M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Thursday, March 22, 2012

JOBS disaster

We tend to steer very clear of politics on this site, so I wouldn't usually weigh in on a bill before Congress, but please permit me to vent.  Apparently, in a fit of bipartisan insanity, the Congress has decided that the proper lesson to be learned from the Financial Crisis of 2008 and the Dot Com bubble of the previous decade is that we need not protect investors!  

Put simply, the proposed JOBS bill is a potential disaster for investors and for the integrity of US capital markets. 

The proposed legislation (HR 3606) will exempt "emerging growth companies" from most disclosure requirements for up to five years following their IPOs. Okay, maybe small public companies can't afford the costs of compliance.  But wait ... what's this? 

    The term `emerging growth company' means an issuer that had total annual gross revenues of less than $1,000,000,000 during its most recently completed fiscal year. 

$1 billion in revenue is "emerging"?!  I've just fallen off my chair. Someone pick me up. Here's a representative list of companies with less than $1 billion in revenue that might potentially fall under this definition.  This is really just a license to for low quality firms to go public at the expense of the investing public.  If investors really want to invest in crappy small companies, they should go to London's AIM.  I don't understand why everyone in Congress is happily racing towards this cliff.  

One of the biggest criticisms of Sarbanes Oxley after it passed was that it represented "quack corporate governance". There's something to that, but I don't think the best response is to roll it back and replace it with quack deregulation. 

Professor John Coates analysis of the various proposals working their way through Congress is well worth a read.

Baffled.

-bjmq

 

 

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