[Congressional Record (Bound Edition), Volume 158 (2012), Part 3]
[Senate]
[Pages 3558-3562]
[From the U.S. Government Publishing Office, www.gpo.gov]




                                JOBS ACT

  Mr. REED. Mr. President, today I rise to discuss H.R. 3606, the so-
called JOBS Act. As chairman of the Subcommittee on Securities, 
Insurance, and Investment of the Senate Banking Committee, I wish all 
of my colleagues to know this legislation, as it is currently drafted, 
is not ready to become law--and if it does, it could have unintended 
consequences that will hurt investors, seniors, and average American 
families.
  One of the supposed premises behind this legislation is that if we 
just deregulate the securities market, then more companies will choose 
to issue public stock. The only reason they have been deterred from 
going to the public markets, according to this view, is the excessive 
regulatory burdens placed upon them.
  The Banking Committee has been holding a series of hearings on 
different provisions in this legislation, and the reason we have 
discovered there have been fewer IPOs does not appear to be connected 
to regulatory burdens in any real way, but it appears to be more 
connected to economic and geographic factors. That being said, many of 
us hear on a daily basis, despite the recent financial crisis, about 
how the American regulatory system is making us less competitive, 
especially in the context of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act.
  In fact, in testimony before the Senate Banking Committee, Lynn 
Turner, a former SEC chief accountant, states that the data says 
otherwise. In his words:

       The reason IPOs track the economy is that investors invest 
     to earn a return. When the economy is growing, companies can 
     grow. . . . However, when the economy has stalled or is 
     declining, and companies are not growing, investors simply 
     cannot achieve the types of return they need to justify 
     making an investment. . . . As a result of the downturns in 
     the economy that occurred during much of the 1970s brought on 
     in part by withdrawal from Vietnam, the recession brought on 
     by inflation at the beginning of the 1980s, the dot com 
     bubble and the corporate scandals, and the most recent great 
     recession, investors became concerned about returns that 
     could be earned in the markets and IPOs declined. As the 
     economy and employment have recovered after each of these 
     downturns, so has the IPO market.

  Mr. Turner went on to state when he served on a Colorado commission 
that was exploring why so many small companies were failing in 
Colorado, he said:

       [W]e found that access to capital was not the primary cause 
     of failure. Rather it was lack of sufficient expertise and 
     management within the company including in such areas as 
     marketing and operations. While access to sufficient capital 
     for any company is important, I have found that those 
     emerging companies with better management teams and proven 
     products, or products with great growth potential are able to 
     obtain it. Those are the types of companies VCs and private 
     equities seek out.

  VCs are venture capital companies.
  As another securities expert, Professor Mercer Bullard, the Jessie D. 
Puckett, Jr. Lecturer and Associate Professor of Law at the University 
of Mississippi School of Law, wrote to me in a letter dated March 15 of 
this year:

       The exemption for emerging growth companies would exempt so 
     many companies from key investor protection provisions that 
     the world-leading brand that is the ``U.S. public company'' 
     would be substantially weakened.

  So how do we find the balance between facilitating capital formation 
while maintaining fair, orderly, and efficient markets and protecting 
investors?
  As chair of the Subcommittee on Securities, Insurance and Investment, 
I want all of my colleagues to know this legislation, as it is 
currently drafted, does not have that right balance.
  We are getting inundated with letters and phone calls from securities 
experts from around the country saying: Please slow down and let this 
legislation be improved and amended. On Friday, Commissioner Luis 
Aguilar of the Securities and Exchange Commission 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.

  The Chairman of the Securities and Exchange Commission, Mary 
Schapiro, wrote in a letter dated March 13, 2012:

       While I recognize that H.R. 3606 is the product of a 
     bipartisan effort designed to facilitate capital formation 
     and includes certain promising approaches, I believe there 
     are provisions that should be added or modified to improve 
     investor protections that are worthy of Senate consideration.

  In a Banking Committee hearing we held on March 6, 2012, Professor 
Jay Ritter, the Cordell Professor of Finance of the University of 
Florida, also testified that we should be careful because some of these 
bills could actually decrease capital formation and discourage job 
growth. He stated:

       It is possible that by making it easier to raise money 
     privately, creating some liquidity without being public, 
     restricting 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 IPOs.

