Last Ditch Attempt To Save A Little Bit Of Investor Protection In The United States

By Simon Johnson

As it currently stands, the “JOBS” bill now before the Senate would gut investor protection in the United States.  The title of the bill is a complete misnomer – anything that weakens investor protection makes it more risky to invest in companies and increases the cost of capital to honest entrepreneurs.  (For more background on the bill and links, see this piece.)

Much of the 1930s-era Securities legislation, which served us well for more than 70 years, is about to be repealed in a moment of bipartisan madness.

Almost all attempts to amend the House version of this legislation – and to make it more favorable to investors – have now failed in the Senate, and the “cloture motion” received more than 60 votes (so the bill cannot be filibustered).  But Senator Jack Reed (D., Rhode Island) is leading one last charge to make the Senate version more reasonable.

Here is the issue with H.R. 3606 (as the House version of the bill is known), from Senator Reed’s website:

“The SEC requires public companies to disclose meaningful financial information to the public. This provides a common pool of knowledge for all investors to judge for themselves whether to buy, sell, or hold a particular security. Only through the steady flow of timely, comprehensive, and accurate public information can people make sound investment decisions. The result of this information flow is a far more active, efficient, and transparent capital market that facilitates the capital formation so important to our nation’s economy. H.R. 3606 would roll back key investor protections, denying the public critical information that is essential to make sound judgments and would ultimately not lead to the proposed goal of the bill: providing for access to capital, particularly for small emerging companies.”

The “JOBS” bill would permit even very large companies to avoid all public disclosures.

Amazingly, it would also exempt these companies from having to comply with the federal regulation regarding mergers and acquisition.  Private equity firms would even be able to manipulate the market while making a tender offer for shares – the kind of behavior that has really been taboo (and illegal) since the 1930s.

Senator Reed has put forward an amendment, #1931, that will at least partially retain some of our existing investor protections and disclosure requirements.

Specifically, Senator Reed’s amendment would close or limit a major loophole that will allow large companies to avoid registering with the SEC (and therefore escape much regulation).  The Reed Amendment would clarify how to define “shareholders” for the purpose of determining if a business is so widely owned that it must register with the SEC.  Under the Amendment, the count should be based on beneficial owners of the shares, i.e., real people.  The goal is to prevent evasion of the SEC registration threshold through “nominal” owners holding the shares for large numbers of beneficial owners.

Big companies like H.R. 3606 – they will be regulated less and if the cost of capital rises for start-ups, that actually helps them.  The Chamber of Commerce, the American Bankers’ Association, and the Independent Community Bankers of America have all weighed in heavily against the Reed Amendment – the idea of escaping SEC scrutiny greatly appeals to them.

The Chamber of Commerce’s letter against the Amendment to Senators closes with this statement – or you might call it a threat (bold and underlining in the original):

“The Chamber strongly opposes this amendment and may consider including votes on, or in relation to, this amendment in our How They Voted scorecard.”

Under Senate rules, the Reed Amendment would need just 51 votes today in order to pass.  But against this kind of corporate firepower, does this entirely reasonable Amendment have any chance?

24 responses to “Last Ditch Attempt To Save A Little Bit Of Investor Protection In The United States

  1. Amazingly, it would also exempt these companies from having to comply with the federal regulation regarding mergers and acquisition. Private equity firms would even be able to manipulate the market while making a tender offer for shares – the kind of behavior that has really been taboo (and illegal) since the 1930s.

    Say what? How I love kleptocracy.

  2. Another vitamin booster for PIRATE CAPITALISM!

  3. Foppe and Woop – all too true.
    Much as I admire Simon, I’m afraid that he just doesn’t get that these clowns DON’T GIVE A RAT’S SOUTHERN PARTS about anyone but themselves and “their kind”. They are thieves and their paid thugs – the congress idiots – are doing their bidding. We are by turns, rubes to be screwed, canon fodder for their wars, or slave labor for their profiteering. THEY are the Masters of the Universe; they sometimes deign to let us live here.

  4. Any chance of a link to the Chamber of Commerce letter?

  5. Barbara Roper

    This column gets it absolutely right, and senators are desperately trying to avoid a vote count on this amendment. The hypocrites who voted for the Reed-Landrieu-Levin amendment (knowing it couldn’t pass) don’t want the embarrassment of having been for it before they were against it. Some Democrats who might be inclined to support the amendment don’t want the discomfort of voting against business interests. Apparently, voting for a bill that every conceivable expert has said will increase fraud, undermine market transparency, and increase the cost of capital to the small companies it purports to benefit doesn’t cause senators the same embarrassment.

