[Pages S1667-S1671]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

JUMPSTART OUR BUSINESS STARTUPS ACT

Mr. DURBIN. Mr. President, there is a bill that passed the House of
Representatives with an overwhelming bipartisan vote. Its supporters
have characterized it as a jobs bill. It is a bill which, frankly,
changes many laws and comes over to the Senate. The minority leader,
the Republican leader, has been on the Senate floor almost every single
day urging us to take up this bill as quickly as possible and to pass
it because of the impact it might have on employment across America.
I might say for the record, I believe the bill we passed today, the
Transportation bill, is the true jobs bill--2.8 million jobs across
America. I will tell you, the House bill will not even get close to
that on a good day. Our bill will save and create millions of jobs. It
will build an infrastructure for our economy for years to come, and it
passed with an overwhelming bipartisan vote. Over 70 Members of the
Senate, Democrats and Republicans, voted for this bill. An
extraordinary effort by

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Senator Boxer of California and Senator Inhofe of Oklahoma and many
others resulted in a bill that was well crafted, balanced, and will, in
fact, fund our infrastructure needs in this country for the next 2
years.
The House has been at a loss to produce a similar bill, even though
we are both facing a March 31 deadline for this trust fund that is used
across America to maintain our infrastructure. The House has moved from
one extreme to another. They have crafted bills which were way too
partisan.
This used to be the easiest lift in Washington. Every 5 years, the
Federal Transportation bill was an opportunity for both parties to work
together. Oh, it is true, Members would put in projects for their
districts and States. That is to be expected. But at the end of the
day, a bill would emerge which ultimately had strong bipartisan
support. I cannot think of a single instance in the time I have been in
the House and the Senate that was not the case.
The House effort, however, to this date has failed. I hope they can
use our bill as a starting point. They should. If they bring our
bipartisan bill to the floor of the House of Representatives and open
it to amendment, then we will be at a position where we can sit
together in a conference committee and work this out, as we should, on
a bipartisan basis. It is a good jobs bill. In fact, it is the biggest
jobs bill the Congress will have considered in the last year.
Let's go back to the bill that passed the House, which the
Republicans have characterized as a jobs bill. I think it is important
that before we rush into this, taking a look at it, we take a careful
look at it and ask: What does this bill do?
This bill is designed to change disclosure, accounting, and auditing
standards, and to exempt many firms and corporations from the
Securities and Exchange Commission's oversight. One part of the bill
exempts newly public firms with less than $1 billion in revenue from
certain disclosure, accounting, and auditing standards over a
transition period of 5 years after they first go public. It exempts
firms with less than $1 billion in revenue and less than $700 million
in traded stock--what they characterize as ``emerging growth
companies.'' They would be exempt from regulation for the most part.
That would, in fact, exempt more than 90 percent of the companies going
public in America.
These so-called emerging growth companies would be exempt from SOX
404(b), which requires a firm's auditor to attest to and report on
internal controls. It would exempt firms from safeguards we adopted in
this country after Enron.
There is little justification for rolling back the Dodd-Frank
provisions on executive compensation. But firms would be exempt in many
respects because of this bill. It is hard to imagine that a firm with
$1 billion in revenue does not have the resources to disclose golden
parachutes in executive compensation agreements.
Exempting firms from new accounting standards would create a two-
tiered accounting system that is bound to be confusing. The Financial
Accounting Standards Board, FASB, says provisions legislating
accounting standards would ``undermine the rigorous, independent
standard-setting process [already] undertaken. . . . '' One other part
of this bill increases the amount of capital private companies may
raise under a public offering from $5 million to $50 million annually
and remain exempted from SEC oversight.
They want to take a lot of this capital formation and business
formation off the grid. They do not want oversight and disclosure and
transparency. That is what this bill does. It fails to include a
multiyear cap on the amount firms may raise and allows firms to raise
$50 million annually indefinitely while avoiding SEC registration and
disclosures.
It goes on with something called crowdfunding. It allows firms to
remain exempt from SEC registration and raise up to $1 million annually
through crowdfunding. What does that mean? Large numbers of individuals
contributing a small amount of money to a company. Retail and
unsophisticated investors will be allowed to invest up to $10,000
through crowdfunding sites with few disclosure requirements.
There is another provision that allows private firms that sell more
than $5 million in securities to generally solicit or advertise private
offerings without being required to register with the SEC, provided the
firm verifies all purchasers are accredited investors. The risk of
fraud through cold calls and other sales tactics increases
significantly with the elimination of the requirement that firms have a
preexisting relationship with potential investors.
In the early 1990s, the SEC allowed general solicitation but again
restricted general solicitation in 1999 because of widespread fraud.
The accredited investor standard is so low as to include individuals
whose net worth is $1 million or who have earned $200,000 annually. It
allows banks to raise capital while avoiding SEC registration by
increasing the shareholder threshold from 500 shareholders to 2,000 and
from $1 million in assets to $10 million.
It is no surprise that when we look carefully at this bill, even
though it received a large vote in the House--I do not dispute that--
many organizations oppose it. They include the Consumer Federation of
America, AARP, Americans for Tax Reform, AFL CIO, the Coalition for
Sensible Safeguards, U.S. PIRG, the National Education Association, the
National Consumers League, and the National Association of Consumer
Advocates. There are other organizations with serious concerns, which
include the Council of Institutional Investors, FASB, and North
American Securities Administrators Association.
Mr. President, I ask unanimous consent to have printed in the Record
an editorial from the New York Times from March 11 entitled ``They Have
Very Short Memories.''
There being no objection, the material was ordered to be printed in
the Record, as follows:

