Lawmakers and company owners are frustrated by the failure of financial regulators to issue new rules for startup companies, arguing the delays are hampering business and freezing out millions of potential investors.
President Obama signed the Jumpstart Our Business Startups, or JOBS Act, more than a year ago, after the measure won broad bipartisan support in Congress. But major components of the law, crafted to increase small businesses’ access to capital, cannot be enacted until the Securities and Exchange Commission (SEC) finalizes regulations.
Though SEC officials maintain they are making progress, proponents of the relaxed rules have grown increasingly impatient — and their criticism increasingly harsh.
The law passed by Congress ends an SEC ban on small company advertisements to solicit capital, eases the regulations for crowdfunding and allows non-accredited investors to participate in private offerings.
The latter policy change would widen the pool of potential small business investors from roughly 7 million people to the entire country, according to Alejandro Cremades, founder of an investment website for startups called RockThePost.
“Every day that passes without the Jobs Act being implemented is another day that startups have to fight for survival,” Cremades testified Thursday during a hearing before the House Small Business Committee’s regulatory subpanel.
Cremades and other business owners appearing before the panel argued that the current regulatory system was designed for large companies able to attract venture capital and hold major public offerings.
Startups should have more tools at their disposal to find investors, they said. Cremades noted that financial institutions repeatedly rejected the radio service Pandora in its early quest for funds.
SEC officials have repeatedly said the JOBS Act regulations are under construction and remain a top priority. In mid-May, newly installed chairwoman Mary Jo White told lawmakers that rule-writing teams were at work crafting language for the general solicitation, crowdfunding and accreditation measures.
She said the JOBS Act also requires the Commission to conduct several studies looking, in part, at the extent of its own authority. White noted that the SEC is also saddled with responsibilities to implement dozens of new rules required by the 2010 Dodd-Frank Wall Street reform law.
Schweikert, who helped write portions of the JOBS Act and serves as chairman of the House Business Subcommittee on Investigations, Oversight and Regulations, said the SEC’s workload is no excuse for the delay.
“I no longer accept that. This isn’t that complicated,” he said.
Staff on the business subcommittee noted that the SEC had a 90-day deadline to lift the general solicitation and advertising ban and 270 days to complete the crowdfunding rules.
More than 400 days have passed since the law was adopted.
Critics have directed much of their criticism at White's predecessor, former SEC Chairwoman Mary Schapiro, accusing her of slow-walking the regulations under pressure from investor advocates and consumer groups.
The public interest groups have raised concerns that relaxing the rules too far could leave inexperienced investors open to fraud or other predatory schemes.
Those concerns are not without merit, said Rep. Yvette Clarke (D-N.Y.), the top Democrat on the panel.
Clarke said the JOBS Act provisions have the potential to “unlock an untapped market of millions of investors” but also could be dangerous if too lax.
“While the outcome is not certain, we must understand that it is vitally important the SEC strike the appropriate balance between investor protection and producing a functional system that provides capital for small businesses,” she said.