
The JOBS Act will very nearly legalize fraud in the stock market - RyanMcGreal
http://www.rollingstone.com/politics/blogs/taibblog/why-obamas-jobs-act-couldnt-suck-worse-20120409?hn
======
grellas
Securities laws, in general, have never been absolute in the United States.
When companies offer stock or other securities to purchasers, the broad rule
is that "you can offer anything you want, even something junky, so long as you
disclose all material elements associated with the offering such that a
reasonable investor can make an informed decision in deciding to purchase it."
In other words, there is no all-seeing, all-knowing authority supervising the
process who declares that the offering is substantively sound. It may or may
not be. All that is required is that the issuer meet the requirements imposed
by securities laws for disclosing all material facts relating to the
investment. That is what the registration statement does in a public offering.
And that is all it does. If that is done, and junk is offered, and the public
wants to buy junk, the securities laws permit this.

Even respecting disclosure, though, the U.S. securities laws have always
tempered the burdens associated with making detailed disclosures of the type
required in a registration statement with important rules saying, in effect,
"we as regulators realize that requiring companies to go through a multi-
million process just to offer their securities to investors is too much and
therefore we will exempt a broad number of categories from the registration
and detailed disclosure requirements to enable small companies to offer their
stock for sale as well." That premise underlies a whole range of securities
law "exemptions" that permit small offerings, etc. so that companies can grow
and develop without choking on process. The ultimate exemption under federal
law is Section 4(2) of the Securities Law of 1933, which basically exempts
private placements from the burdens of going through the registration process.
Section 4(2) has been around forever and has no formal requirements. It simply
provides that anything that is a true private placement, as opposed to a
public offering, is exempt. Because the assessment of what is a private versus
a public offering turned on detailed facts and circumstances, and this in turn
led to substantial uncertainty and lots of litigation (is an offering made to
20 people "public"? how about if you don't know them? how about if you
advertise the offering to get them interested? how about if they are small,
unsophisticated investors?), the ultimate exemption - or, more accurately,
"safe harbor" that assured an issuer that an offering would be exempt - was
Regulation D, adopted by the SEC in 1982 and widely used by startups ever
since that date to make tons of private placements that have been streamlined,
simple, and cost-efficient ways of offering their stock to investors.

As is apparent from the above, the securities laws have _always_ sought to
strike a balance between imposing regulatory requirements (and burdens) that
are aimed at protecting investors, on the one hand, and moderating the burdens
so imposed to facilitate capital formation for situations where it makes no
sense to impose needlessly burdensome requirements on small issuers and where
less burdensome, fallback protections can be used instead of the full panoply
of protections that apply to larger-scale offerings. By definition, this means
that U.S. securities laws have always recognized a trade-off between having
strong regulatory requirements aimed at investor protection, on the one hand,
and lessening such requirements for some situations so as to give practical
routes for capital formation for companies unable to meet the rigorous
requirements. At many points along the way, the legislators who pass such laws
and the regulators who administer them make multiple social policy judgments
saying, in effect, "this is a situation that calls for the maximum protections
but this one will leave investors fairly protected with more minimal
protections in place." That is why it costs many millions of dollars to do the
legal and accounting work to take a company public but only a couple of
thousand to issue stock in a new corporation and only a few tens of thousands
to raise a few million in a Series A private placement. The law is designed to
accommodate the practical needs of companies that want to raise capital.
Securities laws don't vanish in the private placement context. They simply
impose far fewer requirements aimed at investor protection and all the more so
when investors are presumed to have a strong ability to protect their
interests (this is why offerings are often limited to "accredited investors,"
i.e., high net-worth or high income individuals, among others).

