CFA Institute Against the “JOBS” bill

By Simon Johnson

The Senate is due to vote today on the so-called “JOBS” bill – a piece of legislation, originating in the House, which aims to reduce disclosure and other securities law protections for investors (see my review yesterday; a link to HR3606 is here).

Supporters of the law claim that it will greatly increase the number of companies going public – and that this will boost economic growth and job creation.  Opponents argue that by weakening investor protection, the risks of investing in start-up companies will increase – there will be more frauds and scams – and this will increase the cost of capital for honest entrepreneurs.

Members of the CFA Institute have an interest in getting this right – this is the “global association of investment professionals” and they make their living by figuring out what is a good investment and what is likely to become a losing proposition.  These people also have a lot of expertise on the key issue – which is better for business, weakening investor protections or keeping them in place?  Which way are these experts voting?

Overwhelmingly, members of the CFA Institute are against the “JOBs” bill as it currently stands.

According to a survey released yesterday, and available through MarketWatch, 33 percent of CFA members in the U.S. think that the Senate should “not pass this bill,” while 27 percent think the Senate should pass a bill with more investor protections.  (The member survey was conducted online from March 13-16, with 491 U.S. members participating.)

In terms of the effects that the legislation would have on investor protection, the view is overwhelmingly skeptical: 63 percent say “the proposed bill would create additional gaps in investor protection and transparency,” and only 3 percent say the bill would improve investor protection (the rest think it will have no effect).

The essential nuts and bolts question is: What effect, if any, would the bill have on an investor’s ability to make informed investment decisions?  The majority, 59 percent, of those surveyed think, “The bill would decrease an investor’s ability to make informed investment decisions,” while only 9 percent think it will enable investors to make more informed decisions.

In rather more colorful language, the Motley Fool – a strong advocate for investors – takes an equally negative view of the “JOBS” bill.  Investors in companies with less than $1 billion in revenue (i.e., most companies in the United States today) “would look forward to”:

“The legalization of Wall Street pump-and-dump behavior that was banned after the Enron and WorldCom frauds.

Less clarity in executive compensation and golden parachute disclosure.

Weaker auditing standards.”

Markets with weak investor protection and little effective disclosure are subject to a great deal of volatility.   They also do not typically do well over time – there might be a boom for a while, but fraud and excess generally prevail, resulting in a big collapse.  Well-connected people, including many stock brokers, can do well – this was the experience in the US stock market frenzy of the 1920s.  But ordinary investors do not thrive in this environment – and ultimately everyone suffers, as in the 1930s.

In terms of the practical alternatives at this point, I agree with the position taken by Ilan Moscovitz in the Motley Fool article:

“Although the House has already passed the worst elements of the bill, the Senate is considering the Reed-Landrieu-Levin amendment, which would help clean up most of these problems.

Among other things, the Reed-Landrieu-Levin amendment would make sure investors still get clear executive pay disclosures, reduce the number of companies that get exempted from accounting rules, and help ensure that crowd-funding companies give true information to investors.

They’re voting on it tomorrow [i.e., Tuesday/today].

What do you think? You can let your senators know here.”

12 thoughts on “CFA Institute Against the “JOBS” bill

  1. Okay, just heard that the Guild of Tatoo Artists is branching out into for-profit health care – acupuncture, plastic surgery, and pro-bono stitches for those accidents clumsy kids have in their local neighborhoods.

    Full disclosure – IPO funds will go into paying tuition for ink-artists to upgrade their tech savvy – Qualcomm will have *do-it-yourself surgery* app ready for download in 2 years…

  2. True that on Landrieu, @ The Raven.

    This reminds me of a story, wherein a former employee of a department store chain returned to the store to shop for expensive jeans, and met up with a current employee who knew the security layout for the store.

    “What’s happening with security, these days?”

    “Not much, no one even ON tonight.”

    The former employee loved his new discounted Calvins, and thanks his unwitting accomplice to this day.

    Moral of the story: when you pull the guard dogs, all kinds of people will have a lapse of morality, or worse.

    Bad idea to weaken whatever extant investor protections are out there.

  3. Eliot Spitzer: JOBS Act Would ‘Return Fraud To Wall Street’

    Uhhmmmm… when did it leave?

  4. I try never to argue with high testosterone politicians, but Spitzer has it all wrong on the impact of SEc disclosure on securities fraud. In twenty odd years as an SEC lawyer I never met a single crook who was deterred by the registration process. They all understood that those prospectuses were simply insurance policies which no investor ever read but which gave their efforts a government imprimatur. Honest businessmen, on the other hand, were seriously deterred by the ruinous cost of securities registration, the intrusion of bureaucrats into their business affairs, the inanities of accounting rules which were entirely superfluous to cash based businesses and simultaneously deceptively easy to game for companies using accrual methods applicable to huge entities.

    The idea that some mythological ‘average investor’ is protected by the SEC is so absurd that I find it remarkable to find anyone still entertaining it. What the SEC has done is support the leisure class aspirations of a small army of paper shuffling lawyers and accountants over a period of 77 years. On behalf of my heirs I can only say ‘thank you’.

