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TheStreet Open House

Obama's JOBS Act Is Actually Hurting Smaller Companies

NEW YORK (TheStreet) -- The "Jumpstart Our Business Startups Act," aka the "JOBS Act," aka the "Let's Encourage Stock Fraud Act," is finally showing its true colors -- as an obstacle to companies seeking to raise money from investors.

That's not just my opinion; it's a fact. To be exact, 49 potential beneficiaries of this atrocious law say that the JOBS Act may actually hurt them by making them less attractive to investors. They've said so in filings with the Securities and Exchange Commission.

How did America's emerging growth companies get into this mess? Thank Congress and President Obama. As we all recall, the JOBS Act sailed through Congress with bipartisan support, at the behest of the president, for the ostensible purpose of encouraging job growth. But it sought to carry out that goal not by doing something constructive -- such as increasing spending in the public sector or repairing the nation's decaying infrastructure -- but by removing regulatory oversight from the capital-raising process for the smallest companies, where fraud has been a nagging problem.

I was part of the chorus of voices that decried the JOBS Act as a giveaway for stock fraud. The law gave its blessing to "crowd-funding," which basically lets small investors gather on the Internet and finance small business. Sort of the investment equivalent of one of those Mickey Rooney-Judy Garland musicals where the kids get together to put on a show. But the wholesome facade is phony. As I explained when that terrible idea reared its head in September, crowd-funding can be used as a cover for fraud in the private placement of securities. The JOBS Act also carved out exemptions for small "emerging" companies from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, and rules goverrning executive compensation disclosure.

From almost the moment the ink dried on the law, which took effect on April 5, dozens of companies that "benefit" from the JOBS Act have in their SEC filings been quietly listing that blessing as among the "risk factors" that weigh upon them.

A search of SEC records on the agency's Edgar Web site shows that identical language, raising the possibility of the JOBS Act actually hurting the companies' ability to raise money. It's appeared in 74 SEC disclosures filed by 49 companies since April, beginning on April 20 with the prospectus of a software developer called Splunk Inc., and continuing through the present day. Most recently (at least, as of this writing), this stern-sounding language could be found in the registration statement filed on Monday by Natural Grocers by Vitamin Cottage Inc., a Colorado-based natural foods and nutritional supplements retailing chain.

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