The JOBS Act is a piece of legislation that takes the rather burdensome
accounting requirements first imposed by Sarbanes-Oxley on all publicly traded
companies - and adding $1M+ in annual costs to even the smallest issuer in
order to attain regulatory compliance under those rules - and exempts a set of
relatively smaller publicly-traded companies from having to comply with those
requirements for a 5-year ramp-up period after first going public. This part
of the Act says, in effect, "we realize that the IPO market has been moribund
ever since SOX was enacted and, because part of the reason is the heavy
regulatory burdens imposed by SOX, we will seek to encourage more IPOs by
giving issuers more incentive to go public without having to face huge
expenses right out the gate." Now, this social policy judgment made by
Congress may or may not be sound. But it is a _policy_ judgment declaring that
the SOX rules are just too much for relatively small companies just going
public and therefore should be relaxed for such companies in order to enable
them to realize their practical goals of going public, building momentum, and
only later having to comply with the full SOX rules. One can question this
judgment but one cannot question that it falls squarely within the pattern and
practice of U.S. securities laws as implemented for decades. It is always a
trade-off between optimum investor protections and practical limitations on
such protections in the name of letting legitimate capital formation get done.
Will this "legalize fraud," as suggested in this piece? I doubt it. The SOX
rules have a short history and securities laws go back to the 1930s, more or
less ably protecting investors during their long tenure before SOX took
effect. Such protections will continue to exist for offerings made by these
small issuers who will get some interim relief from SOX requirements. One can
argue that it is bad policy to afford such relief. But to suggest that it
"legalizes fraud" is to absurdly overstate the case.

The JOBS Act similarly loosens requirements for crowd-funding, for enabling
private companies to have larger numbers of shareholders before having to
register as publicly-traded companies, and for other contexts as well. On
balance, it is aimed at promoting more effective capital formation by
loosening otherwise strict SEC rules when new conditions warrant. This, to me,
is very good for startups and the Act as a whole should, in my judgment, lead
to many excellent results. That is why it has received almost uniform and very
strong support from pretty much the entire startup community. It does not
legalize fraud. It strikes a classic balance between formal investor
protections and real-world practicalities. If the balance proves wrong,
nothing will stop Congress from pulling back. In the meantime, let's see if
crowd-funding can be used to give us new ways of raising capital and if the
IPO market can't be rejuvenated after a long dead spell. The Act stands to
benefit startups in major ways and, though not exempt from criticism, is by no
means some radical departure away from investor protection under U.S.
securities laws. On the contrary, it stands squarely within the traditions of
those laws and is a good example of precisely how such laws have been
implemented for many decades.

~~~
mapgrep
I enjoyed your lengthy comment but you are being selective in the historic
context you provide.

In a nutshell, you show how private placements got exempted from certain
securities regulations, how those depression-era exemptions were expanded in
the 1980s leading to "tons" of new activity, and how those exemptions may now
be expanded further, making startups very happy.

What you leave out is that federal investment-activity standards have been
shown by recent history to be wholly inadequate. You leave out the recent
financial meltdown, a direct result of replacing 1930s era banking regulations
with looser laws in the 80s and 90s. And you leave out the dot-com collapse,
caused by dubious IPOs of the sort that SOX -- which JOBS would partially
repeal -- was subsequently designed to counter.

This context is vital. The aggressively deregulatory JOBS act comes st a time
when our regulatory framework has been exposed as woefully inadequate, in the
midst of quickly ballooning tech valuations, and as we are seeing financial
misstatements already from companies like Groupon that went public under the
old, supposedly over-regulatory regime.

So yes, we should consider the historical context around the JOBS act. And I'd
choose a vastly different frame than you have: Financial regulations designed
to prevent bubble-depression cycles have been steadily stripped away since the
1930s, leading directly to the collapse of our economy in 2008 and the ensuing
malaise. Now the JOBS Act proposes to strip these standards down even further.

~~~
Eliezer
I don't consider myself a big-L libertarian, but I can't help but notice the
"Regulation failed, we need more regulation!" template. If the incredibly
burdensome Sarbanes-Oxley was nonetheless "inadequate", then maybe you just
can't protect people from certain specialized types of folly with any sane
amount of regulation, and the correct response is to give up on the high
social costs of _inadequately_ protecting people from themselves under certain
circumstances. To look at it another way, what your argument says is that a
certain expensive purchase, namely Sarbanes-Oxley, brought less value than
expected. Should we buy more of that stuff because now still more is needed,
or buy less because the value proposition is diminished?

~~~
sophacles
Just pointing out some basic logic that may or may not be present in the
above, but is not apparent either way: Just because one solution fails, it
does not necessitate "all solutions fail, the right answer is no solutions".
Perhaps the problem was in SO itself. Perhaps the problem is in the concept of
regulation. Maybe a systemic fix would work better than bolted on regulation,
and better than same system, no fixes at the same time. Perhaps a rethinking
of some of those core components would be nicer.

Edit for those who are apparently thinking this is some sort of troll: Why can
we look at code, say a scaling problem, and say "the answer is not a bigger
server or a tweak on the existing code base, but a rework of the core
components to work horizontally" and get kudos, but when similar questions are
asked of government/financial systems, it is instantly and unfathomably bad?

