Category: Regulation
The Senate passed the JOBS (Jumpstart Our Business Startups) Act, H.R. 3606 and President Obama is likely to sign it. The goal of the legislation is to reduce some of the regulatory burdens in raising capital for startups. The Act exempts small firms from Section 404 of the Sarbanes-Oxley Act for up to five years according to Wikipedia. It also includes some of the crowdfunding ideas of HR 2930. This legislation is a positive step in the right direction. Unfortunately, it is a 
pebble in Sea of laws, regulations, and taxes strangling technology startups in the US. My guess is that the reason this legislation is passing has little to do with what is good for the country, but what is good for Wall Street banks.
In my book The Decline and Fall of the American Entrepreneur I show that every academic study of the effectiveness of our Securities Laws shows that they have been either totally ineffective at protecting investors or worse counterproductive. The real answer to the lack of funding for start-ups would be to repeal all Securities Laws and Regulations except the common law requirements under contract and tort law.
According to an article, entitled “House Passes First Crowdfunding Legislation” the House has passed a bill modifying the securities law to allow “crowdfunding.” The proposed legislation appears to be a fairly well crafted piece of legislation, which is quite unique for Congress lately. The bill is less than 2000 words and does not appear to have any special interest provisions. The Bill would allow companies to raise up to $1M online within a year without audited 
financial statements and up to $2M online with audited financial statements. Another positive of the Bill is that it does not require investors to be accredited to invest. However, it requires that no one investor contribute more than $10k or 10% of their income, whichever is less. The Bill appears to require a number of statutory warnings about how risky it is invest in the company. It makes it difficult for an investor to sell their stake in the company within a year of the purchase. It also does not require a broker to be licensed with the SEC to sell shares in the company. However, it does require someone acting as a broker to provide information to the SEC. The SEC could expand these requirements under its rule making authority. In general, I consider this good news for start-ups.
The downside of this legislation is that it is a band aid to fix the problems with our Securities Laws. Every academic study of the effectiveness of our Securities Laws shows that they have been either totally ineffective at protecting investors or worse counterproductive. The real answer to the lack of funding for start-ups would be to repeal all Securities Laws and Regulations except the common law requirements under contract and tort law.
According to US News. Newt Gingrich is proposing to repeal Sarbanes Oxley and Dodd Frank on his inaugural day. SOX has killed innovation by making it impossible for technology startups to get funding.
At his speech at the Republican Jewish Coalition’s 2012 Republican Presidential Candidates Forum this afternoon, Gingrich urged attendees to help vote a large Republican majority into the House and Senate in
2012 so Congress could immediately pass repeals of the Affordable Care Act and the financial regulations Sarbanes-Oxley and Dodd-Frank.
This would be an excellent start, now we just need him to repeal the America Invents Act and roll back spending to 2007 levels.
“Do Government Regulations Really Kill Jobs?” opinion November 14,2011 Washington Post by Jia Lynn Lang, explores the concept that one industry’s losses on overbearing regulations are another industry’s boon. Leaving aside the Broken Window Fallacy introduced by Bastiat that’s been around over 160 years for the moment, let’s look into the brilliant mind of Roger Noll, an economics professor at Stanford and co-director of the university’s program on regulatory policy. “Some people identify with the beneficiaries, others identify with those who bear the cost, and no amount of argument is ever going to change their minds.” This is a leading economist paid by a major university to come up with this explanation to downplay the absolute economic wreck the US regulation and tax policies have had on our country. You cannot make this stuff up. By “some people” identifying with the beneficiaries, is the esteemed professor suggesting parasites are interchangeable with producers? Some will identify with thieves, others with the victims, according to the Stanford professor. Since the author of this article has only plumbed the depths of a few 
“economists, ” I’d like to introduce her to some basic facts in from a relatively short snapshot in History.
From 1998-2000, the US saw 4470 IPOs or Initial Public Offerings. From 2001-2010, that number fell almost 4/5th in ONE DECADE. What the heck happened?? A little beauty of a regulatory law, just under 60 pages, sponsored by legislators Sarbanes and Oxley in 2002. What about that horrible tech bubble that caused the stock market to tumble in 2000? That “bubble” was the strongest contributor to the U.S.’s position as the undisputed economic and technological leader of the world. It resulted in disruptive technologies that changed the world and every one of our lives and is still doing so today. Then we passed SOX. This was supposed to stop bubbles from occurring. Fast forward to 2008. Well, there weren’t many IPOs for your money to invest in-which left real estate all by its lonesome. Hmmm, that SOX sure did work on real estate.
Today, we are getting ready to face the regulatory tsunami of Dodd-Frank. This nifty law is over 2300 pages. What sane US company wants to stay on this island?
Well, it’s possible Sarbanes, Oxley, Dodd and Frank might cook up a new law to force them to stay here. Slavery, 2012 style.
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