SEC Preventative Measures Against Securities Violations and Fraud Post-JOBS Act

Abstract

The purpose of the Securities Act and the Exchange Act is to supply investors with the necessary information to make informed decisions regarding an entity’s offerings. After the 2010 financial crisis, the economic crisis devastated the economy leaving many without jobs. In response to this economic recession, President Obama signed the Jumpstart Our Business Startups Act (JOBS Act) into law in 2012 as one method of stimulating the economy. This Act deregulated the securities laws for small businesses in the hopes of creating jobs and invigorating the economy. These changes allow a small business more access to capital by reducing the reporting requirements for certain entities and increasing access to shareholders. However, many think that such deregulation of the securities market could generate investor fraud by trading investor protection for capital formation and job growth. Two years after this Act was passed, the U.S. Securities and Exchange Commission (SEC) filed a small number of fraud cases that involve the JOBS Act changes, illustrating how bad actors can hide themselves from SEC view and use the JOBS Act changes to defraud investors. The problem with passing judgment based on these cases is that the SEC has not finalized the rules regarding a significant section of this Act: Title III related to the crowdfunding exemption. Because the SEC has not released those changes, investor fraud cases could increase.