5 ms·

Researching and writing about Goldman pushed Taibbi around the bend on anything having to do with finance. A few tidbits: Even worse, the JOBS Act, incredibly,

by joeag 14y ago

Researching and writing about Goldman pushed Taibbi around the bend on anything having to do with finance. A few tidbits: Even worse, the JOBS Act, incredibly, will allow executives to give "pre-prospectus" presentations to investors using PowerPoint and other tools in which they will not be held liable for misrepresentations. These firms will still be obligated to submit prospectuses before their IPOs, and they'll still be held liable for what's in those. But it'll be up to the investor to check and make sure that the prospectus matches the "pre-presentation." Oh my gosh - you mean before I invest my hard earned money I should read the PROSPECTUS. Say it ain't so. Then he goes on to say: In the same way, get ready for an avalanche of shareholder suits ten years from now, since post-factum civil litigation will be the only real regulation of the startup market. In fact, there are already supporters talking up future lawsuits as an appropriate tool to replace the regulations being wiped out by this bill. Isn't "post-factum civil litigation" an even better mechanism for enforcement? Look companies that are "bad actors" are going to cheat the SEC and the public anyway, and companies that aren't "bad actors" had to go through the additional expenses to comply with the SEC regs that have now been relaxed. I would rather have motivated shareholders (and their lawyers) with an axe to grind policing the markets than bureaucrats. If you look at the job bureaucrats have done to date,the track record is not so great. Read more: http://www.rollingstone.com/politics/blogs/taibblog/why-obamas-jobs-act-couldnt-suck-worse-20120409#ixzz1rqj2pYk2 http://www.rollingstone.com/politics/blogs/taibblog/why-obam...

