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A new Act just signed into law by President Obama that relaxes accountability requirements for internet startups has been called a 'licence for fraud'. The Jumpstart Our Business Startups Act (JOBS) Act (HR.3606) is backed by AOL co-founder Steve Case (himself no stranger to fraud allegations) and other titans of Silicon Valley …
Aren't crowd funding and start-up investment two different things?
Granted this is an article about merka and I know nothing about the rules of funding a start-up in merka, but over here in blighty, I was under the impression that you weren't allowed to solicit publicly for funding for a private (i.e. Ltd) company?
Or will this be the finishing touch to the current one? I get the feeling this one could be entering can o' worms territory.
So the banks can now sell worthless stocks in unaudited companies that might very well exist only on paper.
Still at least we can fine them for fraud when they do it then give them so additional bailout money so they can afford to pay the fine.
No where does this remove the audit requirement. Pureley the onerous SOx overhead.
I thought one of the lefty mantras was that business was no good and deserved no breaks and needed to be watched like a cat watching a mouse.
Personally, I'm a libertarian and think government is way too invasive in all aspects of our lives, but the inconsistency on this is particularly rankling for some reason.
"I thought one of the lefty mantras was that business was no good and deserved no breaks and needed to be watched like a cat watching a mouse."
What's your point.
Oh wait, you think that Obama's a leftie... Good God, the West Coast may be blue, but that doesn't make the Democrats left-wing!
'Sarbanes-Oxley was brought in to protect investors after the tech bubble a decade ago saw internet stocks hyped by the banks'
I thought SOX was an almost-direct result of the Arhtur Andersen/Enron scandal.
As to the 'find a bigger idiot' point, some would say that spreading the risk among a vastly larger population - each of whom is investing a fraction of what the 'big idiots' would invest - is a better way of handling the risk.
The sarbaines oxley act (and im guessing with emphasis on sox 404 here) came into effect after the collapse of enron/worldcom and the fall of andersen, yes.
as someone who knows how expensive sox compliance can be im carefully optimistic about this... large multinationals trading on the nyse might not even notice the cost of introducing sox controls/audits, but for startups it can be a significant economic hurdle.
if you need an (inaccurate, as they always are) automobile based metaphor: its the difference of a large carcompany having to do all kinds of crash tests and trials before a car can be declared roadlegal/legally sold in a market, while a private person only needs to have a yearly MOT.
The startups wont be excempt from any and all auditing, they simply will not have to comply with the entire sox framework (which was in any case designed to stop giant screwups like enron/worldcom from happening again, not to make sure that new startup companies never took off).
Oddie, you hit the nail on the head. This does not remove any normal audit requirements, just the vast and bloated requirements for SOx complience. SOx is similar to certification complience, you need to tick boxes and show you procedures are correct before you are complient, but at the end of the day, there is nothing preventing the CFO from manipulating the figures in excel before submitting them.
SOx has been described as a hidden tax on US based companies, reducing or removing it for start ups is a good thing.
There's a lot more to it than SOx compliance.
What are these Requirements to be audited of which you speak? There is no law that says you have to be audited by anyone so I am not sure what you refer to. The SEC mandates that you are but Instagram is not listed on the SEC and neither is FaceBook so they don't have to audited (unless their investors or board insist on it)
The JOBS act says you don't need more than two years of audited accounts to list and you don't have to disclose info on your finances before then.
Getting my coat to buy a load of umbrella companies with clean balance books to float.
It seems that all these regulations - likely over 50 meters of them if stacked, do nothing more than create the illusion of trust.
The stock market is more like a wild west gambling casino than a bank.
If you took all rules away, good honest companies would still seek to be known as such, and a network of trust would quickly evolve - companies would exist solely to rate the claims and ethics of other companies. The system would be more accurate and less costly than the current one, which is a mess.
SarbOx compliance has cost investors more money that the scandals that caused it in the first place. The ONLY beneficiaries of it have been the accounting firms.
Another shining example of the effectiveness of government regulation in the financial sector, and why we don't need the government's "help".
