Friday, April 20, 2012

Securities Regulation Redux

Over the last decade, there has been a continuous tightening of securities regulation and corporate governance norms in the US following the various corporate governance scandals (Enron, WorldCom, etc.) and the global financial crisis. This has appeared in the form of legislation such as the Sarbanes-Oxley Act and the Dodd-Frank Act. More recently, however, there has been a relaxation on some counts with a view to enable companies to raise finances without being adversely affected by stifling regulation (following criticism that tighter regulation increases the cost of raising capital and of doing business).
The new Jumpstart Our Business Startups Act (known as the JOBS Act) seeks to ease the process of raising capital through IPOs for “emerging growth companies”, which are companies with total annual gross revenues of less than $1 billion for the past fiscal year. It also facilitates the process of crowd funding (previously discussed here). The JOBS Act is summarized at the Harvard Corporate Governance Blog, and the US SEC has also issued a set of FAQs.
While this legislation is intended to ensure competitiveness in the US markets, it has already attracted severe criticism on the ground that it offers inadequate investor protection. Examples are available here and here. It appears that the nature of regulation is being governed by economic compulsions rather than the long-standing goal of securities law, which is investor protection.

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