  In a hearing before the Securities, Insurance, and Investment 
Subcommittee in December, Professor John Coates, the John F. Cogan 
Professor of Law and Economics at Harvard Law School told us some of 
the proposals in the House bill actually have the potential to harm job 
growth. He stated:

       Whether the proposals will in fact increase job growth 
     depends on how intensively they will lower offer costs, how 
     extensively new offerings will take advantage of the new 
     means of raising capital, how much more fraud can be expected 
     to occur as a result of the changes, how serious the fraud 
     will be, and how much the reduction in information 
     verifiability will be as a result of these changes. . . . 
     Thus, the proposals could not only generate front-page 
     scandals, but reduce the very thing they are being promoted 
     to increase: Job growth.

  In other words, if these bills don't protect investors enough more 
fraud will occur, and it will actually decrease access to capital for 
smaller companies.
  We have also heard from respected business commentators about the 
shortcomings of the House bill. Steve Pearlstein, the noted business 
columnist for the Washington Post, wrote:

       What we know from painful experience--from the mortgage and 
     credit bubble, from Enron, WorldCom and the tech and telecom 
     boom, from the savings and loan crisis and the junk bond 
     scandal and generations of penny-stock scandals--is that 
     financial markets are incapable of self-regulation. In fact, 
     they are prone to just about every type of market failure 
     listed in economic textbooks.

  Pearlstein points out the characteristics of markets that can lead to 
failures. First, there is the prevailing problem of asymmetric 
information. Insiders typically know, or should know, a lot about their 
company. If key information is withheld, investors are denied critical 
information to make informed judgments. The House bill would, under the 
guise of ``streamlining,'' undercut necessary disclosures which are 
essential to protect investors. He further notes the misalignment of 
incentives between promoters of securities and investors. Once the sale 
is complete, the promoter typically moves on to other targets.
  The investor depends on the performance of the company to validate 
the investment, and that usually takes time. Indeed, in many respects, 
it is the issue of the short run versus the long run that distinguishes 
sound investments from get-rich-quick schemes. The disclosures inherent 
in the securities laws have, over 80 years, attempted to strike a 
balance--to provide investors

[[Page 3559]]

with the information to make sound long-term investments and to thwart 
the ``fast-buck'' promoters in for a quick kill. The House bill 
seriously undermines these disclosures.
  The editors of Bloomberg have also weighed in with telling criticism 
of the House bill. They point out:

       Supporters of the [House] bill point to the falloff in 
     initial public offerings as evidence that regulatory costs 
     are dissuading entrepreneurs from creating businesses or 
     taking them public. And they say rescinding the analyst 
     research restrictions would benefit small companies, which 
     Wall Street otherwise ignores. That sounds great in theory, 
     but the reality offers a different picture. It's true the 
     number of initial offerings has declined, but evidence 
     suggests that has less to do with regulation and more to do 
     with global economic trends.

  That is according to the Bloomberg editors.
  They go on to point out the conclusions of Professor Jay Ritter, whom 
I have already cited. Again according to Bloomberg, Professor Ritter 
``has documented, the decline in IPOs is related to declining 
profitability of small business. Many are opting to merge with larger 
companies to quickly get bigger and more profitable, rather than go 
public.''
  The Bloomberg editors further point out:

       Many of the rules the [House] bill seeks to upend have 
     helped companies, including the internal controls rule. An 
     SEC study, for example, found that such audits helped 
     companies avoid financial restatements, which are costly 
     exercises that often drive down share prices.

  They conclude:

       It shouldn't be necessary to gut investor safeguards to 
     promote job creation. If investors lose confidence because of 
     worries about fraud, they will demand a higher return on 
     their money, raising the cost of capital for all.

  Floyd Norris, the respected financial writer for the New York Times, 
struck similar themes and criticisms in an article last week. He asked:

       Do you remember the scandals of the dot-com era? Then Wall 
     Street firms got business by promising companies that they 
     would write positive research reports if the company would 
     only hire them to underwrite an initial public offering of 
     stock. Companies went public at a feverish pitch, often 
     rising to amazing heights without much in the way of sales, 
     let alone profits. Then it all came crashing down.
       In the aftermath, the brokers were forced by the Securities 
     and Exchange Commission, as well as the New York attorney 
     general, to mend their ways. No longer would analysts be 
     allowed to go on such IPO sales calls.