Utter, utter Bollocks. All SOx is saying firms should do is understand what their business is and have some assurance that the figures they present to the market are accurate.
What has cost a load of money is idiots like you massively inflating the requirements and so allowing charlatans to make a massive amount of money on the FUD surrounding it.
And you think that assurance is cheap, or done in house? Who is spewing bollocks now? (hint: it isn't me!)
It's the investor's / buyer's duty to do their due diligence before investing in a company.
The reason the financial system collapsed in 2008 was that banks were knowingly repackaging risky assets, convinced the ratings agencies they were so perfectly safe to deserve a AAA rating, and the ratings agencies let themselves be duped. Investors should have been aware, but perhaps weren't, that ratings agencies are paid by the banks that produce the asset. So if there's a doubt as to the value of an asset, the bank will take it's business to the rating agency that gives it the best rating.
Seems to me this is a treatment for the symptom, not the cause. By all means decrease regulation for start-ups to ease their burden, but punish those that are found to be selling worthless stock (i.e. banks, Grouponesque companies) by either revoking their license, fines or criminal prosecution.
OTOH as a modest investor myself I've always heeded the warning that the value of your investment can go up as well as down, and to read a company's Annual Financial Report, but I suspect I'm of the minority.
When investing in a start-up it's basically implicit that you could lose money. If someone can't stomach that, they should look for lower risk investments. If they aren't aware of that, then they should not be investing at all - since they clearly don't know what they're doing.
I am no admirer of Case, but the indulgent reference to a failed lawsuit was dumb. Has the Register never had a failed lawsuit?
from the title of the article I thought it was something that actually protected investors. The only thing SOX has protected is the asses of the politicians who should have been booted for their involvement in Enron et al. As a protector of the typical investor it is a colossal failure. As an impediment to small businesses, it has been an astounding success. As for the fear-mongering over penny stocks and crows sourcing, I guess you've never read the start of a prospectus on any of a blue chip stock. Here's a hint: it's the same boiler plate. To me it makes more sense to have more people with small chunks of money they can afford to lose investing in these sorts of companies than one or two big hedge/venture capital outfits that will take a substantial hit on their balance sheets if it fails, which 2.5 out 3 will in the current climate.
Basically the elected officials in Congress are defrauding Americans so it's no surprise they want to help other criminals. If they prove Obama is not a U.S. citizen then what the Hell are they gonna do with an illegal Presidency? Oh shitze, that should cause some arse puckering regarding legislation signed into law.
Whatever the merits or otherwise of the JOBS act this story conflates the SEC and start-ups egregiously.
The SEC *only* looks at the affairs of public companies. That is companies which raise equity finance through US stock markets like NYSE and NASDAQ. There are no start-ups on either of these indexes (unless you consider a division of a much larger entity spun off to be a start-up). It's a costly business to go public - not only the act of going public but meeting the statutory obligations of keeping stockholders updated.
Facebook is a famous start-up but, even so, it's been 7 years to get to the point the investors - many of whom like Bono, Microsoft, Russian oligarchs, Goldman Sachs etc have deep pockets - have reasonable prospect of raising finance this way.
Meanwhile in the US regular small companies - including real start-ups - face almost no regulatory scrutiny at all. It varies from state-to-state but US 'start-ups' companies can be quite large - revenues in the $10millions - before there's anything more than employee income tax to pay or paperwork to submit. Compare this to the UK where *any* small company - even those not actually trading - or self-employed trader has quite a bit of paperwork to complete each year.
So it seems like this is an article defending the rights of governments everywhere to over regulate and meddle wherever they can. And, in the absence of suitable evidence has IMO, brought together two stray thoughts in an attempt to provide cover for this argument.
If you've contributed to the Messiah's election campaign then you should be able to get on the gravy train and cash in by starting a bogus company and getting federal funds for "research" and development. Then in two years you go tits-up leaving creditors up the creek while you've pocketed millions in "compensation" for your excellent management skills. It's all part of the grand scheme.