They Have Very Short Memories

House Republicans, Senate Democrats and President Obama
have found something they can all support: a terrible package
of bills that would undo essential investor protections,
reduce market transparency and distort the efficient
allocation of capital.
Of course, supporters don't describe it that way. They say
the JOBS Act--for Jumpstart Our Business Startups--would
remove burdensome regulations that they claim have made it
too difficult for companies to raise money from investors,
impeding their ability to grow and hire.
Never mind that reams of Congressional testimony, market
analysis and academic research have shown that regulation has
not been an impediment to raising capital. In fact, too
little regulation has been at the root of all recent bubbles
and bursts--the dot-com crash, Enron, the mortgage meltdown.
Those free-for-alls created jobs and then imploded, causing
mass joblessness.
Unfortunately, election-year politics and powerful
constituencies--rather than research and reason--are driving
the JOBS legislation forward. It passed the House on
Thursday, after the Obama administration endorsed it; the
Senate leadership is expected to introduce a similar package
this week.
Republicans love it because deregulation is at the core of
their corporate-centered agenda. President Obama wants to
burnish his pro-business credentials. Most Senate Democrats,
keenly aware of big business's deep campaign contribution
pockets, are eager to go along.
The centerpiece of the bill would curb investor protections
in the Sarbanes-Oxley law that require companies to meet
specific disclosure, accounting and auditing standards before
going public. The legislation is promoted as applying only to
small companies, but the parameters would encompass all but
the nation's biggest new companies.
It would also let new public companies delay compliance
with provisions of the Dodd-Frank law on executive
compensation and shareholder ``say on pay.'' Another
provision would permit ``crowd funding''--raising money from
small investors through the Internet--without requiring those
companies to provide meaningful disclosure and without
adequate oversight by the Securities and Exchange Commission.
John Coffee Jr., a securities law expert, has dubbed that the
``Boiler Room Legalization Act.''
Yet another provision, opposed by AARP and state
regulators, would allow private companies to solicit
investors, a move that could expose unsophisticated investors
to offerings that they cannot properly evaluate.
Dozens of legal experts and advocates for investors and
consumers have written to Senate leaders warning that
extensive revisions must be made to the House legislation for
it to be even minimally acceptable.
We know memories are short in Washington. But Enron was
just 10 years ago. And the entire system almost imploded in
2008. There is no excuse.