  5. Signs the Corrupt GOP Fraud Machine Working Against Ron Paul is Beginning to Crack
    Tuesday, March 20, 2012
    We see an act of desperation on the part of the GOP to keep Ron Paul from securing
    the nomination. First, we see a news piece written in Politico saying the Ron Paul
    campaign is going broke. It is very apparent that the establishment wants Mitt
    Romney to be their candidate. This former governor of Massachusetts is just a
    vanilla version of Obama that would continue the continuity in agenda carrying out
    the policies no matter who is in the White House.
    First indicator is in Utah where limited government conservatives, libertarians and
    constitutionalists became persona non Grata at the caucus and miraculously the neo
    con big government RINO Senator Orin Hatch wins. Then we see in Missouri Ron Paul
    supporters being arrested for pointing out the GOP leadership breaking their own
    rules to block Ron Paul from winning. The party that is supposed to have a big tent
    to be all-inclusive for every one of all points of view. It does not look like it,
    we are all welcome just as long we sit down, shut up,do not bring up personal liberty
    and the Constitution.
    The state of Illinois, the ABC affiliate released the primary poll numbers 24 hours
    early showing the primary results before one person cast a ballot. The land of
    Lincoln is the place where elections are stolen. It is time for a hostile take over
    of the state political parties and the election system to rout out the corruption. The people of Chicago and the State of Illinois have suffered under a corrupt system
    for a long time with loss of liberty and a system that no longer serves the people. A place like Illinois would be a good place to start. That is not a sign of arrogance; this is a sign of desperation trying to put off the
    inevitable. It is time for Ron Paul supporters now have to fight to win and take no
    prisoners. it is not the time to be nice and civil when the Party hacks rigged the game. We cannot allow corruption to rob our future putting people on the ballot that
    are no different then the opponent in the other major party. The party leadership
    does not work for the people; they work for offshore corporations and the bankers.
    Ron Paul is a threat to the establishment.
    Now I see this fraud machine is starting fall apart and unravel. The leadership is
    desperate to suppress Ron Paul from winning. It is not about not allowing Ron Paul
    to win. Now it is matter, can they stop it? When we see them changing the rules as
    they go, disregarding the rules in their bylaws or just flat out just ignore the
    result. We might start seeing the leadership being removed by hostile takeover
    calling a special vote to unseat the local or state party chairman for corruption
    when they are being caught rigging the vote.
    The GOP leadership might have egg on their faces when they start the convention in
    Tampa. The Ron Paul Revolution is unstoppable. I feel the fraud starting to break,
    they have shown their hand openly who they are. They are not conservatives or
    patriots. They are operatives and the gatekeepers for the authorities to keep their
    minions in power and never allow the real candidate to win. That may change very soon.
    The only thing the GOP is doing is exposing themselves for what they really are and
    when more people see it. This revolution will not be stopped. I see this fraud
    machine starting to crumble and fall apart. We could see a special session inside
    the party being voted out for being caught cheating to change the results or to
    change the outcome denying the will of the people.
    We realize this is not a game and we might not have an election to reverse course of
    this nation the next four years. This is why we are seeing a fight inside the GOP between the grass roots and the entrenched operatives. It is falling apart, I do not
    think they can keep up with the fraud much longer. Ron Paul like a beach ball held
    under water. After a while, the ball cannot be held down no matter how hard they try
    to keep it there. It will come to the top. Same with Ron Paul with his message of
    liberty, ending the illegal wars and a sound monetary system. The people I hope will
    know the truth before it is too late. All we can is pray and hope for the best.

  6. Yes, folks, we are getting “jobbed” and not in any good sense. But, gee, go figure. This is the thing that the waterboys in the Senate and House do for their allstars in the 1%. They carry the water. They fertilize the garden of scams with ever more methods to use. It is all a part of plutocratic everyday living in Third World America. It’s certainly no worse than selling toll roads, or parking meters, or sewer systems to the scammers. Whatever it takes to destroy the average American is what they do. You could argue that they don’t do so intentionally. But those who suffer death from accidental shootings are still dead. And most happen because of legally owned firearms. It’s not bad enough that the financial lobby machine is working massively to neuter the already weak Dodd-Frank effort at financial reform by watering down the subsequent rule making. Now the Congress in intent on passing laws (like Congress being exempt from insider trading rules and in many other ways) which legalize scamming. Deregulation is simply not enough. Funding their excesses through Bernanke’s massive QEII giveaways is insufficient, Underfunding every necessary regulatory program and agency is simply not totally useful. Now they want to memorialize scamming, so that when small investors lose every penny by trying to play with the big boys, those scammers can’t be convicted of any kind of fraud. This bill simply makes it all legal. When will it all stop? I’m not optimistic. And, sadly, I’m not rich enough to make a difference by buying my own representation, either on Capitol Hill or on K Street.

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