Jumpstart Our Business Startups Act
Floor Speech
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Mr. DURBIN. Thank you. I will try to fill that time with something interesting. The United States has the best markets in the world. Because of strong regulation and oversight by the Securities and Exchange Commission and other agencies, our markets are transparent and investors get accurate detailed information. One hundred million Americans depend on the strong regulated markets when they are making their savings for retirement or college. This is a creation that began back after the Great Depression, when Franklin Roosevelt said we needed to establish the appropriate regulatory agencies to set the economy on the right track and keep it there.
Strong oversight has helped pension fund managers who count on safety and transparency so they can provide pension benefits to millions of American retirees, and investors from around the world bring their money here because of our investor protections. Yet the Senate is considering a House-passed capital formation bill that rolls back the very protections that make our markets the best in the world.
Supporters of this bill claim investors will jump at the opportunity to invest in a company as soon as we reduce disclosure, auditing, and accounting standards. They say this is a perfect way to create jobs. But why should investors choose to invest in companies under conditions that do less to protect their money? Why should investors who were burned during the dot-com crash put more capital in companies that are exempt from the same rules we put in place to ensure it would never happen again? Why would investors who were left with nothing after the financial crisis because of risky behavior by executives with golden parachutes find companies exempt from compensation standards more attractive?
The answer is they will not. The ones who do will be more exposed to deceit and fraud. The result will not be more jobs, it will be less transparency, less accountability. Professor John Coats of Harvard Law School agrees. Here is what he said: ``[T]he proposals could not only generate front-page scandals, but reduce the very thing they are being promoted to increase: job growth.''
Listen to what SEC Chief Accountant Lynn Turner said:
The proposed legislation is a dangerous and risky experiment with US capital markets. ..... I do not believe it will add jobs but may certainly result in investor losses.
The House-passed bill, as written, will not create jobs, but let me tell you what it will do. It will exempt firms with more than $1 billion in revenue--that is 90 percent of the newly public companies--more than $1 billion of annual revenue exempted from the standards that help ensure audits based on facts, not on who is managing the auditor's contract. These are the same internal controls we just adopted after Enron, after we were burned there, after investors lost their money, after pension funds lost their investment, after people lost their jobs. We set up standards and said: Let it never happen again.
In this euphoria, we are going to repeal the Enron standards for these companies. This bill would allow companies to use billboards and cold calls to lure unsophisticated investors with the promise of making a quick buck investing in new companies.
According to the New York Times, it will allow anyone with an idea to post that idea online and raise $1 million without ever providing financial statements. This is a scam. How many times have we picked up our cell phones to see there is a Nigerian opportunity out there? Be prepared after this bill passes. They will not be from Nigeria; they may be from next door. We are giving them the opportunity to ask people all across America for their hard-earned savings on investments that are not backed with financial statements.
Last Friday, SEC Commissioner Aguilar joined the Chairman of the SEC Mary Schapiro in raising concerns about this House-passed bill. Is that not fair warning that we ought to least have a hearing on this bill before it passes?
I ask unanimous consent to have Commissioner Aguilar's statement printed in the Record.
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Mr. DURBIN. Commissioner Aguilar said he shares concerns expressed by many that provisions of this bill would be a boon to boiler room operators, Ponzi schemers, bucket shops, and garden variety fraudsters by enabling them to cast a wider net and make securities law enforcement that much more difficult.
Others have raised concerns. The North American Securities Administrators Association, the Consumer Federation of America, the Americans for Financial Reform, the Council of Institutional Investors, securities experts such as Professor John Coffee and former SEC Chief Accountant Lynn Turner, the AARP, concerned that seniors will be bilked out of their savings with these phony solicitations for companies that may not even exist.
I share the concerns. I believe there is a path forward to protect investors and make it easier for small firms to come up with capital. Several of my colleagues had a substitute amendment--Senator Jack Reed, Senator Carl Levin, Senator Mary Landrieu--which would have done just that, made it easier to raise capital but kept the safeguards in place.
It was defeated virtually on a party-line vote. It was defeated. It would have preserved the Dodd-Frank say-on-pay provisions to allow investors to weigh in if executives are getting exorbitant compensation and golden parachutes. The amendment would have prohibited companies from advertising and selling stock to the unsophisticated, unsuspecting investors. It would have included minimum requirements for crowdfounding Web sites so investors are not blindly giving money to someone with a good-looking Web site that promises a good return that will never ever happen.
In short, the amendment would have responded to investors' concerns--the very same investors some of my colleagues claim the underlying bill will encourage to invest.