Mr. DURBIN. This editorial states, in part:

House Republicans, Senate Democrats and the President have
found something they can

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all support: a terrible package of bills that would undo
essential investor protections, reduce market transparency
and distort the efficient allocation of capital.
Never mind that reams of Congressional testimony, market
analysis and academic research have shown that regulation has
not been an impediment to raising capital. In fact, too
little regulation has been at the root of all of our recent
bubbles and bursts--the dot-com crash, Enron, the mortgage
meltdown. Those free-for-alls created jobs and then imploded,
causing mass joblessness.
The centerpiece of this bill would curb investor
protections in the Sarbanes-Oxley law that require companies
to meet specific disclosure, accounting and auditing
standards before going public. The legislation is promoted as
applying only to small companies, but the parameters would
encompass all but the nation's biggest new companies.

I have been down this path before. I have been in Congress long
enough to remember some of these bubbles, remember the victims and the
losers when it was all over, the exuberance of deregulation which led,
sadly, in many instances, to an unregulated marketplace where greed
triumphed.
After each financial crisis, the savings and loan crisis, Enron, the
housing and economic crash of 2008, this body has investigated and
attempted to learn from the lessons of the past. How many times on this
floor have Senators debated measures to ensure that we do not face
another Enron, where shareholders lost between $40 and $60 billion in
investments and employees lost $2.1 billion in pension plans, not to
mention their jobs. We promised that would never happen again. We
established standards of regulation, which we are now proposing to
waive in this so-called jobs act.
I worked with my colleagues in the wake of the 2008 economic slide to
pass the Dodd-Frank Act, to close the loopholes that resulted in
millions of families losing their homes and $17 trillion in lost
household and personal wealth. We learned from the past and worked
together to provide oversight where regulation was just too lax. We
passed commonsense rules to ensure consumers and investors were
protected.
Just a few years later, after that crisis brought our economy to its
knees, it seems some have forgotten those lessons. It was not too much
regulation that led to the financial crisis of 2008. We did not get
into that mess because agencies such as the SEC had too much power. It
was the other way around. It was deregulation of the 1990s and Federal
agencies turning a blind eye to activities that precipitated the global
financial meltdown.
Regulatory agencies were underfunded, overwhelmed, and often limited
in their authority. That does not mean we should do nothing. There are
things we can do to ease the burden on companies looking to raise
capital and create jobs.
There are commonsense measures to help small businesses access
capital. We can exempt employees from counting toward shareholder
limits, so these companies can reward their employees with stock
options. We can increase the amount of money startups can raise, while
still being exempt from SEC registration. There are things we can do to
help companies grow and create jobs, while still protecting investors.
But the bill passed by the House does not do that. The House-passed
bill says that more than 90 percent of newly public firms do not have
to comply with Federal disclosure, accounting, and auditing standards.
This means that when an investor is making a decision about which newly
public firms to put their hard-earned money in, they will not have
access to basic vital information about those firms.
How can investors make good, sound decisions about where to invest
their savings and their money when some firms, those that have recently
gone public, will not have to comply with new and improved accounting
standards but all other firms will? The House-passed bill does not have
enough protection for everyday investors who are considered
unsophisticated in the financial sector, those who may not fully
understand the risks of investing through an online crowdfunding Web
site.
At a recent Senate Banking hearing, Professor John Coffee, from the
Colombia University Law School, said: The crowdfunding technique is
especially open to fraud because the companies that use it are most
likely brandnew entities that do not have any operating history and
might not even have financial statements.
Professor Coffee said: Those firms would be flying on a wing and a
prayer, selling more hope than substance. The House-passed bill would
allow firms to advertise and sell their stock through cold calls and
other sales tactics. That is an invitation for fraud.
In this situation, someone can promise investments with high return
with little risk. The Center for Retirement Research at Boston College
calls this ``the magician'' and reports that seniors are three times
more likely to be the victims of this type of fraud.
There is room to improve this bill to allow small businesses to grow
and create jobs, but we have to do it with an eye toward oversight,
transparency, and rules of the road which protect the average investor.
This so-called jobs bill creates a job opportunity for any individual
salesman to set up shop with a barstool and a laptop computer. They can
be selling worthless stock for phantom companies. This bill invites
them to fleece unsuspecting customers of up to $10,000, promising that
they will own certain companies. It can turn out that these companies
have no assets, no business model, and may not even exist.
In the name of deregulation, these fraudsters could even include
those who have been banned for life from the securities industry. That
was a point that was raised by Professor Coffee's testimony. This bill
is written to allow new salesmen to come on the scene and does not put
any provision in there to prohibit those who have been banned by the
securities industry from sales of securities.
Why would we invite the thieves back into the marketplace? This half-
boiled concoction of ill-conceived ideas skirts, evades, and nullifies
investor protection and market transparency standards that were enacted
in response to the dot-com crash, the Enron debacle, and the litany of
bubbles and bursts that have cost legions of unsuspecting Americans
their savings, their jobs, and their retirement.

