The Jumpstart Our Business Startups Act or JOBS Act was passed last Thursday to no great fanfair, but we wonder if it may yet go down in history alongside Gramm-Leach-Bliley as a law which helped set the stage for ’pump and dump‘ bubble schemes and financial fraud. To put it another way, its a bad law, one forced through the congress by politically connected bankers looking to return to the days of Enron where firms could defraud investors with impunity.
Let it not be said this law was passed without condemnation. Indeed, criticism among financial experts has been especially vocal. Here are just a few of the criticisms we’ve collected from journalists, prosecutors and financial fraud investigators. (Feel free to add your own in the comments section.)
Harvard law professor John Coates wrote:
“It’s not just a possibility; I guarantee that someone will in fact do worse than Enron as a result of this bill. There will be outright fraud.”
Former financial fraud prosecutor and governor Eliot Spitzer wrote in SLATE:
“They claimed ‘everybody knew’ that analysts’ recommendations were worthless because of the enormous hidden conflicts—admitting that no rational, knowing person would rely on the advice investment banks were sending to tens of millions of small investors. This, of course, would have been news to the investing public.
And then—even more disturbing—they rationalized that such deception was acceptable because they were not as bad as their competitors. In a world of relativism, “not being the worst” was in their minds a sufficient defense to market frauds.”
Professor Bill Black, a regulator during the S&L Crisis of the 1980s, said in an interview:
“Everybody that knows about fraud has said that the [JOBS] bill is unbelievable. It is the wishlist of every fraud friendly practice in the world put together in a bill. We have congress deliberately screwing up the congressional rules, preventing hearings, because they know this could never be exposed to real discussion by experts.”
Janet Tavakoli, Structured Finance expert said in an interview:
“This is a formula for disaster. I’ve never seen anything like this… This isn’t about helping small people competing with investment banks. This is enabling people who want to commit fraud to have their way with the general public.”
Matt Taibbi writing in Rolling Stone article ends with this:
“I thought I had lost the ability to be shocked,” one friend of mine, a former regulator, told me this weekend, chuckling at the sheer stones it took to push the law. “But this thing is just inspired. They broke the mold with this one.”
Writing in the Huffington Post, Bill Black, Professor of Criminology Henry Pontell, and Law Professor Gilbert Geis condemned the bill.
“This bill will kill millions of jobs because financial frauds are weapons of mass financial destruction. It will start an international fraud-friendly deregulation race to the bottom and will become the basis for further criminogenic U.S. Congressional actions.”
Think the idea of the bill being a mass jobs killer is overstated? A New York Times editorial says it’s not:
“Never mind that reams of Congressional testimony, market analysis and academic research have shown that regulation has not been an impediment to raising capital. In fact, too little regulation has been at the root of all recent bubbles and bursts — the dot-com crash, Enron, the mortgage meltdown. Those free-for-alls created jobs and then imploded, causing mass joblessness.
Unfortunately, election-year politics and powerful constituencies — rather than research and reason — are driving the JOBS legislation forward… We know memories are short in Washington, but Enron was just 10 years ago and the entire system almost imploded in 2008. There is no excuse.”
Bloomberg concludes with a slightly more moderate tone, but the assessment is the same.
“There is room to improve small-business rules, but Congress should tread carefully. History is full of examples of legislation enacted in the name of deregulation, only to have it backfire. The 1999 Gramm-Leach-Bliley Act, which ended the Depression-era ban against mixing investment and commercial banking, and the 2000 Commodity Futures Modernization Act, which allowed explosive, but unregulated, growth in over-the-counter derivatives, are two. Both laws helped set the stage for the 2008 financial collapse.”
All this and the JOBS Act was still passed and signed.