JOBS Act

The hidden pitfalls of the JOBS Act

March 27, 2012: 2:35 PM ET

The JOBS Act is part of an overall reshaping of the capital markets, producing new minefields that investment managers must step around.

By Eleanor Bloxham, CEO of The Value Alliance and Corporate Governance Alliance

House Speaker John Boehner and House Majority Leader Eric Cantor at a news conference on the Jobs Act.

House Speaker John Boehner and House Majority Leader Eric Cantor at a news conference on the JOBS Act.

FORTUNE -- We are moving into a new, even more freewheeling, anything-goes economy. Ready to throw the dice and take your chances?

The JOBS Act passed the Senate last week and the House passed it on Tuesday, sending the bill to President Obama to sign. Ostensibly designed to make it easier for companies to raise capital, the act has some dangerous elements for both investors and taxpayers. To its credit, the SEC warned Congress of the risks in a letter from Chair Mary Schapiro. Not only will some who invest in private companies face more risk, public companies will now be riskier to invest in (and work for) too.

The bill is part of an overall reshaping of the capital markets, producing new minefields that investment managers must step around. These investment minefields include products from banks that still appear to be out of control, companies with runaway executive compensation, and proposed IPOs with draconian features.

The JOBS Act is aptly named. The upshot of this reshaping is that jobseekers will need to do even more due diligence on economic sectors and particular companies if they're looking for a stable gig. And due to some provisions in the JOBS Act, there may be less trusted information out there.

Any jobs coming from this JOBS Act? 

It's unclear what kind of jobs the JOBS Act will actually create. The bill is a hypothesis without the tests or the results. Perhaps, you'll see more ads for forensic accountants, criminologists and plaintiffs' lawyers. University of Missouri Law professor Bill Black and University of California professor Henry Pontell wrote on the Huffington Post that "The JOBS Act is so criminogenic that it guarantees full-time jobs for criminologists" while the "bill will kill millions of jobs" because of its "fraud-friendly provisions."

Provisions of the JOBS Act modify rules put in place following the Great Depression. For certain companies with up to $1 billion in revenues (not a small firm by any measure), the act lessens the requirements now in place for financial statement audits, governance standards, and other controls. Provisions in the act also open the door to more conflicts in Wall Street research reports, that "would benefit Wall Street, at the expense of Main Street," according to a speech by SEC Commissioner Luis Aguilar.

We seem doomed to repeat history. If we have learned anything from the financial crisis, it's that repealing major corporate governance, conflict of interest, and other regulatory safeguards is a bad idea for everyone. "While there needs to be a regulatory balance," says Darren Robbins, a partner at law firm Robbins, Geller, Rudman and Dowd, "the burdens and costs of inadequate regulation have impacted us in unprecedented ways as private and public pension funds have lost trillions of dollars in the wake of the repeal of Glass-Steagall and the passage of Gramm-Leach-Bliley and the Private Securities Litigation Reform Act."

MORE: Fixing America: A CEO's master plan

More

Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.