~~~
webnrrd2k
Financial regulation is certainly a complex problem, and there are many ways
of solving the problem, and my ignorance of the subject is vast.

As to why it's "instantly and unfathomably bad" to get rid of regulation: It
seems to me that regulation, most of the time (and for most financial
"problems") has worked pretty well. Other countries haven't had any where near
as much trouble with, for e.g., the recent housing crisis, because they have
had better regulation in place. So, At least as far as I can tell, it looks
like regulations work fairly well. It's certainly better than no regulation.

There are already huge amounts of regulations in all sorts of fields, such as
education, medicine, pollution, the environment, politics, etc... So we know
how to make regulations work. There are certainly problems with regulation but
it seems better than any alternative I know of.

So, and this could just be ignorance (or a lack of imagination) but I don't
think the problem is in the concept of regulation. I honestly can't think of a
systemic fix that wouldn't make things worse.

As far as it goes, the US has far more of a problem when laws and regulations
are gamed by insiders for their own benefit, at great expense to everyone
else. Another way of framing it is basically the "1% vs. the 99%" debate
that's been going for the last year or so. So maybe that points at a systemic
fix -- open government, especially open regulation, so it's much harder to
game the regulations.

------
T_S_
The act allows mom and pop to invest with little or no "burdensome" ongoing
disclosure. I run a startup and would love to have their cash, but the sharks
will get it instead.

Instead of doubling down on opacity, Congress should take a leaf from the non-
profit industry. There, at least everybody's tax return (Form 990) is
available for public inspection. Some of them are very illuminating. Even just
that would be a better start than this.

The idea that continuous disclosure has to be burdensome is a relic from the
past. You want to raise money from my mom? Let me monitor your Quickbooks
online account.

~~~
clavalle
III. Requirements on Issuers (A) name, legal status, address, website, etc.
(B) names of directors, officers, and 20% stockholders (C) “a description of
the business of the issuer and the anticipated business plan of the issuer” –
the devil is really in the details of this one, and it remains to be seen
whether the SEC will require this “description” to be 4 pages or 40 in order
to be sufficient (D) prior year tax returns, plus financials – see below for
details (E) description of intended use of proceeds (F) target offering
amount, deadline, and regular progress updates through the life of the
offering (G) share price and methodology for determining the price (H) a
description of the ownership and capital structure of the issuer, including a
lot of detail about the terms of the securities being sold, the terms of any
other outstanding securities of the company, a summary of the differences
between them, a host of disclosures about how the rights of shareholders can
be limited, diluted or negatively impacted, “examples of methods for how such
securities may be valued by the issuer in the future, including during
subsequent corporate actions”, and a disclosure of various risks to investors

II. Requirements on Intermediaries

The JOBS Act requires crowdfunding intermediaries to register with the SEC,
either as a broker (which is an expensive and onerous process), or as a new
thing called a “funding portal”. Funding portals will also be required to
register with FINRA, the financial industry self-regulatory organization.

A) providing certain disclosures and investor education materials to investors
(B) ensuring that the investor has reviewed educational materials and answers
questions indicating that he/she understands the risks involved (C) performing
certain background checks on the issuer (D) provide a 21 day review period
before any crowdfund securities are sold (E) ensure that an issuer does not
receive investment funds until its target investment minimum has been reached,
and that investors may cancel their commitments to invest as provided by the
SEC (no word yet on how these cancellation provisions are going to look) (F)
ensure that no investor surpasses the investment limits set forth above in a
given 12 month period in the aggregate – i.e. the limits described above with
respect to investors apply to all crowdfunding investments in a given 12 month
period, not just to individual investments, and the burden is on the
intermediary to monitor this (G) take steps to protect the privacy of
investors (H) not pay finders fees to promoters or lead generators with
respect to investors (it appears to be okay to pay finders fees for issuer
leads) (I) not allow the intermediary’s directors, officers or partners to
have a financial interest in an issuer using its services

There are /plenty/ of disclosure requirements and more coming down the pike
when the Commission is through drafting what else is required.

It is not like there is going to be a Kickstarter where people just start
throwing money at random ideas with no way to check who and what they are
investing in.