  Norris goes on:

       This bill would end that rule for all but the biggest new 
     offerings--those that involved companies with sales of over 
     $1 billion. And it would go much further. As the law stands 
     now, to keep underwriters from making sales pitches that go 
     beyond what companies are allowed to say, the underwriters 
     are prohibited from publishing research on a company while 
     its initial public offering is under way. This bill would 
     allow such research, and would say that the company bore no 
     responsibility for what was said in it. Effectively, there 
     would be a second prospectus--one largely immune to 
     securities laws and free to hype the offering by making 
     forecasts not otherwise allowed.

  He goes on:

       Why is this needed? Advocates point to the fact that there 
     are fewer initial public offerings now than there were during 
     the Internet bubble. That most of those offerings were 
     horrible investments is conveniently ignored. Nor is any 
     consideration given to the idea that once-burned investors 
     might be more wary. The explanation must be excessive and 
     unreasonably expensive regulation.

  Norris went on further to remind his readers of the relentless 
ingenuity of promoters trying to circumvent the disclosure laws under 
the securities acts. He recalled the recent activities of Chinese 
companies to gain access to American investors without full disclosure 
through the process of reverse mergers. He pointed out:

       Last year, the SEC, worried about a spate of frauds, 
     required Chinese companies to follow the same rules that 
     American ones do, with prospectuses made public as soon as 
     they were filed. Since last summer, there have been no new 
     Chinese initial public offerings in the United States. That 
     tightening of regulation would be reversed by this bill.

  He went on to quote Paul Gillis, a former auditor for 
PricewaterhouseCoopers in China who is now a visiting professor of 
accounting at Peking University. Mr. Gillis's words:

       If you like those e-mails from Nigerian scammers, wait 
     until you see the new round about to come from shady Chinese 
     companies looking for investment--and they will be legal.

  In an interview, Mr. Gillis praised section 404, the part of the 
Sarbanes-Oxley Act of 2002 that requires companies going public to have 
effective internal controls and for auditors to certify them. He said:

       When companies list, they hire consultants to help them 
     design internal control systems to provide integrity in their 
     reports. These control systems are new to these countries. 
     They have helped significantly. . . .

  The second premise behind this legislation is that access to capital, 
whether through crowdfunding, mini-offerings, advertising private 
offerings, or more IPOs, will lead to more jobs. In actuality, in this 
case it is unclear whether more access to capital will temporarily 
create jobs and then destroy them or have a minimal effect. Most of the 
experts we have talked to suggest the effects will be minimal. In 
effect, it could create a bubble like the ones we have seen with 
mortgages, the ones we have seen with dot-coms.
  If this legislation remains unbalanced, then it is likely to result 
in more unsuccessful investments for investors. Recent history has 
shown this will result in investors ultimately pulling out of the 
market, reducing business access to capital and costing families and 
others money much needed for education and retirement.
  Like many of my colleagues on both sides of the aisle, I do believe 
there are some innovative proposals in the House bill, and I believe 
the amendment I am proposing along with Senator Landrieu and Senator 
Levin--the substitute amendment--includes many of these ideas in a way 
that better balances market transparency and investor protection with 
improving small business's access to capital.
  One of these ideas with merit is the creation of a financial 
framework that allows entrepreneurs and small businesses to raise 
capital through crowdfunding--relatively small investments from many 
individuals through online platforms. There is a lot of energy around 
this concept of crowdfunding. However, this proposal needs to be done 
very carefully. It is critically important to ensure appropriate 
regulatory oversight for crowdfunding and make sure there is a strong 
balance between investor protection and improving small business's 
access to capital.
  In our bill, this is the place where we envision the smallest 
entrepreneurs could obtain much needed seed capital for their good 
ideas.
  I recently visited a company in Rhode Island called Betaspring. 
Instead of being an incubator for small businesses, Betaspring 
considers itself to be a ``boot camp'' for entrepreneurs. Betaspring is 
constantly trying to help entrepreneurs to access capital, but 
sometimes it is difficult to find enough friends and family who can 
help out. But my colleagues, Senators Jeff Merkley, Michael Bennet, and 
Scott Brown, have worked long and hard on structuring a bill in this 
area, which we have included in the Reed-Landrieu-Levin substitute 
amendment. I will let them talk to you about this part of our amendment 
in more detail. However, I believe their crowdfunding language is a 
vast improvement over the House bill, which would permit investors to 
invest up to the greater of $10,000 or 10 percent of their annual 
income without having to meet any minimum wealth or financial 
sophistication standards.
  Not only are issuers exempt from registration from securities 
offerings for up to $2 million in the House bill, it would also exempt 
the intermediaries who seek to profit from the operation of 
crowdfunding markets.
  I think these House provisions are corrected by the approach taken by 
my colleagues, Senator Merkley, Senator Brown, and Senator Bennet. I 
believe the Senate bill they propose addresses many of the concerns 
expressed by Professor John Coffee of the Columbia University School of 
Law when he called such crowdfunding provisions the ``Boiler Room 
Legalization Act''--a reference to the bad old days when people 
gathered in what were called boiler rooms and made cold calls to try to 
elicit unwary investors into dubious schemes.

