Hooray! President Obama signs the JOBS Act Thursday.
This rule, in effect, is designed to make it less costly for “emerging” companies to get up and going and eventually go public.
“Does this create jobs or fraud,” asked one of our producers at a morning meeting at CNBC.
“Yes,” I replied.
And as I started to think about it, I realized that my original knee-jerk reaction as a financial journalist to the JOBS Act was wrong. In the ideal world of more transparency, as financial journalism by its nature tends to encourage, less regulation of the financial markets is generally a bad idea — especially if the new rules result in a relaxation of older rules.
That’s exactly what’s happening here. Smaller companies (those with annual revenues of less than $1 billion — yeah, that’s small!) will get somewhat of a free pass to avoid the toughest scrutiny if and when they go public.
Among the changes (if I’m reading the legalese correctly): They won’t have to file historic numbers, they would be able to skirt some of the most onerous auditing rules and the real stunner: Analysts who work for firms underwriting an IPO would be allowed to write research on the firm while the deal is underway.
There’s also a provision I ranted about the other day that would allow the SEC to get a confidential pre-offering look-see for any deal to help the company avoid public humiliation once journalists, accounting gadflies and others get a hold of the IPO documents.
But now I’m here to say: This is the best news ever (especially from a jobs perspective) for lawyers, accountants, bankers, the exchanges and, yes, maybe even financial journalists.
In the roughly 12 years since that (sarcasm alert) pesky Sarbanes-Oxley Act was signed, I’ve felt increasingly like the Maytag repairman. The bill hit all of those things that made this job so much fun: Auditor independence, analyst conflicts of interest, lack of financial disclosure and a host of other things, including corporate fraud accountability.
Since then, CEOs have told me that as long as they have to sign a statement at the end of their quarterly financial claiming they have abided by Sarbanes-Oxley, they think twice about how aggressive they want to get.
The JOBS Act, while not changing all of that, loosens up the rules just enough to allow management of smaller companies to let human nature take over.
On a serious note: I’m a huge fan of entrepreneurs, emerging technologies and the ability of young companies to create jobs. But in going against some of the worst offenders of the rules, before they originally were tightened, I’ve seen CEOs use “jobs” in their quest to get my bosses to get me to shut up — including one with a focus on impressing Wall Street who wound up going to jail. (Thankfully, my bosses ignored him.) And, yes, sadly his employees lost their jobs.
That’s what happens when jobs are built on a model that winds up more focused on pleasing Wall Street than its model can realistically support.
But who am I to complain? The rules are what they are, human nature is what it is and cycles have a way of repeating themselves.
And for financial journalists, that’s the best news of all. It’s the gift that’ll keep on giving…and giving!
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