JOBS Act Expanding, SEC Relaxing: More Work for a Criminal Attorney?
Since the financial recession began, banks are not lending money readily to “startup” business owners or entrepreneurs. A lot of economists and observers are remarking: The U.S. economy often seems in flux – and it when it is does, it sometimes rides like a rollercoaster.
Given this current background, on April 5, 2012 President Barrack Obama signed the JOBS Act into law. A number of regulatory barriers were removed. Important features of the act included:
- Creation of a new class of public companies, emerging growth companies, making it easier to gain access to market capital by cutting the cost of going public – a “win” for small- and medium-sized ventures.
- A less-restricted path 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.
- The raising of the shareholder threshold, for mandatory registration with the SEC, from 500 to 1,000 shareholders – again allowing for the easier creation of capital 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 large 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 act hopes to cut a trail – encouraging startups to become active, to help stabilize the U.S. market, and to 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.
Since the present financial crisis began, with SEC restrictions in place, the Department of Justice (DOJ) primarily had focused its efforts in the pursuit of large-scale financial matters. Major financial institutions were a point of this focus – federal investigations into Citigroup, Inc., Bank of America Corp., Bear Stearns, Lehman Brothers, for example.
Now, with SEC restrictions eased and the SEC itself seemingly somewhat 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 more players engaging in financial misconduct and for those out to stop such wrongdoing.
Consequently, the DOJ has increased its reliance on the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), a law with a broad reach. FIRREA authorizes the Attorney General to initiate civil actions and to seek civil monetary penalties against perpetrators violating criminal statutes regarding financial institution (and with the JOBS Act, this possibly would include smaller businesses having activity with federal 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 and 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.
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 any prosecution.
If so, it just may pick up the slack from the SEC and just may be the perfect foil against the possible negative aspect of the “wide open” JOB Acts enactment – and perhaps is the “cavalry to the rescue” for all business pioneers, entrepreneurs, and individual investors.