That is not all we have done. The amendment also included a reauthorization of the Export-Import Bank, which makes loans to major companies and smaller companies too who want to export American-made products made by American workers.
The reauthorization increased the bank's lending cap to $140 billion. This is the same Export-Import Bank that received bipartisan support in the Banking Committee and was reported out on a voice vote. A similar reauthorization was introduced by a Republican the last time around in 2006. It passed the Senate without even the requirement of a record vote.
However, yesterday, both the Landrieu-Reed-Levin amendment, which was the substitute that included the Export-Import Bank reauthorization, and the Cantwell amendment failed to obtain enough votes to invoke cloture, mostly on a party-line vote. Two Republicans voted to extend the Export-Import Bank authorization--two. This is a bank which gives our companies in America a fighting chance around the world to compete with those companies in other countries that are subsidized by their government. We have the Export-Import Bank to help our companies, companies in my State such as Boeing and Caterpillar. Good-paying jobs right here in America, sustained by exports, helped by the Export-Import Bank, defeated on the floor of the Senate. Only two Republican Senators would step up and vote for that bank, and it used to be noncontroversial. We did it because we knew it was so good for our economy. It turned out to be a partisan issue.
Too many things turn out to be partisan issues on the Senate floor lately. That is the latest casualty. It is clear that politics and theoretical jobs created by a bill that significantly reduces investor protections are more important to some of my colleagues than the real jobs that would have been created by the Export-Import Bank.
The Export-Import Bank is responsible for supporting 288,000 American jobs at more than 2,700 U.S. companies. One would think it would have won more than two Republican votes. Madam President, 113 of these companies are located in my State of Illinois and 80 are small businesses.
One of those companies, Holland LP, in Crete, IL, employs 250 people and completed a major export transaction with assistance from the Export-Import Bank. Holland was able to sell two complete in-track welding systems to a company in Brazil.
The CEO of Holland said: ``Without [the Export-Import Bank], this transaction would not have come to life.''
That is how the Ex-IM Bank can help companies in my State and companies around the United States.
I have to say, there will be an amendment offered soon, this afternoon, within the hour, the Merkley-Bennet-Scott Brown amendment, which is bipartisan. It would allow small businesses to raise up to $1 million through crowdfunding Web sites but will put in protections for investors from those posing as a business and selling a lot more hope than substance.
The amendment would require all crowdfunding Web sites to register with the SEC. That is a step in the right direction. It is one of the most important elements that needs to be changed in this bill out of about eight elements, and it is the only one we are likely to address this afternoon.
I urge my colleagues to support the amendment of Jack Reed of Rhode Island requiring the SEC to revise the definition of ``holder of record.'' The financial industry has been working overtime to beat this amendment. They have been on the phones calling everybody saying, ``Stop the Reed amendment.''
According to John Coffee, a professor at Columbia Law School, the shareholder of record concept is archaic and can be gamed.
State securities regulators also share that same concern. The American Securities Administrators Association said in a recent letter that it makes little sense to exclude any investor from the count of beneficial holders.
The Reed amendment would require the SEC to update the definition of ``holder of record'' to revise an outdated definition that may hide the true number of shareholders a company might have.
While I believe the bipartisan Merkley-Bennet and the Reed amendments will significantly improve parts of this bill, it doesn't make this a good bill. That is why I am prepared to vote no on final passage.
This bill, as much as any bill we have ever considered on the Senate floor, should have at least had a hearing. We should have at least brought in some expert witnesses. I will tell you, we will rue the day we ran this thing through the House and Senate without the appropriate oversight. I can already predict, having seen this happen time and again, there will come a time, after we pass this bill, when we start hearing from Americans who are being lured into phony investments, losing their life savings and their retirement in the process, and we will step back and say: My goodness. How did that happen? Remember, on March 22, 2012, we had a chance to make a difference to slow down and stop this bill until there was an adequate hearing, until we could put safeguards into place, which Americans deserve.
I am not against investment. I know there is risk associated with it. We have said since the 1930s--1932--under the creation of the SEC, that we owe to Americans, when they make a decision about an investment, two basic elements: Make sure the salesman is telling the truth and make sure what he said can be backed up with audited financial statements.
We can all remember stories about the people who used to blow in, sit down and sell penny stocks and $5 stocks and unsuspecting investors losing their savings as these folks caught the next train out of town. We don't need to return to that in the name of job creation. If we are creating the jobs of new charlatans who are offering these investments, these are not the kinds of jobs America should encourage.
I believe the House-passed bill should be defeated today. We should take the time to get it right and listen to the Chairman of the SEC and put the protections in the law so we can move forward with a bill that all of us can be proud of.
I yield the floor.
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