How messed up is Washington?
To find out, all you need to do is read this story in The Wall Street Journal by Michael Rappaport, headlined: “In Wake of Groupon Issues, Critics Wary of JOBS Act.”
The gist of the article is that an obscure provision in the
JOBS Act, set to be signed this week, would let companies confidentially run their initial public offering prospectuses by the Securities and Exchange Commission before they’re filed for all to see.
The idea behind the provision, according to the article, is that it would give companies with revenues under $1 billion more confidence in filing an IPO without the risk of their initial filing getting run through the public wringer.
As a result, there would be more IPOs, which in turn would translate into more jobs.
To which I say: Never mind that some lobbyist got paid to come up with this. Worse — it found its way into the bill.
To me this is the equivalent of the “SEC Busy-Work Act.”
Think about it: Before going public, companies could submit first draft IPO plans to the SEC for a pre-review. The documents would be restricted from Freedom of Information Act requests.
But — and here’s where it goes from the ridiculous to the sublime — according to the article, “The confidential documents would have to be released 21 days before the company’s ‘road show,’ in which it tries to persuade large investors to buy its stock.”
The very idea that a company could get a nonpublic look-see by the SEC is absurd. That it would then be disclosed makes it ridiculous and a waste of the SEC’s already-taxed resources.
Just look at Groupon. By the time the company went public, it was on track to generate revenues in excess of $1 billion, so it’s unclear how it would have been treated by the provsion.
Assuming it was covered, however, it’s anybody’s guess whether the SEC on its own would have cracked down on some of its unusual accounting, notably the way it booked revenue, had it not been fodder for accounting experts and the press in the five months prior to its offering last November.
That’s what happens: When you go public, no matter your size, it’s a public hazing process that ultimately works.
And even after all of the accounting blunders and restatements, here we are five months after the IPO and late Friday Groupon reported that it would need to restate its first reported quarter as a public company after its auditors discovered some material weaknesses in its financial statements.
As Groupon shows, a pre-review by the SEC would ultimately have been meaningless. Besides, isn’t that why auditors and investment bankers supposedly make the big bucks?
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