  6. Once again, the endlessly tiresome question: where are all the ‘Tea Party’
    voices shouting in outrage against the very things they say they care about?

  7. Stockton Gaines

    I want to comment about what a horrible job you are doing of telling us why the JOBS bill is bad. I have just read your blogs on the subject. Based on them, could not effectively tell someone else why the bill is bad, except in a very piecemeal way. You detail what the consequences will be quite well, but do not give a good summary of what the bill actually says, and what will change. Nor do you provide any link, except to the bill itself, that would help one understand the provisions of the bill. Many, including me, do not have the time or inclination to read the bill, and a concise analysis of it would be very helpful to many in understanding why you are so disturbed by it.

  8. Sandi, your comment, and the reference to “their kind” reminds me of the great irony inherent in the fact that the source of the most universal and inclusive of expressions “Okay” (O. K.) in use today, comes directly from the inside slang of that most exclusive social group, referring (covertly, yet!) to people who might be of a high enough “quality” to be “Our Kind”, and, of course, the obverse “NOKD” for “Not Our Kind, Dear”! LOL

  9. Doesn’t this bill show the TOTAL hypocrisy of self- described “free-market” politicians? Isn’t one of the basic assumptions of “free-market” theory that both parties to a sale must have equal if not “perfect” information? Many economists lately have shown that such an ideal situation seldom if ever occurs in reality. But this bill, instead of trying to ensure that the real world corresponds as closely as possible to free-market theory, does just the opposite–I.e, it ensures that access to relevant information will be as unequal as sellers can make it. Free-market economics, my, foot.

  10. If this passes please list the senators who voted for and against. We have a Senator in Wa. who is usually smart enough to not vote for this type of thing but she is running for election and if she votes yes then I vote no.

  11. Better start calling a spade a spade – this is all pure philosophical Nihilism – the undoing of every single law of nature and physics to allow iniquity to roam *free*.

  12. This is very upsetting, of course mainstream media (if you can even find an article about the topic) are all saying this law will be great, claiming it will help small businesses get access to capital. Had to dig a bit to even find an article. What a sad place Washington is.

  13. Ummmmm, these are the same folks that extracted trillions of dollars from citizens with zero consequence right?

    Oh…ok, just checking.

    Quick thought-In September of 2008 I thought, “well good, at least will see some reform” and since that didn’t happen does any of this post crash madness seem weird. Short answer, NO!!!!!!!

  14. After attempting to read the text of this bill, I was quickly reminded how utterly confusing legislative language can be. I’m wondering what the end game is here for the financial industry.. are they looking at the Volcker rule coming down on them soon so they want to be able to spin off a bunch of smaller companies that basically have no financial oversight?

  15. Matty in Florida

    “Stockton Gaines” is right: this article, like most of Johnson’s work I’ve seen (and heard on NPR), is heavily crippled – and can in fact be summarized, for everything of any value whatsoever in it, with just the following excerpt:

    “…the “JOBS” bill…title…is a complete misnomer – anything that weakens investor protection…increases the cost…to honest entrepreneurs…Much of the 1930s-era Securities legislation, which served us well for more than 70 years, is about to be repealed…and…the bill cannot be filibustered…H.R. 3606 would…deny the public critical information…The “JOBS” bill would permit even very large companies to avoid all public disclosures…also exempt these companies from…regulation regarding mergers and acquisition. Private equity firms would even be able to manipulate the market while making a tender offer for shares…The Chamber of Commerce, the American Bankers’ Association, and the Independent Community Bankers of America have all weighed in heavily (with) the idea of escaping SEC scrutiny…”

    That’s it – with Johnson’s net parting message being: “Resistance is Futile”.

    WRONG. The CONGRESS is futile – corrupt to the core – the INSTITUTIONS are futile, not OUR RESISTANCE to them!

    I am absolutely certain we have adequate means to resist – just LOOK FOR THEM – and then DO IT. One example, which I discovered and have now been doing for several years – is to divest as much as possible from the banks, and into Precious Metals – which, I have become convinced, HURTS THE CORRUPT BANKS (and they ARE The Enemy, make no mistake). I do not do it primarily on the basis of “investing”, but as a means of RESISTANCE – and even so it has made me wealthier in the process – but I would CONTINUE to do so even if it COSTS ME (and in fact, my allotment to silver HAS cost me – at least, compared to other things I could have chosen).

