March 16, 2012

The JOBS Act: Congress on the Bizarro Fast Track

On Tuesday, I posted a list of links to articles and letters criticizing Congress and its proposed JOBS Act for planning to deregulate the securities markets. Since then, there have been hordes of articles reporting in a similar vein (there are have been over 2000 articles on the Act this week).

Rather than list another dozen pieces attacking the bill, below is an update from Lynn Turner explaining the bizarre process of this bill so far:

There have been many stories about how the Senate is conducting its business in recent days. The Senate has often claimed it is more reasoned and thoughtful than the US House of Representatives, but that is not necessarily so. In the case of the JOBS Act, its process has been much worse.

Usually a bill is introduced. To get any traction though, it needs to be introduced and sponsored by a Senator on the appropriate Senate Committee with jurisdiction over the subject matter of the bill. If the committee chair, and sufficient number of committee members are supportive, hearings about the legislation are held in the committee, as well as in subcommittees. The regulators are called to testify, as well as people who are expected to support or oppose the bill.

Typically the party in power picks most of the panel members testifying and the minority party is given one or at most two slots in which people they pick can testify. Then comes what is known as a “mark-up” when the committee members in a public meeting discuss the proposed bill, make proposed amendments and vote on those amendments. If approved, the marked up bill goes to the full floor for debate, when the Majority Leader puts in on the agenda and schedule for debate.

However, in the case of this legislation, a Senate hearing in a subcommittee planned for March 21st was canceled. And the legislation was pulled from the Senate circumventing any mark-up session and further hearings. None of the SEC Commissioners testified. The SEC Chair has written this letter to the Senate citing serious problems and deficiencies in the bill leaving investors further exposed to scams and schemes ala Bernie Madoff.

On Wednesday morning, I understand Harry Reid went to the floor saying he was pulling this out of the hands of the Banking Committee and he began pushing it through in rapid fire this week. That was not what some Senators expected. There was a caucus of the Democratic Senators on Wednesday over lunch at which Senators expressed concern with what Harry Reid and Charles Schumer were doing.

Later on as widely reported, a trade off of relief for blocked judges in exchange for deregulation of securities markets entered the fray making things even more confusing. First thing on Wednesday morning, some thought the Dems would introduce their own version of the bill, but Harry Reid in a nod of the cap to the venture capitalist and bio tech lobbyists (and their campaign contributions) decided that he would go with the House Republican’s bill (probably following the White House’s directions). While an amendment would be offered making it look like investors protections requested by the state regulators, the SEC and many investor and consumer groups would be entertained, that is merely a facade – a token effort which was dead on arrival before it was even introduced.

Perhaps the funniest thing, is that only people in Congress are calling this a jobs bill. It has become widely referred to in the media as “The Bucket Shop Reauthorization Act of 2012.” Most of the people that the Dems did call to testify have said it will not create new jobs, (except perhaps among law enforcement agencies and prison guards)!!! As they say, God Bless America.

And if you want to read about more bizarre behavior from Congress, read this piece – entitled “What’s Behind Congressional Freeze on SEC Funding?” – which explains how the House Financial Services Subcommittee has voted against the SEC’s budget – not because the government doesn’t have the money – but as a way to punish the SEC for conducting unnecessary rulemaking. Except that rulemaking was mandated by Congress in Dodd-Frank…

Second Circuit Stays Judge Rakoff’s Citigroup Decision

Yesterday, in a sharply worded per curiam opinion, a three-judge panel of the Second Circuit granted the motions of Citigroup and the SEC to stay district court proceedings in the SEC’s enforcement action against the company, so that the appellate court could consider the merits of the question of whether Judge Rakoff had properly rejected the parties’ $285 million settlement agreement. Here’s some analysis from Kevin LaCroix in his “D&O Diary Blog” and David Smyth’s analysis from the “Cady Bar the Door Blog.”

SEC Marks The Ides By Bringing Actions Involving Secondary Market For Private Company Shares

As noted in this blog, Keith Bishop has been writing about some of the issues related to secondary trading in private company shares for a few years. Two days ago, the SEC brought an action against several firms and individuals related to activities involving secondary trading of private company shares. Read more in Keith’s blog as well as this analysis from Vanessa Schoenthaler’s “100 F Street Blog.”

– Broc Romanek