~~~
tptacek
(A) Name, legal status, address, website

(B) Names of directors, officers, and 20% stock holders

(C) Description of the business of the issuer and business plan of the issuer

(D) Prior year tax returns & financials

(E) Use of proceeds

(F) Target offering amount, deadline, and progress updates

(G) Share price and methodology for determining price

(H) Cap structure

A, B, E, F, and G are trivially generated (note that the sharks will have
fronts to avoid having to put up the same names constantly). F and G are
trivial to the point of boilerplating.

C and D may look like serious requirements, but if we're talking about early
stage company investments here, how stringent do you think these requirements
could be? What do you think the tax returns for a 1-year-old pre-VC tech
company look like?

Even the full SEC disclosure policy for IPOs was insufficient to keep clowns
out of the public market in '99.

------
cstross
Author of Rolling Stone piece is focussing on the JOBS act as an enabler for
stock fraud. They don't seem to be clear on its alternate function of enabling
Quickstarter-type ventures where what's being sold isn't stock in a company
that is trying to bypass accounting norms for an IPO, but a one-off product
development (like the movie "Iron Sky", or any number of items on
Quickstarter). It's a totally different business model.

(Random example: let's say I, as an author, announce that I'm going to write
and sell a book _if_ I can get enough pre-purchases; let's set the gate at
10,000 readers willing to pony up $10 each in order to receive an ebook when
I've written it, a year down the line. Right now, as I understand it, if I was
in the US I'd be expected to undergo the same accounting procedures as a
corporation prepping for an IPO because of the number of people involved --
which would make it a non-starter: the accountant's bill alone would exceed
the total revenue, especially as writing a book is a one-off project. The JOBS
Act is supposed to relax that requirement for the sort of venture I'm
describing. But Taibbi doesn't seem to get this at all.)

~~~
leot
Just because a piece of legislation has a nice feature doesn't mean it can't
be horrible for its other properties.

~~~
cstross
Absolutely correct!

But it still seems to me that Taibbi is focussing on one particular aspect of
it without any indication that he noticed the other angle.

~~~
Avshalom
Taibbi focused on _the_ aspect of the JOBS act because the angle you propose
is already legal and the advertised angle (kickstarter for IPOs) is (as far as
he and others are concerned) just a veneer used to sell it to the rubes.

------
joeag
Researching and writing about Goldman pushed Taibbi around the bend on
anything having to do with finance.

A few tidbits: Even worse, the JOBS Act, incredibly, will allow executives to
give "pre-prospectus" presentations to investors using PowerPoint and other
tools in which they will not be held liable for misrepresentations. These
firms will still be obligated to submit prospectuses before their IPOs, and
they'll still be held liable for what's in those. But it'll be up to the
investor to check and make sure that the prospectus matches the "pre-
presentation."

Oh my gosh - you mean before I invest my hard earned money I should read the
PROSPECTUS. Say it ain't so.

Then he goes on to say: In the same way, get ready for an avalanche of
shareholder suits ten years from now, since post-factum civil litigation will
be the only real regulation of the startup market. In fact, there are already
supporters talking up future lawsuits as an appropriate tool to replace the
regulations being wiped out by this bill.

Isn't "post-factum civil litigation" an even better mechanism for enforcement?

Look companies that are "bad actors" are going to cheat the SEC and the public
anyway, and companies that aren't "bad actors" had to go through the
additional expenses to comply with the SEC regs that have now been relaxed.

I would rather have motivated shareholders (and their lawyers) with an axe to
grind policing the markets than bureaucrats. If you look at the job
bureaucrats have done to date,the track record is not so great.

Read more: [http://www.rollingstone.com/politics/blogs/taibblog/why-
obam...](http://www.rollingstone.com/politics/blogs/taibblog/why-obamas-jobs-
act-couldnt-suck-worse-20120409#ixzz1rqj2pYk2)

~~~
wpietri
I understand why you'd be skeptical of Taibbi's vehemence; I often am. But I
don't think you make a good case here.