[[Page 3560]]

  There is another section of our bill which will help small and 
medium-sized companies access larger amounts of money--up to $50 
million--to infuse their businesses with much needed capital.
  We have proposed a few but very important improvements to the work of 
Senators Tester and Toomey in their legislation and to similar language 
in the House bill.
  Let me talk about the improvements to the so-called regulation A or 
mini-offering section of the bill to achieve a better balance between 
investor protections and access to capital.
  Like the House bill, our bill raises the amount of money that can be 
raised in a mini-offering process. However, four improvements are made 
in the Reed-Landrieu-Levin amendment.
  We require that audited financial statements be filed with the mini-
offering statement so that investors truly know what the financial 
situation of the company is before they invest.
  Let me make a point here. The House proposal would not require 
audited financials be filed with the offering documents. I would think 
as a basic premise, if you are making an offering for up to $50 
million, investors deserve to have financial statements signed off on 
by a third party auditor. Our legislation requires it.
  We require periodic disclosures of material information to investors. 
For example, perhaps the investor of a certain high-tech product the 
company is making leaves the company or passes away or something else 
happens. Investors deserve to know about that type of information.
  We limit the amount that can be raised through the mini-offering 
process to $50 million every 3 years. The House bill would allow 
investors to raise $50 million every 12 months, potentially allowing 
many companies to avoid going fully public and evading more rigorous 
public reporting requirements.
  Finally, we require a study and report on the new mini-offering 
exemption from Securities Act registration. This study is to be 
conducted by the SEC, in consultation with the State securities 
administrators, and submitted to Congress no later than 5 years after 
the date of enactment, so that we consider whether any changes need to 
be made to the mini-offering concept created in this legislation.
  Although this is still an experiment--to allow general solicitation 
and advertising to retail investors for what are bound to be risky 
offerings--I believe the protections we have built in will make it a 
safer experiment.
  We also worked to make some improvements to the initial public 
offering or IPO on-ramp section of the bill.
  The essence of this proposal in the House is to phase in certain 
securities laws and regulations for, in their terms, ``emerging growth 
companies'' so they can grow more slowly into becoming a public 
company, with all of its benefits and responsibilities.
  There are companies that have or will outgrow either the reg D 
private placement method of raising capital or the new reg A mini-
offering method of raising capital. But the key issue here is what we 
think the definition of an ``emerging growth company'' should be.
  The way the House bill is written, it would exempt virtually all new 
public companies from nonbinding shareholder votes on say on pay and 
executive compensation pay in connection with a merger acquisition; the 
relationship between executive compensation and the performance of the 
issuer; the requirement under Securities Act section 7 that more than 2 
years of audited financial statements be provided for an IPO; and a 
requirement that the company's auditor attest to the effectiveness of 
the company's financial systems or internal controls under section 
404(b).
  After discussions with many experts, it is clear that a company with 
$1 billion in annual revenue is not what most of them consider to be an 
emerging growth company. But that is the level the House has chosen, $1 
billion in annual revenues.
  In fact, under this definition, the House bill would have exempted 
more than 80 percent of current IPOs from registration requirements 
which, as I mentioned earlier, are requirements that only recently 
appear to be difficult to manage.
  As a result, Senators Landrieu, Levin, and I decided this definition 
needed to be much more targeted toward smaller IPO companies with less 
than $350 million in annual revenue. Even the House bill would have 
allowed Enron and WorldCom to be subject to this phase-in, in terms of 
reporting and auditing requirements.
  In addition to focusing this provision on smaller firms, we also took 
out the provisions in the House bill that were eliminating corporate 
governance improvement made in the Dodd-Frank bill, such as say on pay 
and requirements that the company demonstrate the connection between 
executive performance and company performance. We need to give these 
provisions more than a year to see how well they are working.
  The Reed-Landrieu-Levin amendment also eliminates the provision in 
the House bill that interferes with independent accounting standards, 
and would have set up two different sets of rules, one for emerging 
growth companies and one for other public companies. We agreed with the 
Chamber of Commerce that these provisions should be taken out. The 
chamber stated in a letter dated February 15, 2012 that:

       The opt-out for new accounting and auditing standards would 
     create a bifurcated financial reporting system with less 
     certainty and comparability for investors, while creating 
     increased liability risk for boards of directors, audit 
     committees and Chief Financial Officers.

  We also dramatically narrow the provisions in the House bill that 
would have eviscerated the settlement between all of the securities 
regulators and 10 Wall Street investment banks regarding the undue 
influence of the investment banking unit of a firm on the securities 
research unit affiliated with the same brokerage firm.
  We learned at a significant cost through the 1980s and the 1990s the 
value of independent analysis of markets and securities. Jeff Madrick, 
a respected journalist, discussed this issue in his book. In his words:

       A measure of this practice was the increase in the number 
     of buy recommendations. At the end of the 1980s, after a long 
     run-up in stocks, buy recommendations exceeded sell 
     recommendations by a large and suspect margin of four to one. 
     By the early 1990s, buy recommendations exceeded sells by 
     eight to one. By the late 1990s, only 1 percent of analysts' 
     recommendations urged an outright sale. The low percentage 
     remained unchanged even when stock prices were falling and 
     the investment community was pessimistic.

  After the stock market collapsed in the early 2000s, securities 
analysts started to admit what was happening inside these firms. Ronald 
Glantz, a veteran respected analyst from Paine Webber, testified before 
Congress in 2001 as follows:

       Now the job of analysts is to bring in investment banking 
     clients, not provide good investment advice. This began in 
     the mid-1980s. The prostitution of security analysts was 
     completed during the high-tech mania of the last few years. 
     For example, in 1997 a major investment banking firm offered 
     to triple my pay. They had no interest in the quality of my 
     recommendations. I was shown a list with 15 names and asked, 
     ``How quickly can you issue buy recommendations on these 
     potential clients?''

  We believe that the wall between a financial institution's research 
and brokerage units needs to be maintained. Our substitute amendment 
would allow a research report to be provided by a firm subject to SEC 
restrictions, disclosure, and filing requirements. In particular, the 
research cannot contain any recommendation to purchase or sell such 
security.
  In addition, any written communications provided to potential 
investors must be filed with the SEC so that they can take a look at 
it. These written communications will become part of the issuer's 
prospectus, which should give investors some added protections. This 
too is a bit of an experiment, given the massive fraud committed on 
investors that led to the global research analyst settlement in 2003. 
But we have dramatically narrowed the scope of the experiment from the 
one in the House version.
  Finally, we allow companies to opt out of the emerging growth company

[[Page 3561]]