I requote one paragraph from the New York Times editorial:

The centerpiece of the bill would curb investor protections
in the Sarbanes-Oxley law that require companies to meet
specific disclosure, accounting and auditing standards before
going public. This legislation is promoted as applying only
to small companies, but the parameters would encompass all
but the nation's biggest new companies.

Literally, 90 percent of the new companies would be exempt under this
provision. Exempting firms with less than $1 billion in revenue and
less than $700 million in traded stock, so-called emerging growth
companies, would exempt more than 90 percent of the companies going
public, according to testimony before the Senate Banking Committee.
The delay in compliance with Dodd-Frank on executive compensation is
particularly cheeky. Do you recall this? We sent billions of dollars to
banking institutions as a result of the bailout to save them from their
own stupidity and greed, and they turned around and gave executive
compensation and bonus awards right and left to the very people who had
engineered this disaster. We said when we passed Dodd-Frank, that was
the end of that story. We were going to change it.
One of the Dodd-Frank provisions: In February 2009, Senator
Christopher Dodd, a Connecticut Democrat who was chairman of the Senate
Banking Committee, inserted a rule about pay at bailed-out banks into
the economic stimulus. The rule did nothing to change the bonuses that
had just been paid a few weeks earlier, but it required that bonuses
paid in the future be paid in stock and not exceed one-third of total
compensation. The idea was to create the right incentives, the
incentives to be a larger owner of the company, into decisionmaking,
not take the money and run.
Now comes this so-called jobs bill and exempts executive compensation
standards. Firms with $1 billion in revenue certainly have the
resources to disclose golden parachutes and insidious good old boy
compensation packages.
I ask unanimous consent to have printed in the Record a stunning
article from the New York Times this morning, written by Greg Smith,
entitled, ``Why I Am Leaving Goldman Sachs.''

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There being no objection, the material was ordered to be printed in
the Record, as follows:

[From the New York Times, Mar. 14, 2012]

Why I Am Leaving Goldman Sachs

(By Greg Smith)