Nobody's saying people shouldn't also read the prospectus. But if people can
lie in the pitch and then get out of responsibility through an obscure note in
the prospectus, more people will lie. It allows classic "the large print
giveth and the small print taketh away" scams.

Civil litigation is a terrible method for enforcement. The longer the feedback
loop, the more opportunity for things to go wrong. Short-sightedness is a
defining characteristic of most scammers. And litigation will only happen when
there's enough money at stake and the chances of recovery are high. Small
investors are fucked from the start, as is anybody who gets taken by somebody
who spends the money in ways where there's little to recover.

Also, your "bad actors" vs "good actors" thing is a total false dichotomy.
Actors aren't the problem; it's actions. If you make it easier for "bad
actors" to act, you will have more (and more severe) bad actions. Further,
through competitive effects, you push everybody in the direction of bad
actions.

~~~
joeag
I agree that civil litigation can be a terrible method of enforcement, however
it's like the criticism of democracy being a terrible form of government but
better than the alternative.

The problem with "ex ante" regulations governing conduct is you force a lot of
wasteful work on a lot of people and companies that becomes a drag on the
economy, productivity, whatever you want to call it.

Let's make an analogy that's appropriate for this time of year. Some people
cheat on their taxes. Some cheaters get audited and caught, some don't. Since
we know that some people cheat on their taxes and an audit will uncover it
should we force every tax filer in the US to submit receipts and other
documentation for every deduction claimed on their return, at the time of
filing?

Can you imagine how much time that would take for filers and the IRS? Can you
imagine the outrage on the part of filers?

The Taibbi article sites to a Bloomberg opinion piece that baldly states that
people can lie in their pitch and get away with it. However, if you read the
legislation (or at least credible legal analysis of it): A) the pre-prospectus
presentations can only be made to qualified investors and institutions
(meaning you are supposed to be a sophisticated investor, not the general
public and will read or pay someone to read the prospectus when it is filed)
and B) the actual regulations that will enact the law haven't been written
yet.

There definitely will be (and need to be) reasonable regulations to enact this
law, I don't argue that at all. I just think the whole tone and content of
this article is over the top and biased. I enjoyed reading his evisceration of
GS, but I do think it has influenced his writing about anything having to do
with the securities markets or finance in general.

~~~
jellicle
> The problem with "ex ante" regulations governing conduct is you force a lot
> of wasteful work on a lot of people and companies that becomes a drag on the
> economy, productivity, whatever you want to call it.

You're asserting this based on religious beliefs; you've read and heard this
statement a lot in the popular media, and it's part of the Republican
catechism. But it's false. In fact, the truth is quite the opposite - a
heavily regulated environment is the BEST for business, the economy, and
productivity. The United States is a good place for business precisely because
it is heavily regulated. Nobody steals your plant equipment because there are
lots of cops and Marines. People pay their end of the contract because there
are lots of courts. Banks don't steal your deposits because the bank
regulators are strong, well, that one may be inoperative in 2012 but it used
to be true.