designation and fully comply with all public company regulatory 
requirements, which very well may improve the price of their stock, 
since investors will have more information regarding the company.
  As I said earlier, if these changes in exemptions go too far, some 
believe we are doing more harm than good by weakening the value of the 
public company brand in the United States and actually harming our 
competitiveness in world markets. That is why we have tried to narrow, 
appropriately, the proposals in the House legislation.
  Next, I want to talk about the most important changes in our bill 
from the House bill. The House bill effectively eliminated SEC 
prohibitions against soliciting or advertising about private offerings 
of securities. Most private placements are offered under SEC rules 
known as regulation D. These securities are sold without an IPO or 
registration statement being filed with the SEC, usually to a small 
number of chosen accredited investors.
  In the United States, for an individual to be considered an 
accredited investor, he or she must have a net worth of at least $1 
million, not including the value of the person's primary residence, or 
have made at least $200,000 each year for the last 2 years, or $300,000 
together with his or her spouse, if married, and have the expectation 
to make the same amount in the current year.
  The current net worth and income triggers were adopted 30 years ago. 
They have never been changed. The share of U.S. households that met the 
test in 1982 was 1.6 percent. It is now at least four times that share. 
The largest share of accredited investor households is retirees, many 
of whom struggled for decades to save their nest egg.
  Because accredited investors are eligible for private placement, they 
can be targeted with slick sales pitches without any SEC review or 
mandatory disclosure. The House bill removes current prohibitions 
against general solicitation or advertising for these private 
offerings, which most securities experts believe will have serious 
consequences.
  Under the current regulatory framework, if the SEC sees unregistered 
offerings being advertised, they can immediately close down the issuer, 
since they are breaking the law by publicly advertising or soliciting. 
Under the House bill, there will be a lot more solicitation of all 
investors, perhaps on late-night cable or the Internet, with the only 
protection being after the fact under antifraud principles or ex post 
inspections of sales records to see if the issuers appropriately sold 
only to accredited investors.
  SEC Commissioner Aguilar stated in his statement on March 16, 2012, 
that this provision may be a ``boon to boiler room operators, Ponzi 
schemers, bucket shops, and garden variety fraudsters, by enabling them 
to cast a wider net, and make securities enforcement more difficult.''
  Realizing in a world of the Internet and Twitter that even private 
communications to accredited investors can be broadly disseminated, our 
bill takes a much more targeted approach to this issue. In our 
amendment, we allow for limited public solicitation and advertising 
that is done only in ways and through methods approved by the SEC. We 
are sympathetic to the fact that in a world of new media, it is 
increasingly difficult for issuers to control their outreach efforts to 
accredited investors. We believe our amendment gives the SEC the tools 
it needs to formulate a limited exemption to the general solicitation 
and advertising rules allowing private offerings to still be private. 
None of us wants this legislation to be a boon to boiler room operators 
and Ponzi schemers targeting our Nation's retirees or anyone else.
  Finally, I want to talk about the shareholder cap issue. What has 
become clear to me as a result of the capital formation hearings in the 
Banking Committee is that this issue of the appropriate number of 
shareholders to trigger routine reporting through the SEC is something 
that requires very careful consideration. The present 500 recordholder 
threshold was originally introduced to address complaints of fraudulent 
activity in the over-the-counter market for securities.
  Since firms with fewer than the threshold number of investors were 
not required to routinely disclose their financial information, outside 
buyers were not able to make fully informed decisions regarding their 
investments. The exchange act mandates that investors in over-the-
counter securities be provided with equivalent information to that 
provided to investors trading stocks on the major exchanges if the 
company has 500 holders of record and at least $10 million in assets.
  Many believe this threshold needs to be updated. But the House bill 
dramatically increased the threshold from 500 to 2,000. Others believe 
raising this threshold to 2,000 would impair capital allocation and 
market efficiency, reducing public information about widely traded 
companies and denying investors appropriate information about 
companies.
  First, we believe the House bill risks allowing large companies with 
less than 2,000 recordholders--and listen to some of these companies: 
Hyatt, Hertz, Chiquita Brands, Adobe Systems, HCA Holdings--Hospital 
Corporation of America--Kaiser Aluminum, Royal Caribbean Cruises, 
Towers Watson, Ralph Lauren, and Accenture--and these are just some of 
them--to delist and go dark without disclosure or regulatory oversight. 
I think that would frustrate the expectations of many of their 
investors.
  As a result, we decided to take a more prudent approach in our 
amendment and raise the level from 500 to 750. At the same time, we 
believe the holder of record actually needs to be the beneficial owner 
of the security. This means he or she has power to vote the share or 
dispose of the share. Through our hearings on this matter, it is clear 
that many big firms are getting around this requirement by pooling 
shares in a street name, such as an investment company like JP Morgan. 
These big firms have many thousands or hundreds of beneficial owners 
that can sell and dispose of their shares and have the right to the 
dividends. But on the books of the company, it is just one 
recordholder. Our amendment eliminates this work-around and requires 
the holder of record to actually be the beneficial owner.
  We are also sympathetic to the fact that many more companies are 
starting to give their employees stock as part of their compensation 
plan. We are sympathetic to their desire not to have this prematurely 
trigger the Securities Exchange Act. Companies such as WaWa and Wegmans 
testified before the Banking Committee that they want to give their 
employees shares without forcing their company to have to go public. As 
a result, our amendment exempts employees for the recordholder account, 
which should allow firms to give as many shares as they want to their 
employees without forcing them to go public before they are ready.
  We think our provision achieves a better balance between market 
transparency through disclosures and investor protections and the needs 
of some of our most successful family-owned or privately held firms to 
reward their employees and maintain their private status.
  As we debate H.R. 3606, which could dramatically weaken the world 
leading brand that is the American public company, we should realize 
that we are undertaking a dramatic and perhaps unfounded experiment. We 
should also understand that deregulating our securities markets may 
have no effect whatsoever on the number of IPOs.
  Companies are desperate for funding since we just went through the 
biggest financial crisis since the Depression and lending is down. 
Deregulating our capital markets could temporarily infuse our markets 
with more cash, but at what cost? The cost could be quite great. As 
Jessie Eisinger stated in his ProPublica column on March 14:

