Today President Obama is scheduled to sign the JOBS Act, legislation that has received both enthusiastic support from the business community and scorn from regulators and consumer organizations. So what is the reality?
Well, the JOBS Act is deserving of both praise and scorn.
First the praise. Contained in the Act is a provision for enabling small businesses to have access to large numbers of investors through crowdfunding. The concept is simple. Allow many people to invest relatively small amounts of money into a small business trying to raise limited amounts of money and thus justifying reducing the regulatory oversight on of the Security and Exchange Commission. These are not gifts as in today’s social crowdfunding, these are the purchasing of shares of a company.
We were successful in amending the crowdfunding part of the JOBS Act in the Senate so as to provide sufficient individual investor protection on this new source of capital for Main Street small businesses. Not only is it critical that small businesses have better access to capital, especially since banks are not meeting the needs of small businesses according to new analysis, but also because we need investors to feel secure in using crowdfunding. If the public thinks they will be defrauded of their money, they won’t’ use crowdfunding investing.
Which brings us to the JOBS Act scorn. The rest of the Act deserves concern because it reduces accounting and disclosure rules for much larger businesses, those capitalized up to $1 billion and having gone public as “big league” securities for less than five years . The real fear is that this deregulation might eventually result in financial scandals that will shake public confidence even for investing in our small businesses.
So while we hope that the SEC writes the regulations for implementation of the JOBS Act so as to minimize potential fraud on Wall Street, those of us who support crowdfunding to help most small businesses not looking for the “on ramp” to the DOW need to get to work. We need to create the vehicles that the public will use to make small investments in their local community businesses as safe as possible to protect consumers. If we don’t, this new hope for accessing capital will fade once again for small business.