Investors Get The ‘Inside JOBS’ Treatment

Over a year ago, Congress passed the “Jump-Start Our Business Start-ups Act,” better known as the JOBS Act. Its supporters said the new law would create American jobs by making it easier for “start-ups” to raise money by issuing IPOs – initial public offerings of their shares.

Sounds like a win-win for business, investors and workers, right? But now that the new law has taken effect, it’s clear that companies looking to raise money from investors could use the JOBS Act to hide information from the investing public. And, as we’ve seen repeatedly over the past twenty years, the more information companies can hide, the greater harm that can befall investors.

Thanks to the JOBS Act, these new companies now can dispense with the pesky matter of making full disclosure about a company’s finances to investors.

As the New York Times reported this month, the early experience with the JOBS Act shows that companies are awash in new cash, brokers are flush with IPO commission money, and investors (surprise, surprise!) are getting the shaft.

The JOBS Act allowed tech start-ups Zynga and Groupon to raise truckloads of investor cash based on what the Times called “aggressive accounting tactics.” It also allowed the New York grocery chain, Fairway, to raise enough IPO cash so that the company’s market cap is now $825 million. Each grocery store is now valued at an astounding $71 million!

And what’s even more insulting is that the Securities and Exchange Commission – that what we’re supposed to think of as the “People’s SEC” – plays a big role in this whole charade.

“Fairway is classified as an emerging growth company, and therefore arguably benefited from the relief offered by the JOBS Act,” wrote the Times’ Steven M. Davidoff. “The first thing is that the company was able to obtain confidential review of its IPO documents with the SEC.”

“Companies like this provision because their numbers are reviewed and revised by the SEC without the public’s knowing the agency’s focus,” Davidoff wrote. “But this also puts investors in the dark about possible problems.”

“Another significant advantage provided to Fairway by the JOBS Act was the ability to avoid for up to five years making extensive disclosures on its executive compensation or holding a ‘say on pay’ vote,” according to Davidoff. “Fairway also took advantage of the law to avoid disclosing the full compensation of its executives.”

The JOBS Act was sold to the American investing public as a way to promote growth, create jobs and help the economy shake off its long-term malaise.

But it turns out that start-ups can use the new law to hide information from investors. A lot of commentators – us included – predicted that he JOBS Act would provide Wall Street with yet another opportunity to pull an “inside job” on the American investing public, which is now even more susceptible to stock fraud. This is one case where we hate to be right.

Zamansky & Associates are stock fraud attorneys representing investors in federal and state litigation and arbitration against financial institutions.

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About Jacob H. Zamansky 58 Articles

Jacob (”Jake”) H. Zamansky is one of the country’s foremost authorities on securities arbitration law, the legal recourse for investors claiming broker wrongdoing, or for brokers claiming wrongful termination or other misconduct by their employer. Zamansky & Associates, the New York-based law firm he founded, represents both individuals and institutions in complex securities, hedge fund, and employment arbitrations.

Mr. Zamansky was at the forefront of recent efforts to “clean up” Wall Street. In 2001, he successfully sued former Merrill Lynch analyst Henry Blodget on behalf of a New York pediatrician misled by Blodget’s stock research. The case’s successful resolution was the catalyst for New York Attorney General Elliot Spitzer to investigate the conflicts of interest on Wall Street and resulted in the well-reported $1.4 billion Global Settlement, which included many of the biggest names on Wall Street.

More recently, Mr. Zamansky is one of the leading litigators and opinion leaders of the subprime mortgage crisis and the related hedge fund collapses, representing both investors and mortgage borrowers who were defrauded by Wall Street firms and mortgage lenders. Among Mr. Zamansky’s early actions is filing the first arbitration case on behalf of institutional and high net worth investors against Bear Stearns Asset Management with regard to the two hedge funds which collapsed as a result of exposure to subprime mortgage backed securities. He also has filed claims on behalf of individual investors victimized by brokers that steered their portfolios into unsuitable subprime stocks and mortgage borrowers who were fraudulently coerced into inappropriate mortgage and investment transactions.

Earlier in his career, Mr. Zamansky worked for more than 30 years as a litigator, including positions at Skadden Arps, Slate, Meagher and Flom LLP. His tenure also included serving as a federal prosecutor with the Federal Trade Commission.

A native of Philadelphia, Mr. Zamansky has been a frequent expert commentator on CNBC, CNN, and FOX News and has published opinion pieces in The Wall Street Journal, Financial Times and USA Today. He is regularly quoted and his cases have been chronicled in major financial and news publications including The New York Times, USA Today, The Washington Post, BusinessWeek, Fortune and Forbes. He is a frequent lecturer for industry and legal groups around the country. He also writes a blog that can be viewed here.

Visit: Zamansky & Associates

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