       It's been about a year now since Chinese reverse-merger 
     companies collapsed. In that scandal, dozens of those small 
     Chinese companies went public in the United States without 
     having to run the gauntlet of the Securities and Exchange 
     Commission's registration rules. After they blew up by the 
     boatload, the SEC cracked down and tightened its rules. Since 
     then, short-sellers' pickings have been slim. By allowing new 
     public

[[Page 3562]]

     small companies to not disclose financial information for 
     years, the bill will provide new targets for short-selling 
     hedge funds.

  Like Mr. Eisinger, I believe the House bill as currently drafted 
basically makes markets less transparent and more subject to 
manipulation. What the House bill clearly does not do is address the 
needs that I hear about from employers in my State.
  The economy consists of a lot of moving pieces. Economic recovery on 
its own will do more to reverse the decline in business activity than 
any provision in the House bill. Moreover, the House bill doesn't 
include provisions that I am hearing from Rhode Island employers would 
actually be helpful to creating jobs, such as Small Business 
Administration loans and export assistance. As a result, our amendment 
actually includes a number of already tried and true, tested job-
creating measures. It is estimated, for example, that by reauthorizing 
the Export-Import Bank, our amendment would support an estimated 
288,000 American jobs at more than 3,600 U.S. companies in more than 
2,000 communities.
  Other provisions in our amendment would expand the Small Business 
Investment Company Program, supporting more small business startups in 
communities across the United States.
  Finally, we continue a modification to the Small Business 
Administration 504 Loan Program to allow for the refinancing for short-
term commercial real estate debt. This provision has proved essential 
for many small businesses with short-term debt. As we have been looking 
at the House bill more closely, I think we have all been learning that 
it is not doing what it was advertised as doing, which is creating more 
jobs. We need to slow down and go through an appropriate amendment 
process in the Senate.
  As Barbara Roper, director of investor protection for the Consumer 
Federation of America, recently stated in a March 11, 2012, San 
Francisco Chronicle article, the House bill as currently drafted is 
``completely bipolar.'' On one hand, we are trying to make it easier 
and less expensive for companies to go public. On the other hand, by 
increasing the shareholder threshold in the legislation, the House is 
actually encouraging and letting companies stay private or go private 
and avoid an IPO.
  I urge all my colleagues on both sides of the aisle to take up the 
Reed-Landrieu-Levin amendment as the base text of the legislation and 
engage in both a robust debate and amendment process. Our securities 
markets deserve just as much attention as our Nation's transportation 
system, and we spent several weeks dealing with the Transportation bill 
on the Senate floor. The Reed-Landrieu-Levin amendment is a much better 
place to start this debate on how to improve access to capital in our 
securities markets without opening them up to unnecessary fraud and 
manipulation.
  With that, I yield the floor and suggest the absence of a quorum.
  The ACTING PRESIDENT pro tempore. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. JOHNSON of Wisconsin. Mr. President, I ask unanimous consent that 
the order for the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Manchin). Without objection, it is so 
ordered.

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