The U.S. Senate has passed the controversial Jumpstart Our Business Startups (JOBS) Act, legislation that would roll back significant fundraising and financial regulations established by the Sarbanes-Oxley and Dodd-Frank acts for new and emerging companies.
The act was approved in a 390-23 vote by the House earlier this month. The Senate vote was 73-26. An amendment to increase investor protections means the act requires another House vote.
“Small businesses and emerging-growth companies have always been at the heart of dynamic growth,” according to a statement from the U.S. Chamber of Commerce supporting the JOBS passage. “The JOBS Act provides important reforms and lessens regulatory burdens that will remove obstacles that have prevented business formation in the numbers we have come to expect.”
Under the JOBS Act, emerging companies -- defined as those with at most $1 billion a year in revenue -- would be exempt for five years from external auditors’ review of internal controls as stipulated under Section 404(b) of Sarbanes-Oxley requirements. It also lessens other regulations that critics say provide checks on corporate misconduct that compliance regulations such as Sarbanes-Oxley and the Dodd-Frank Act were designed to regulate.
Securities and Exchange Commission Chairman Mary Schapiro, a vocal critic of the bill, sent a letter to the Senate Banking Committee requesting that Sarbanes-Oxley Section 404(b) requirements be placed back into the bill, and the $1 billion threshold be lowered.
In the letter, Schaprio said lessening the regulations creates an opportunity for accounting fraud, and that she is "concerned that we lack a clear understanding of the impact that the legislation's exemptions would have on investor protections.”
Another critic is former New York Governor Eliot Spitzer, who said the JOBS bill should be renamed the “Return Fraud to Wall Street in One Easy Step Act” in a recent editorial published by Slate.
“The bill that has already passed the House will remove the critical protections imposed in the analyst settlement a decade ago with respect to companies with revenues of less than $1 billion per year, allowing them to return to the fraudulent practices of yore,” Spitzer wrote.
More SOX resources
Still, the JOBS bill has received broad support. President Barack Obama has backed it, and a House version passed by a huge 390-23 margin. Business groups have voiced support as well, stating the JOBS bill would boost the economy.
In a letter to the U.S. House of Representatives, the Small Business & Entrepreneurship (SBE) Council said small-business owners and entrepreneurs lack the necessary capital to hire, invest and grow.
“Healthy entrepreneurship requires access to capital, yet funding streams remain cautious, locked or tentative,” SBE Council members wrote in the letter. “Entrepreneurs need solutions that will create options for accessing capital. The JOBS Act offers such solutions.”
This news story has been edited to reflect the JOBS Act passage in the Senate Thursday afternoon.