Today is my last day at Goldman Sachs. After almost 12
years at the firm--first as a summer intern while at
Stanford, then in New York for 10 years, and now in London--I
believe I have worked here long enough to understand the
trajectory of its culture, its people and its identity. And I
can honestly say that the environment now is as toxic and
destructive as I have ever seen it.
To put the problem in the simplest terms, the interests of
the client continue to be sidelined in the way the firm
operates and thinks about making money. Goldman Sachs is one
of the world's largest and most important investment banks
and it is too integral to global finance to continue to act
this way. The firm has veered so far from the place I joined
right out of college that I can no longer in good conscience
say that I identify with what it stands for.
It might sound surprising to a skeptical public, but
culture was always a vital part of Goldman Sachs's success.
It revolved around teamwork, integrity, a spirit of humility,
and always doing right by our clients. The culture was the
secret sauce that made this place great and allowed us to
earn our clients' trust for 143 years. It wasn't just about
making money; this alone will not sustain a firm for so long.
It had something to do with pride and belief in the
organization. I am sad to say that I look around today and
see virtually no trace of the culture that made me love
working for this firm for many years. I no longer have the
pride, or the belief.
But this was not always the case. For more than a decade I
recruited and mentored candidates through our grueling
interview process. I was selected as one of 10 people (out of
a firm of more than 30,000) to appear on our recruiting
video, which is played on every college campus we visit
around the world. In 2006 I managed the summer intern program
in sales and trading in New York for the 80 college students
who made the cut, out of the thousands who applied.
I knew it was time to leave when I realized I could no
longer look students in the eye and tell them what a great
place this was to work.
When the history books are written about Goldman Sachs,
they may reflect that the current chief executive officer,
Lloyd C. Blankfein, and the president, Gary D. Cohn, lost
hold of the firm's culture on their watch. I truly believe
that this decline in the firm's moral fiber represents the
single most serious threat to its long-run survival.
Over the course of my career I have had the privilege of
advising two of the largest hedge funds on the planet, five
of the largest asset managers in the United States, and three
of the most prominent sovereign wealth funds in the Middle
East and Asia. My clients have a total asset base of more
than a trillion dollars. I have always taken a lot of pride
in advising my clients to do what I believe is right for
them, even if it means less money for the firm. This view is
becoming increasingly unpopular at Goldman Sachs. Another
sign that it was time to leave.
How did we get here? The firm changed the way it thought
about leadership. Leadership used to be about ideas, setting
an example and doing the right thing. Today, if you make
enough money for the firm (and are not currently an ax
murderer) you will be promoted into a position of influence.
What are three quick ways to become a leader? a) Execute on
the firm's ``axes,'' which is Goldman-speak for persuading
your clients to invest in the stocks or other products that
we are trying to get rid of because they are not seen as
having a lot of potential profit. b) ``Hunt Elephants.'' In
English: get your clients--some of whom are sophisticated,
and some of whom aren't--to trade whatever will bring the
biggest profit to Goldman. Call me old-fashioned, but I don't
like selling my clients a product that is wrong for them. c)
Find yourself sitting in a seat where your job is to trade
any illiquid, opaque product with a three-letter acronym.
Today, many of these leaders display a Goldman Sachs
culture quotient of exactly zero percent. I attend
derivatives sales meetings where not one single minute is
spent asking questions about how we can help clients. It's
purely about how we can make the most possible money off of
them. If you were an alien from Mars and sat in on one of
these meetings, you would believe that a client's success or
progress was not part of the thought process at all.
It makes me ill how callously people talk about ripping
their clients off. Over the last 12 months I have seen five
different managing directors refer to their own clients as
``muppets,'' sometimes over internal e-mail. Even after the
S.E.C., Fabulous Fab, Abacus, God's work, Carl Levin, Vampire
Squids? No humility? I mean, come on. Integrity? It is
eroding. I don't know of any illegal behavior, but will
people push the envelope and pitch lucrative and complicated
products to clients even if they are not the simplest
investments or the ones most directly aligned with the
client's goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic
truth: If clients don't trust you they will eventually stop
doing business with you. It doesn't matter how smart you are.
These days, the most common question I get from junior
analysts about derivatives is, ``How much money did we make
off the client?'' It bothers me every time I hear it, because
it is a clear reflection of what they are observing from
their leaders about the way they should behave. Now project
10 years into the future: You don't have to be a rocket
scientist to figure out that the junior analyst sitting
quietly in the corner of the room hearing about ``muppets,''
``ripping eyeballs out'' and ``getting paid'' doesn't exactly
turn into a model citizen.
When I was a first-year analyst I didn't know where the
bathroom was, or how to tie my shoelaces. I was taught to be
concerned with learning the ropes, finding out what a
derivative was, understanding finance, getting to know our
clients and what motivated them, learning how they defined
success and what we could do to help them get there.
My proudest moments in life--getting a full scholarship to
go from South Africa to Stanford University, being selected
as a Rhodes Scholar national finalist, winning a bronze medal
for table tennis at the Maccabiah Games in Israel, known as
the Jewish Olympics--have all come through hard work, with no
shortcuts. Goldman Sachs today has become too much about
shortcuts and not enough about achievement. It just doesn't
feel right to me anymore.
I hope this can be a wake-up call to the board of
directors. Make the client the focal point of your business
again. Without clients you will not make money. In fact, you
will not exist. Weed out the morally bankrupt people, no
matter how much money they make for the firm. And get the
culture right again, so people want to work here for the
right reasons. People who care only about making money will
not sustain this firm--or the trust of its clients--for very
much longer.

