Where Are the Jobs in the Jobs Act? an Examination of the Uneasy Connection between Securities Disclosure and Job Creation

By Peck, Ian K. | American University Business Law Review, January 3, 2015 | Go to article overview

Where Are the Jobs in the Jobs Act? an Examination of the Uneasy Connection between Securities Disclosure and Job Creation


Peck, Ian K., American University Business Law Review


INTRODUCTION

Of the many ailments caused by the 2008 financial crisis, the unemployment rate in the United States served as a direct indicator of the challenges the American economy and its workers faced. Unemployment rose to yearly averages of over nine percent in 2009 and 2010. Only since October of 2012 has the figure dipped below eight percent despite relatively modest job gains.1 Strengthening the American economy, with job creation at the helm, was a central issue during the 2012 presidential race that ultimately saw the incumbent Barack Obama victorious.

While various job-creation mechanisms have been employed, only one has utilized the federal securities laws as its catalyst: The Jumpstart Our Business Startups Act ("the JOBS Act" or "the Act"). The JOBS Act, signed into law on April 5, 2012, is somewhat unique among job-creation policies in that it works not through the tax code or the Federal Reserve but rather through federal securities laws. Indeed, the purpose of the Act is "[t]o increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies ["EGCs"]."2 The Act, really a series of five unique bills rolled into one, generally strives to make it easier and more efficient for EGCs to gain access to investor capital. More American jobs will be created, so the rationale goes, when small companies tap needed capital to grow and hire workers. The JOBS Act received nearly unanimous support in Congress,3 as it attained a certain popularity summed up by the following sentiments from a congresswoman:

The JOBS Act is a legislative package designed to move our economy and restore opportunities for America's primary job creators, our small businesses, start-ups, and entrepreneurs. These measures create capital formation, will spur the growth of start-ups and small businesses, and pave the way for more small-scale businesses to go public and create more jobs. In his State of the Union, the President asked us to send him a bill that helps small businesses and entrepreneurs, and that's exactly what the JOBS Act does.4

To achieve its goal of efficiently connecting EGCs with willing investors, the JOBS Act primarily reforms the disclosure requirements of the Securities Act of 1933 ('"33 Act"). For example, for companies pursuing an initial public offering ("IPO") Title I of the Act (part of which includes the "IPO on ramp") eases the public disclosure requirements over the first five years of its publicly listed status. As this paper will discuss in greater detail in Section III, data suggest that for EGCs, IPOs add a greater number of jobs than mergers or acquisitions.5 Title I of the JOBS Act can be seen as a way to revive lagging IPO activity, while the cause of such stagnation serves as a topic for debate.

Another example of disclosure reform is found in Title III ("crowdfunding"), where certain emerging companies will be permitted to solicit investments from a broad range of retail investors over the Internet without having to register their issued securities. Instead of incenting companies to pursue an IPO, the crowdfunding provision provides a method for undertaking a private offering while still gaining access to everyday retail investors. Through crowdfunding, Congress might have realized that not all small businesses are willing or able to undertake an IPO yet still have a need for investor capital.

On the surface, these changes to the '33 Act (and others that round out the JOBS Act) appear to create workable solutions to the challenging issue of high unemployment. However, amidst all of the momentum surrounding the JOBS Act, one versed in United States securities law may rightly step back and ponder whether those laws should serve as a springboard for job creation. This paper asks what role, if any, should job creation play as a justification for securities disclosure reform. While American securities law is at least indirectly connected to job creation and the growth of various types of enterprises, to what extent should we use securities disclosure law as the means to achieve job growth? …

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