JOBS Act Expanding, SEC Relaxing: New Business & More Work for a Criminal Attorney?
Since the financial recession began, banks are not lending money easily . . . at least to “startup” business owners or entrepreneurs. A lot of economists and observers are remarking that the U.S. economy often seems in flux . . . and it rides like a twisty rollercoaster even when (quote/unquote) “stable”.
Given this current climate, the “Whoa-ho!” of the economy, on April 5, 2012 President Barrack Obama signed the JOBS Act, an enacted effort to stabilize it. A certain number of regulatory barriers were removed. Important features include:
– Creation of a new class of public companies – emerging growth companies, making it easier to gain access to the market, to capital, by cutting the cost of going public – a “win” for small- and medium-sized ventures.
– A path of less restrictions – for these “pioneers” once exempt from Securities and Exchange Commission (SEC) registration – to go public by increasing their offering entrance from $5 million to $50 million.
– Raising shareholder threshold – a mandatory registration with the SEC – from 500 to 1,000 shareholders . . . and, again, allowing for easier creation of capital gain in the private sector.
– The removal of SEC restrictions – which previously had prevented “overfunding“ (a somewhat new financing technique whereby equity is generated from a pool of small investors not accredited with the SEC).
By increasing the number of stockholders and by lubricating the way new ventures create capital through private fund raising, the JOBS Act means to stimulate business growth. Relaxing decades-long SEC restrictions, the JOBS Act hopes to cut a trail – encouraging startups to become active, to stabilize the U.S. market and provide (or implement) steady and predictable economic growth.
The JOBS Act envisions millions of potentially thriving business owners, many more “John Doe” investors, and a possible bright future of jobs. It seems like a “win-win” for a shaky economy – by bringing ordinary investors and small businesses on to the same page.
But a serious pitfall of this new “Westward Ho!” spirit may just be that – the easing of SEC restrictions. While the JOBS Act promises a hopeful future, it also may open the door to a “Wild West” gold rush of increased securities fraud, insider trading, Ponzi schemes, and other federal criminal financial activity.
Paging federal criminal defense attorneys: This seems ripe regarding possible future litigation and federal criminal actions.
Since the present financial crisis began, with SEC restrictions in place, the Department of Justice (DOJ) primarily focused its efforts on the pursuit of large-scale financial matters. Major financial institutions were a point of focus – federal investigations into Citigroup, Inc., Bank of America Corp., Bear Stearns, Lehman Brothers, for example -smelling “big money” = “big problems”.
Now, with these SEC restrictions eased, and with the SEC itself seemingly hamstrung by the JOBS Act, it appears the DOJ is redoubling its efforts to pursue financial wrongdoers – individual or organization. Potentially, the JOBS Act will provide a broader canvas for players engaging in financial misconduct – and for those out to stop wrongdoing.
As a result, the DOJ has increased its reliance on the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), a law with broad reach. FIRREA authorizes the Attorney General to initiate civil actions and to seek civil monetary penalties against perpetrators violating criminal statutes regarding financial institutions (and with the JOBS Act, this possibly would include smaller businesses having activity with these federal financial institutions).
FIRREA became law in 1989, with the aftershock of the savings and loan disaster of the 1980s. Congress originally intended it as a deterrent to fraudulent activity and as a protection for federally-insured financial organizations. But a provision also allowed the DOJ, together with the FBI and other federal agencies, to conduct criminal investigations regarding alleged financial misconduct and to initiate civil actions.
As said, FIRREA has a broad reach and impact. It includes:
– Mail and wire fraud
– False statements to the government
– Receiving commissions or gifts for procuring loans
– False claims
– False statements in order to influence federal finance agencies or programs
– False statements or documents to the FDIC
– Bank fraud
Importantly, to be successful at trial, to recover financial restitution, FIRREA empowers the DOJ only to prove its case by a preponderance of evidence – not necessarily by evidence beyond a reasonable doubt.
It is a powerful weapon – and so far, has been too potent a force up for many a criminal defense. Often a criminal defense is stymied by the sheer weight of FIRREA. But, to note, some defenses have worked.
And a good part of the reason for the DOJ’s current success is FIRREA’s lower burden of proof when prosecuting alleged financial misconduct. This flexibility – a less severe test of evidence, instead being more reliant on the positive weight or volume it – gives the DOJ and other federal agencies greater impact in a prosecution.
If so, the DOJ just may pick up the stack of chips from the SEC, and it just may be the perfect bet against the possible negative aspect of the “wide open” JOB Acts enactment.
And, as well, it just may be the JOBS Act is the “cavalry to the rescue” for all business pioneers, entrepreneurs and individual investors. The future is made by seekers. The future is wide open. . . .