Confirming the alarm raised by consumer advocates and financial watchdog groups when signed into law, a new report finds that Obama's JOBS Act has done little but 'undermine market transparency' and further perpetuate an environment of secrecy in our financial system.
In April, when President Obama signed the “Jumpstart Our Business Startups" bill, Barbara Roper of the Consumer Federation of America warned, "This legislation will unleash a new wave of damaging investment fraud, undermine market transparency, and increase the cost of capital for the small companies it purports to benefit."
A scant eight months later, James Temple at the San Francisco Chronicle reports on new research by accounting firm Ernst & Young that exposes how the Act's disclosure loopholes are readily being taken advantage of by new IPO registrants.
The JOBS Act effectively reduced the amount of information companies have to provide to the Securities and Exchange Commission about historic finances and executive compensation, and allows companies to file to go public without disclosing that fact until they are promoting the stock to institutional investors.
"In effect," the Chronicle reports, "it means the press and potential investors have less time to comb through financial information, as well as less information to examine."
Of those 57 firms that filed in 2012 and qualified as "emerging growth companies" by posting less than $1 billion in annual revenue, the report found "54 percent took advantage of the ability to file confidentially; 39 percent elected to hand over only two years or less of audited financial data, rather than the customary three; and 77 percent provided compensation information for only three or fewer executives, down from the usual five."
"Has the JOBS Act helped? No," said Kathleen Shelton Smith, principal at IPO research firm Renaissance Capital. She added:
Rebuilding public confidence in these markets requires more, not fewer, disclosures.
Among other things, the SEC should require real-time disclosures on things like insider sales as well as insight into the major parties moving the market, particularly in the early hours of an IPO.