The closer the United States comes to non-regulated countries like Somalia,
the closer its economy will be to Somalia's.

~~~
wpietri
Excellent point. But I think it's not _just_ dogma that drives this.

There's also tendency toward convenient over-simplification that's common
among we nerds. It's a valuable tool; classical mechanics is a lot easier to
learn and reason about if you ignore things like air resistance. One of the
most important skills for a software developer is willfully ignoring 99% of
the complexity to extract the 1% it's worth teaching the computer about.

But it's also dangerous. The simplifying assumptions of economics are things
like perfect information, perfect rationality, unlimited mental processing
power, unyielding will, and entirely unbiased cognition. That's useful in
theory, but misleading in practice. Misleading twice over, because that's how
people would _like_ to see themselves. "I don't need regulation! I'm too smart
to ever be fooled!"

------
eblume
I have a feeling that the JOBS act could actually be a very, very good thing
if the right company (or, better yet, marketplace of companies) came around to
offer a gateway service to these micro-investments.

Personally I would implement - or would purchase an account on - such a site
where companies would advertise for investment, and would be required to
provide a certain minimum of disclosure. The site would provide avenues for
that disclosure (basically, a feed of reports issues by the companies
themselves and perhaps also relevant news stories, a'la Google News) as well
as investment portfolio tracking.

It would (still) be up to the user to verify the disclosure and make sure they
are looking at companies that are disclosing the right quantity, quality, and
purview of information - but the site would hopefully make it very clear what
is and isn't being disclosed and how that compares to other companies.

Of course another key feature could be investor/analyst reviews, but this
would need an extremely well-engineered system to prevent or discourage
astroturfing & other social engineering schemes. Personally I doubt anything
less than only allowing authenticated professional journalists (affiliated
with reputable publications) could be acceptable, at which point you wonder
about the real utility of such a thing.

I feel like this would make an excellent Startup, actually, and might do some
work in that regard. I think step 1, though, is spending a lot of time reading
about the ins and outs of the law. It would be very easy to grab a 'legal
third rail' with both hands with this project and expose yourself to a lot of
liability. I find that intimidating, but maybe not too much so.

~~~
guelo
Sounds like a free market version of a SEC regulated exchange. Not sure what
the free market theory is for why it would be less susceptible to regulatory
capture.

~~~
SoftwareMaven
It wouldn't be susceptible because there could be more than one competing.
Different providers would optimize for different types of investors.

~~~
guelo
There would be two types of customers to compete over between the exchanges,
startups and investors. Since there is a natural tension between investors and
the businesses as far as how much disclosure and oversight there is, it would
probably depend on which class of customers was more profitable as to which
side the industry as a whole would favor.

------
guelo
I wonder if all the problems with Groupon's train wreck IPO would have been
discovered ahead of time under this new regime.

~~~
hammock
Seems it would be the opposite:

 _The law makes it easier for startup companies (particularly tech companies,
whose lobbyists were a driving force behind its passage) to attract capital
by, among other things, exempting them from independent accounting
requirements for up to five years after they first begin selling shares in the
stock market._

~~~
jellicle
Correct! If Groupon started today we would still be at least a year and half
away from having any chance at all to discover their fraudulent accounting,
and their stock would probably be at $1000/share.

------
NHQ
He seems to be griping about all the best parts.

Now small businesses and producers can get financing from the crowd? I've been
dreaming about this. Yet I really had no idea the jobs act was pushing it.

Whoever needs a developer partner to launch a crowd funder for private shares,
hollar at me. I want to focus on local goods and manufacturing.

------
earbitscom
Haha. Honest startups are going to be at a disadvantage to those who make
their projections on the back of a napkin.

We're honest as hell but if you invest based on the detailed and honest
projections we made in the first five years and not more so on the team,
market and other _real_ data, you're an idiot.

------
stanfordkid
Just discussed this bill with the head of a mid-size investment bank today.
The crowd funding provisions are not really that important. He said that the
most impact will be the reduction of disclosure requirements for emerging
growth companies enabling them to raise up to $50 million rather than just $5
million.

It will mostly be institutional investors buying into even smaller size IPO
shares -- these are savvy investors and the mania of the dot-com bubble has
certainly not been forgotten.

The thing is there isn't really a huge market for these deals at the moment --
his bank specializes in deals of this size and I asked him if he thinks more
mid-range banks will popup to serve this market and he said that probably not
until the deal flow comes in.

~~~
erichocean
Can you disclose the bank?

The JOBS act really helps my company -- we're too far along for VC, but not
far enough along for a public IPO. The post-VC, private equity market makes
the most sense, but as you noted, the amount of money you can raise that way
pre-JOBS act is far too low, making companies like mine (Pixar for live-action
filmmaking) either at the mercy/generosity of a Steve Jobs-like figure
(literally), or simply not funded at all since we exist in the Government-
created financial no-mans land. Either is far from ideal.

The JOBS act, at least for our company, changes this and makes a previously
non-viable-through-inadvertent-regulation company suddenly viable. That's why
I supported it, and continue to do so.