smacktoward 14y ago
> Isn't "post-factum civil litigation" an even better mechanism for enforcement? Only if you prefer getting ripped off and then having to pay lawyers for ten or fifteen years to get back a tiny part of your losses to not getting ripped off in the first place.
- rhubarbquid 14y ago
  Assuming there's anything left to sue for...
deleted 14y ago
[deleted]
luser001 14y ago
> Isn't "post-factum civil litigation" an even better mechanism for enforcement? No. The future shareholders of the offending company are the ones who pay. Thanks to corporate liability shields, the offending officers will get away. And oh, cure is better than prevention, right?
wpietri 14y ago
I understand why you'd be skeptical of Taibbi's vehemence; I often am. But I don't think you make a good case here. Nobody's saying people shouldn't also read the prospectus. But if people can lie in the pitch and then get out of responsibility through an obscure note in the prospectus, more people will lie. It allows classic "the large print giveth and the small print taketh away" scams. Civil litigation is a terrible method for enforcement. The longer the feedback loop, the more opportunity for things to go wrong. Short-sightedness is a defining characteristic of most scammers. And litigation will only happen when there's enough money at stake and the chances of recovery are high. Small investors are fucked from the start, as is anybody who gets taken by somebody who spends the money in ways where there's little to recover. Also, your "bad actors" vs "good actors" thing is a total false dichotomy. Actors aren't the problem; it's actions. If you make it easier for "bad actors" to act, you will have more (and more severe) bad actions. Further, through competitive effects, you push everybody in the direction of bad actions.
- padobson 14y ago
  Small investors are fucked from the start This has always been the case. The stock market, corporate bonds, land trusts, and any other investment made by a person who isn't an expert in the field is just putting their money into a big black box, crossing their fingers, and hoping more money comes out. If you've got $100k to invest, go buy a car wash. It's a much safer bet than randomly sticking your money into the mystical black box. If you've got $10k to invest, find 10 friends and buy a McDonald's. Yeah, it might be buying a job, but those things print money, and if you lose money, you will have lost it betting on yourself. These are far more sensible solutions to manage your extra cash than throwing it into a mutual fund or a 401k or a savings account managed by someone you don't know in a way that you don't understand. You're just setting yourself up to be victimized when you thought you were 5 years away from retirement.
  - wpietri 14y ago
    Non-optimal returns are very different than being screwed over by scammers. One of the reasons that the US has such strong capital markets is that common investments are rarely out-and-out frauds. Whether that's due to the nobility of bankers or our relatively strong regulations is left as an exercise to the reader. I think you vastly underestimate the costs of real businesses. Looking at BizBen.com, maybe 3% of car washes for sale are under $100k. The average McDonald's grosses $2.2m/yr and is reported to have profits in the 7% range, which would be ~$150k/yr. There's no way you can buy $150k/year in income for $100k. You also don't account for the opportunity cost of the time and energy, or the increased risk. If I'm taking my investment money and buying myself a job, then if my investment fails my job is gone too. For a lot of people it's better just to put the money in a (tax-advantaged) 401k and spend their energy on what they're actually good at, which is probably not the evaluation and operation of small businesses.
a3camero 14y ago
Have you ever read a prospectus from start to finish? Groupon's is ~270 pages long: http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...
- eugenejen 14y ago
  I think there is an opportunity here in dealing prospectus of public companies for investors.
- joeag 14y ago
  1. the only time the pre-prospectus info can differ from the prospectus is before the prospectus is filed. 2. the only people that can legally receive the pre-prospectus information are qualified investors (accredited) or institutions, who supposedly can take care of themselves. 3. if you don't want to read the prospectus but want other information that's "guaranteed" to match the prospectus and you are an individual investor, just read the information that is provided after the prospectus is filed (which is all you should be able to get your hands on anyway, absent the above exclusions).
  - Tangurena 14y ago
    Section 201 of HR 3606 says > Not later than 90 days after the date of enactment of this Act, the Securities and Exchange Commission shall revise subsection (d)(1) of section 230.144A of title 17, Code of Federal Regulations, to provide that securities sold under such revised exemption may be offered to persons other than qualified institutional buyers, including by means of general solicitation or general advertising... http://www.govtrack.us/congress/bills/112/hr3606/text http://www.govtrack.us/congress/bills/112/hr3606/text They no longer have to limit their pre-prospectus info to qualified investors - it is now wide open to advertising to everyone. And instead of only selling to qualified investors, they now can sell to anyone that the seller reasonably believe is a qualified institutional buyer. I can imagine the conversations now: "I can only sell to qualified investors wink, so since you want to buy it, I believe that you are a qualified investor!"
clavalle 14y ago
Not only that but the required intermediaries for the crowdfunded companies will be required to do background checks, verification of financials...etc, etc. The details on what will be required, reporting wise, from these companies and the intermediaries that handle the crowdfunding are being worked out now. I can guarantee it is going to involve a bit more than a powerpoint presentation. I don't know why they are spreading this FUD.
praptak 14y ago
> "Look companies that are "bad actors" are going to cheat the SEC and the public anyway, and companies that aren't "bad actors" had to go through the additional expenses[...]" Isn't it a universal argument against any law?
- joeag 14y ago
  See my analogy above to income tax filing requirements. It's not an argument against any law but rather reporting requirements. If you lie, cheat or steal, it's against the law. However what you have to do to prove you have not lied, cheated or stolen(prior to any accusation being leveled against you) is the point of reducing the regulatory burden.
rayiner 14y ago
> Isn't "post-factum civil litigation" an even better mechanism for enforcement? I'm completely in favor of more civil litigation, but I'm reminded of something Ronald Coase,[1] wrote half a century ago: "The fact that actions might have harmful effects on others has been shown to be no obstacle to the introduction of property rights. But it was possible to reach this unequivocal result because the conflicts of interest were between individuals. When large numbers of people are involved, the argument for the institution of property rights is weakened and that for general regulation becomes stronger." Ronald Coase, The Federal Communications Commission (1959). In that paper he was talking about property rights in spectrum, but the principle is generalizable. Legal action is a great way for a few individuals to enforce claims against a few other individuals. When large numbers of peoples' rights are violated, however, general regulation becomes a more efficient mechanism for enforcement. [1] An economist whose theories are a bedrock of modern conservative thinking.
Tangurena 14y ago
> Isn't "post-factum civil litigation" an even better mechanism for enforcement? That hasn't worked out well for Madoff's "investors". > Look companies that are "bad actors" are going to cheat the SEC and the public anyway... And Congress passed Sarbanes-Oxley to prevent future Enrons and WorldComms. HR 3606 repeals SOX for the first 5 years of an "emerging growth company" stock issuance and returns us to the "good old days" when fraudsters were able to run wild.
hristov 14y ago
No after the fact litigation is usually a bad idea because by that time most of the money is gone. You will only get part of your investment and then you will have to pay about half of what you get to the lawyers. And that is if you are lucky. In most securities fraud the money is usually all gone by the time they catch the bad guy. Furthermore, if you have a couple of bad high profile thefts, that would poison the water for the honest companies too. As in most cases prudent prevention is better than punishment. And by the way Taibbi's right. Allowing people to lie on presentations is always a bad idea and will always result in people lying in presentations.