    Because – for anyone who hasn’t yet noticed it – THIS IS A WAR, People. And in a war, the warriors have to make sacrifices – read: Freedom Isn’t Free.

    So FIGHT, you Pussies! And don’t piss and moan and demoralize – or even worse, neglect and scam on – your Brothers and Sisters who, ALL TOGETHER, ARE our Salvation!

    Semper Fi,

    -Matty in Florida

  16. This bill, if passed and signed by the President (perhaps the most critical test of his Presidency to date, if given the chance), would serve as the ultimate and tragic reminder of the purchase of our government by the “vested” interests of the 1%. That said, having witnessed thusfar the attempts of his administration to provide support to the majority of the population which contributed mightilly to his successful election now nearly three and a half years ago, have been puny at best, and at worst, a travisty which represent small tokens to the 99%, while the Dodd-Frank financial “reform” has done nothing to curb the wild Wall Street speculation machine from continuing to churn the markets to our detriment (just oil prices alone are proof of this, but the incipient inflation seeping into the other things we buy which are a part of the run up of commodity prices — where’s the CFTC in this deal, bought, perhaps?!!), and the health care legislation so complex that few, if any, of us actually understand its long term effect on medical costs in the US which continue to exceed nearly every other of the developed nations and outcomes continue to lag as these costs drive the majority of personal bankruptcies. Where is the President’s real leadership in overcoming the continuing surge of foreclosures which guarantee that the housing market recovery is still many years in the offing.

    This bill is the icing on the plutocratic cake of greed which is choking more and more of the population, and more and more have to resort to food stamps just to eat. While Paul Ryan promises to further gut anything resembling support for the growing numbers living in poverty. When will it stop. What is happening right now might even make Marie Antoinette blush. King Obama and the dukes and earls on the Hill will continue to strip our rights, lives and riches until we resemble the Russian peasantry just prior to the 1917 revolution. Maybe I better stop before someone in Justice decides that I am sounding a call for sedition. Hope they read this.

  17. This topic should be on front page of major newspapers.

  18. Musing here … revolution by the middle class underway … maybe uphill but doable.

  19. @Matty – good, and dare I say, a true, point that you shared, “…I am absolutely certain we have adequate means to resist – just LOOK FOR THEM – and then DO IT….”

    Opportunities abound. For instance, the delusional world upon which the movie “Hunger Games” is based will never come to pass. By the time that people are learning the skills needed to fight to the death, the goal of that effort is to eliminate some vicious minority, an *elite* if you will, that supposedly is capable of acquiring the power to convince people that they need to entertain the elite with *hunger games*.

    Every rabble-rousing practice session in preparation for taking down a psychotic, self-proclaimed elite can begin with, “…._uck you and the horse you rode in on…” – a *meditation* for focus :-))

    Channeling my inner *teenager* to the teenagers of today….that Hollowood world will never come to pass…

  20. Big suprise, thieves acting like thieves. Don’t like the law preventing you from stealing? Simple, have your bought and-paid-for lackeys change the rules.
    We cannot win with the system being rigged against us, as it is now.
    Perhaps, someday we’ll grow some nads, but for now the carnage will continue.
    Good luck Matty, I’m afraid the public isn’t really ready quite yet.

  21. @RobinH – I’m a stickler for hard evidence when playing master of the universe – you have hard evidence for *public isn’t really ready quite yet*….? You can see into the *soul* of 330 million…? How many teraquats of data and who analyzed it?

    Matty was saying to take every opportunity to resist and there certainly are a lot of them.

  22. Well, as Mark Twain put it, the United States has no specifically criminal class, except for Congress of course.

  23. There is hard evidence everywhere Annie, take a look around, nothing on the street looks any different to me. As a matter of fact, all I see are more simple minds in the space of the world wide web. Complete idiots, babbling at twice the sound of speed, spinning their wheels in vain, who actually should be arrested for unnecessary noise rather than spurting off the exact same nonsense as our lofty leaders.

  24. “….who actually should be arrested for unnecessary noise….”

    So turn yourself in, Mouse – oh wait, you’re already in…what a wanna be tyrant you are – and what do you *see* from inside the cell of your psychosis?