How the JOBS Act could destroy the stockmarket

The JOBS Act was passed with broad bi-partisan support (i.e. business lobbyists on both sides liked it) and signed into law by the "marxist socialist" President Obama. The act allows all businesses with less than a Billion dollar capitalisation release financial fundamentals (such as profits, value, etc) that have NOT been certified by a CPA.

In other words, if your business is worth less than a billion, and has an IPO, you can release whatever numbers you want, which will lead to massive fraud.

And more bubbles.

Here's some great video of Matt Taibbi describing this in more detail:

"It places honest companies at an active disadvantage because they're expending all this energy trying to conform and make all the numbers really add up, whereas this other company can just make up all the numbers and go to investors and say, 'Here’s some numbers that we just cooked up and you're free to believe them or not.'"

current.com...

Another video

There is a real risk that Congress’s actions could harm the market. People pay more for American stocks than they would for those in other countries because we have enhanced antifraud rules. If investors lose faith in the United States market, stocks may decline in value.

dealbook.nytimes.com...

Taibbi says it''s "flawed logic" but I would contend it's "fraud logic".
What easier way to inflate the perceived value of the stock market than to implement these new rules which have nothing to do with job creation.
This will blow up in our faces, that's guaranteed.
Yet one more example of government living like there's no tomorrow,
So what do they know that we don't?

Taibbi is one of the few reporters who I will take at their word.
His work is impeccable and he covers some of the most important financial news stories of our times.
I like Spitzer too - a guy who they had to remove from office lest his honesty injured some Wall St, firms.

S&F

Where the CPA's really that good with Enron? But I know what you mean and stripping away any remaining integrity rather than building it is not good, not good at all. It kinda come across like a cry for help within the business community through government. As the lies in the media keep growing, now the market has to now keep up.

So with the last line of defence being the credit rating agencies, how are they going to go sorting through double books and the such. There are lot of large data centres popping up over the place that may help with watching the cash flow and verifying transactions, but as for where things are at it is hard to say. For those trying to sort through so much data and trying to make some sense of it, good luck.

These companies will not be traded on the current established stock markets so I don't see how this will have an effect on them one way or another. It use to be you couldn't have more than 100 shareholders in a non -public company. Now that has been raised to 1000 shareholders in an effort to encourage more investment. While the CPA requirement is somewhat strange, i think you will find that anyone that is serious about raising money will indeed have CPA audited financials. The reason thay are not required is that some of these companies will simply be an idea with no operating history thus ther eis nothing to audit.

The JOBS act—or the House version of it, at least—is packed with provisions to reverse the regulatory tide. It allows “emerging growth companies” with under $1 billion in revenue, hardly small change, to skip various reporting requirements and internal audits. It amends accounting rules. It loosens compensation constraints. And it allows limited online “crowdfunding” by equity investors who are not designated as “sophisticated” (shorthand for being rich). The law also provides protection against often intrusive state regulations and reduces the restrictions on underwriters using public offerings to fund research.

www.economist.com...

Only a few things are certain. Like past efforts in deregulating the New Deal legacy of investor-protection laws, the JOBS act will be a road to hell paved with good intentions, to paraphrase Dr. Johnson.

I have a dozen more examples where Wall Street has devoted considerable time, effort and campaign contributions to snuff out financial reform designed to protect the public. It’s been relentless. So do I believe that the SEC or any other agency will offer genuine protection to investors? Don’t take my word for it. Here’s what securities regulators, as represented by the North American Securities Administrators Association (NASAA), stated when the JOBS Act passed: “The JOBS bill the President signed today is based on faulty premises and will seriously hurt all investors by either eliminating or reducing transparency and investor protections. It will make securities law enforcement much more difficult, said Jack E. Herstein, NASAA President and Assistant Director of the Nebraska Department of Banking & Finance, Bureau of Securities. Investors need to prepare themselves to be bombarded with all manner of offerings and sales pitches. Congress has just released every huckster, scam artist, and small business owner and salesman onto the internet, Herstein added.

Issuers who use the crowdfunding exemption will be required to disclose a minimal amount of information to the SEC, but the bill includes a provision, strongly opposed by NASAA, that will preempt state securities regulators from reviewing or registering securities sold under the crowdfunding exemption in their states. Lacking adequate funding, the SEC has neither the resources nor the time to effectively police these relatively small, localized securities offerings before they are sold to the public, Herstein said. As a result, crowdfunding offers are likely to receive little regulatory scrutiny until after a fraudulent sale has been committed. This is an investor protection disaster waiting to happen.”

www.forbes.com...