Mr. DURBIN. I will tell my colleagues, read this article, read it and
understand that there is a changing ethos and a changing standard at
some of these major corporations; that the pursuit of profit has led
this man who was one of the stars on the horizon in this industry to
pick up and leave one of the largest firms in America.
It is also an indication of why we need to continue our vigilance
over this industry to make certain that the right market forces
prevail. Crowd-
funding, where they try to get a lot of small investors in a hurry,
brings organized fleecing to the Internet, letting the next generation
of Ponzi players go viral.
Let's call this crowdfunding for what it is. It is Internet gambling,
and the odds will never favor the investor. When these wired Willy
Lomans are finished exploiting the unsuspecting investors out of their
savings, their retirements and their homes, guess what will happen.
Congress will be called on again to come in with a reform bill to clean
up the mess and repeal this pitiful package until the next wave of
deregulation is called for by those who are inspiring this piece of
legislation.
I know who ends up holding the bag when the deregulators have their
day. I know who ends up losing when we open the so-called market forces
without oversight transparency. First, ordinary folks investing their
savings in something that looks like a good idea, trying to recover
from the beating they took in the market, trying to rebuild their
retirement accounts, buying worthless stock in worthless companies that
is being invited by many of the provisions in this bill.
Then, when it certainly goes to the bottom, when everyone is
desperate, no one knows which way to turn, who will step in? Taxpayers
and Congress. We will be called on to clean up this irrational
exuberance that is supposedly going to create new jobs. I think we got
it right. I think the standard we have now establishes the transparency
and accountability which we need to demand of every aspect of the
marketplace.
Certainly, we can change some of these laws. We can be mindful and
sensitive to some aspects of it. But this bill goes entirely too far.
There will be a substitute offered. I am working with several of my
colleagues: Senator Jack Reed, Senator Carl Levin, Senator Jeff
Merkley, Senator Michael Bennet, Senator Mary Landrieu, and others to
put a provision forward, a substitute, which makes the changes to allow
capital formation but does not take down the basic protective regimen
we have established in the law for those who are in this industry.
We make a serious mistake and we ignore history if we turn our backs
on 80 years of this government stepping up to make sure the marketplace
in America was safe for investors, to make certain the person selling a
stock was actually a well-qualified person,

[[Page S1671]]

registered so they knew what they were doing and were held accountable
for any wrongdoing, to make certain that companies we buy stock in
actually exist, and to make certain those who are the most vulnerable
in America do not lose everything because this Congress decided to look
the other way because someone wants to take a profit out of an idea.
This is an important measure. Every day, the Republican leaders came
to the floor and said: Call it immediately. Let's go. Let's get it
done. We need to at least take the time to reflect on it, to offer an
alternative to it, and to do something which is exceedingly rare on the
floor of the Senate, have a debate. How about that? The Chair was
engaged in debate in his youth. He knows that perhaps good ideas can be
exchanged in that process.
The closest we have to debates now is 2 minutes, equally divided.
That does not cut it, not for the Senate and not for a bill of this
importance. I urge my colleagues, before they rush to judgment, that
because it passed the House with a big measure, that it certainly has
to be a good bill, take the time to read it.
Many people, including myself, who years ago were lured into the
repeal of Glass-Steagall because of the notion of letting 1,000 flowers
bloom, realized what happened. When it was all over, there were no
flowers. Unfortunately, what was left was the rubble of the recent
recession. It is time for us to vow not to make that mistake again.
I yield the floor and suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mrs. SHAHEEN. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.

____________________