Beware President Obama’s new JOBS Act: Legalized fraud, Deregulated investments and the next Dot Com bubble for Main Street

A wolf in sheep’s clothing describes the friendly sounding JOBS Act signed into law by President Barack Obama two weeks ago. Much like the Patriot Act, it’s a low hanging government PR maneuver that still, surprisingly, works to pull the wool over many desperate voter’s eyes.

The JOBS Act will let almost anyone become an investor and flow capital to small and mid-sizes businesses, so isn’t it a good thing?

If you think so, then you definitely want to continue reading below.

You may be asking yourself: Weren’t there already companies that helped everyday folk with businesses raise money?

Yes. There are companies around like Indiegogo and Kickstarter that work as a platform for fundraising campaigns. The big difference with the JOBS Act is investors can own pieces of your company now, not very different than the large corporations we love to hate. Your little-engine-that-could company now becomes a public company. Well, not publicly traded on Wall St. but you do answer to your investors.

And, what about these investors?

Do investors care about hiring new people?

Do investors care about lay offs?

Do investors think twice before outsourcing your jobs?

Do investors spend capital for more employee benefits; for example, did you know that legally a company doesn’t need to offer you any Paid Time Off (PTO) days?

See the pattern?

For a bit of start-up cash (max $1 million for small businesses and $5 million for mid-sizes businesses), you are allowing investors to potentially change your vision and strategic direction at a much too early stage. I mean, all public companies wanted its IPO investors to at least pay them handsomely for the privilege of dissecting its brainchild. Some critics are rightly calling Obama’s JOBS act a deregulation nightmare that will be the next Dot-com bubble.

These small businesses are just trying to grow so what’s the big deal?

For anyone who’s worked in a start-up environment, you understand the riskiest part of business is managing growth. There’s a provision in President Obama’s JOBS Act that exempts companies from independent accounting for the first five years. What happens if the books get cooked and the debtor business has no liquidity when it’s time to pay the investors back? It may sound silly but that’s exactly what happened in the 2008-banking crisis when the middle class was the investor. Hard working Americans jumped at the idea of free money and as a result didn’t question that it was based on derivatives, and an assumption that their housing investments would continue to increase in value, paying off their ever-accumulating debt in the end. When the housing market tanked and nobody was actually good for the money, the fair-weather investors lost their homes and lifestyles.  Many of us know (or maybe are) one of these families. Are we ready to take that risk again so soon?

What are some regulations the Obama administration has put in place to guarantee accountability after the game of hot potato?

There is the cap we mentioned earlier on for how much one person can invest, but what does that achieve when any average Joe with a house can invest in a small business? The minimum is a paltry net worth of $100,000 to start gambling on Main Streets’ new stock market. Medium sized businesses can take up to $5 million and decline to register with the SEC. No likelihood for fraud there, Mr. President.

Looking at it this way, the JOBS act is a bit scary. If you want to raise quick money and not be accountable for how you use it for the first five years –this has your name on it all over. The JOBS Act will show the country tremendous growth until the end of Obama’s next term, then we can figure out how to clean up his mess like we did Bush’s.

 

Related reading:

JOBS Act Opens Fundraising Doors For Small Firms

Obama Just Legalized Fraud

The JOBS Act: Not Sure If the SEC Will Let You — or Wall Street — Be

 

- Charles Becker

Charles works in Sales & Marketing at PQ Labs Inc. His interests are in men’s fashion, technology and society. He graduated from San Francisco State University and lives in San Jose, CA. You can subscribe to him on Facebook (facebook.com/charlesbecker) for frequents of his current obsessions.