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 – and supported by Google – all of whom argue that the new law is vital for job creation.
Jumpstart waives the requirement for small companies to be audited under Sarbanes-Oxley regulations for five years. Sarbanes-Oxley was brought in to protect investors after the tech bubble a decade ago saw internet stocks hyped by the banks, which were selling them to the public. Privately the banks thought the stocks were worthless, and equity analysts including Merrill Lynch’s Henry Blodget – now reborn as a web publisher and Twitter star – received a lifetime ban by the regulator SEC.
“The era of low standards and false profits is over,” said President George W Bush when he signed Sarbanes-Oxley into law, “no boardroom in America is above or beyond the law.”
Recently Groupon had to revise its prospectus several times after falling foul of SEC disclosure requirements. Now imagine a world where those obligations don’t exist.