to reward their 
employees with shares to stock, the ability to do so without triggering 
the public reporting requirements.
  Finally, the House bill sets up a new mechanism for crowdfunding. 
This is a very interesting concept. My colleagues Senator Merkley, 
Senator Bennet, and Senator Brown of Massachusetts have worked very 
hard in developing a crowdfunding bill much superior to what is 
included in the House version. In fact, the House version has been 
described by a noted securities expert as ``the boiler room 
legalization act'' for its very lax approach to crowdfunding.
  Our amendment requires crowdfunding to be conducted through regulated 
intermediaries, and provides for basic disclosure requirements, 
aggregate caps, and other protections to ensure market integrity, and 
prevent abuse.
  The House bill also removes important prohibitions against general 
solicitation and advertising in regard to private placements that have 
been on the books for decades. Recognizing that in a world of Internet 
and Twitter, even private communications with accredited investors 
about private offerings can be inadvertently broadly disseminated, our 
bill takes a much more targeted approach to this issue. In our 
amendment, we allow for limited public solicitation and advertising 
through ways and means approved by the SEC, so they have a chance to 
update mechanisms for communicating with investors in this age of 
Twitter, Internet, and other new media. We believe this amendment gives 
the SEC the tools it needs to formulate limited exemptions to the 
general solicitation and advertising rules, allowing private offerings 
to still remain private.
  There is another section of the House bill that deals with the reg A 
exemption. Reg A has been on the books of the Securities Exchange 
Commission, again, for decades. It currently allows an exemption for 
certain registration requirements for mini-offerings of $5 million or 
less. The House bill proposes to raise the ceiling for this exemption 
to $50 million, but they do so in a way that could open it up to abuse, 
allowing companies to avoid rules and reporting requirements for public 
companies. We limit companies to raising no more than this $50 million 
amount every 3 years, truly aiming our provisions at the small 
companies that are trying to raise capital without triggering all of 
the requirements of a publicly held company. We also require that a 
basic set of audited financial statements be filed with the offering 
statement and require periodic disclosures of material information to 
investors.
  Let me stress what the House bill is proposing. They are proposing to 
legalize the solicitation of $50 million a year from retail investors--
in fact, it could be $50 million every year--without requiring audited 
financial statements be provided to potential investors. If you go to a 
bank to get a loan for your business, they are going to require audited 
financials. I think, at a minimum, you need to provide audited 
financial statements if you are soliciting $50 million a year from the 
public and, in fact, that $50 million could be for successive years.
  Finally, this whole discussion about the House bill has been cast in 
terms of jobs. There is not a lot in the House bill that talks about 
jobs, particularly jobs in America. There is no requirement that any of 
these relaxations of the securities laws be correlated with job 
increases. There is no requirement in the House bill that these jobs be 
in the United States.
  We have just come through a series of enforcement actions in which 
the SEC had to crack down on reverse mergers by Chinese companies that 
were taking over American shell companies, putting their money in, and 
then going ahead and using the benefits of access to our stock markets. 
Most of those companies' jobs were not here, nor was the intention to 
create those jobs here. Those are the types of risks we run in the 
House bill.
  Our bill includes reauthorization of the Export-Import Bank, which is 
something that has already demonstrated its ability to support American 
jobs. We have also included provisions that Senator Snowe and Senator 
Landrieu have included from the Small Business Committee that will 
increase the SBA's ability to assist American companies--small American 
businesses. They have done this successfully. With these provisions, 
they can do more. Our bill actually does help with jobs--jobs here in 
the United States.
  One of the premises behind this House legislation is if we 
deregulate, the jobs will come right back. Where have we heard that 
before? All through the 2000s: Just deregulate. Those investment banks 
such as Lehman don't need regulations. Just give them a lot of leverage 
and let them run. And they ran--right off the cliff. We don't want to 
repeat that again. We don't want to repeat the mistakes of the 1990s 
and 2000s, where we allowed analysts of securities to recommend 
securities sold by their own investment banking firm. Those provisions 
are included in the House bill. That is going to undermine the markets.
  We should learn from the facts. I urge all of my colleagues to 
support the Reed-Landrieu-Levin amendment as a base text. We can make 
improvements on that. We can send a bill--we hope very quickly in 
collaboration with the House--to the President that not only stimulates 
capital formation but also protects investors. We can send a bill that 
learns from the lessons of the last 20 years where, in the guise of 
deregulation, in the hope for job creation, we saw the greatest 
financial crisis since the Great Depression. We don't want to see this 
happen again.
  Mr. President, I yield the floor.

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