Unintended Consequences of JOBS Act

I have previously written about the Jumpstart Our Business Startups (JOBS) Act, where I discussed the potential benefits of relaxing the stringent SEC reporting requirements.  In passing the Act Congress hoped to create an opportunity for companies to secure financing in more creative ways, and that by creating these new businesses, JOBS would create jobs.

Interesting Outcomes of the JOBS Act

In an interesting twist, there have been some “creative” moves after all, but not in the way you might think.

For example:

• Manchester United, the English soccer team, is expected to raise some $300 million when it offers shares of its stock to U.S. investors. It qualifies because it has revenues under $1 billion. Aside from the potential financial gain to individual investors, there is no planned investment within the U.S., nor job creation plan.
• The raising of the minimum number of investors from 500 to 2000 in order to require the filing of financial statements, is allowing pre-existing companies to essentially opt out of the stricter reporting requirements,. Thus, North State Bancorp, with a market value of around $22 million, will de-register itself. The estimated savings is expected to amount to no more than money in the bank, as the company does not anticipate hiring any new additional employees.
• Because of the looser reporting requirements, companies can provide investors with less information and delay complying with new or revised accounting rules, by filing under the JOBS Act. This is worrisome considering the background of some of these companies coupled with recent investigations into investor fraud.

Unintended consequences are always a part of any legislative process. The question that remains to be answered, and would thus require a clairvoyant view of the national economy, is whether the JOBS Act will also be able to accomplish what it set out for, and whether it will, as a whole, have been worth it.

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