~~~
stanfordkid
I don't want to post on a forum but send me you email and I can connect you.

~~~
erichocean
Thanks! My email is eocean@fohr.com.

------
jellicle
Apparently third time's the charm for this story. See also:

<http://37signals.com/svn/posts/3160-lets-ride-this-bull>

------
raheemm
I disagree with Taibbi on this one. Making it easier for startups to raise
money does not equate to fraud on Wall Street. Yes, there are some who will
take advantage. But it will also means that the engines of the economy, small
businesses and startups will get a massive lift off.

In the end, you have to balance regulation with ease of doing business,
raising capital, etc.

~~~
adestefan
According to [0] "...new research by the Treasury Department finds that small
businesses — defined as those with income between $10,000 and $10 million, or
about 99 percent of all businesses — account for just 17 percent of business
income, and only 23 percent of them pay any wages at all." It's pretty hard to
argue that makes them the "engines of the economy."

[0] [http://www.nytimes.com/2011/10/24/opinion/small-
businesses-a...](http://www.nytimes.com/2011/10/24/opinion/small-businesses-
arent-key-to-the-economic-recovery.html?_r=2&ref=opinion)

~~~
wpietri
Not quite.

When people say things like "the engines of the economy, small businesses and
startups", they are referring to job growth and innovation. Large businesses
have most of the revenue, but small, new businesses are where tomorrow's
champions come from:

 _Each wave of firm startups creates a substantial number of jobs. In the
first years following entry, many startups fail [...] but the surviving young
businesses grow very fast. In this respect, the startups are a critical
component of the experimentation process that contributes to restructuring and
growth in the U.S. on an ongoing basis._ \--
<http://www.nber.org/papers/w16300.pdf>

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hager
Any investor that is worth their salt will do their own homework and come up
with their own metrics for how they value a company.

The government should get out of the business of deciding what is appropriate
for companies to report. As history has shown the government does a terrible
job(Volt, Solar, etc.) of investing / guiding investments(mortgages).

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rachelbythebay
Could an existing company take advantage of this by doing some new stock
offering? They could put parts of their business behind this "wall" and
operate unreviewed for five years. That's plenty of time to drain the coffers
and set sail for a sunny island.

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bdunbar
I'm no expert - but I did work part-time for a new business.

It was hard as heck to raise capitol. So much so that it was nearly not worth
the effort. We spent as much, or more, time on investing than we did working.

At one point I was named as a defendant by one state for the content of an
email I sent on behalf of the CEO.

We settled that, the boss got me removed from the thing, paid the fine. Paid
the investor back his funds.

The investor took the money, went to his _other_ home across the state line,
sent the money back.

It seemed like a lot of work on the part of the state regulatory branch -
going after a small company for a negligible amount of money, on behalf of the
sole investor from that state who really wanted to invest.

It sure soured me on the idea of taking any company I launch public.

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patrickgzill
What? There isn't fraud in the stock market today?

Free Jon Corzine! Oh, nevermind...

BTW, Univac (I believe) got their start issuing stock in exactly this fashion.
You could buy a share for either $1 or $5.

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joshbuddy
What will this mean for RSUs?

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10dpd
If its legal is it fraud?

Just sayin..

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marshallp
As opposed to the fraud that IS the stock market today? (For the average
person the stock market offers no return, the 20th century was good but now it
is so efficient that any extra is skimmed off by the smarter hedge funds).

There is an overinvestment in the stock market today, the excess money needs
to go somewhere so elsewhere, which for the past few years was the housing
bubble. However housing is not a wealth producing exportable industry (and is
already overinvested/iverpriced), and so the capital needs a new outlet -
private equity (which includes venture capital). The fact that this investment
option has been closed of to ordinary people is the real fraud (that has been
occurring for 80 years now).

~~~
seanp2k2
Don't forget the scum that is HFT...ooh, I'm sorry, I meant to say "liquidity
providers".