by joeag 14y ago

smacktoward 14y ago

> Isn't "post-factum civil litigation" an even better mechanism for enforcement? Only if you prefer getting ripped off and then having to pay lawyers for ten or fifteen years to get back a tiny part of your losses to not getting ripped off in the first place.

rhubarbquid 14y ago
Assuming there's anything left to sue for...

deleted 14y ago

[deleted]

luser001 14y ago

> Isn't "post-factum civil litigation" an even better mechanism for enforcement? No. The future shareholders of the offending company are the ones who pay. Thanks to corporate liability shields, the offending officers will get away. And oh, cure is better than prevention, right?

wpietri 14y ago

I understand why you'd be skeptical of Taibbi's vehemence; I often am. But I don't think you make a good case here. Nobody's saying people shouldn't also read the prospectus. But if people can lie in the pitch and then get out of responsibility through an obscure note in the prospectus, more people will lie. It allows classic "the large print giveth and the small print taketh away" scams. Civil litigation is a terrible method for enforcement. The longer the feedback loop, the more opportunity for things to go wrong. Short-sightedness is a defining characteristic of most scammers. And litigation will only happen when there's enough money at stake and the chances of recovery are high. Small investors are fucked from the start, as is anybody who gets taken by somebody who spends the money in ways where there's little to recover. Also, your "bad actors" vs "good actors" thing is a total false dichotomy. Actors aren't the problem; it's actions. If you make it easier for "bad actors" to act, you will have more (and more severe) bad actions. Further, through competitive effects, you push everybody in the direction of bad actions.

padobson 14y ago
Small investors are fucked from the start This has always been the case. The stock market, corporate bonds, land trusts, and any other investment made by a person who isn't an expert in the field is just putting their money into a big black box, crossing their fingers, and hoping more money comes out. If you've got $100k to invest, go buy a car wash. It's a much safer bet than randomly sticking your money into the mystical black box. If you've got $10k to invest, find 10 friends and buy a McDonald's. Yeah, it might be buying a job, but those things print money, and if you lose money, you will have lost it betting on yourself. These are far more sensible solutions to manage your extra cash than throwing it into a mutual fund or a 401k or a savings account managed by someone you don't know in a way that you don't understand. You're just setting yourself up to be victimized when you thought you were 5 years away from retirement.
- wpietri 14y ago
  Non-optimal returns are very different than being screwed over by scammers. One of the reasons that the US has such strong capital markets is that common investments are rarely out-and-out frauds. Whether that's due to the nobility of bankers or our relatively strong regulations is left as an exercise to the reader. I think you vastly underestimate the costs of real businesses. Looking at BizBen.com, maybe 3% of car washes for sale are under $100k. The average McDonald's grosses $2.2m/yr and is reported to have profits in the 7% range, which would be ~$150k/yr. There's no way you can buy $150k/year in income for $100k. You also don't account for the opportunity cost of the time and energy, or the increased risk. If I'm taking my investment money and buying myself a job, then if my investment fails my job is gone too. For a lot of people it's better just to put the money in a (tax-advantaged) 401k and spend their energy on what they're actually good at, which is probably not the evaluation and operation of small businesses.

a3camero 14y ago

Have you ever read a prospectus from start to finish? Groupon's is ~270 pages long: http://www.sec.gov/Archives/edgar/data/1490281/000104746911005613/a2203913zs-1.htm http://www.sec.gov/Archives/edgar/data/1490281/0001047469110...

eugenejen 14y ago
I think there is an opportunity here in dealing prospectus of public companies for investors.
joeag 14y ago
1. the only time the pre-prospectus info can differ from the prospectus is before the prospectus is filed. 2. the only people that can legally receive the pre-prospectus information are qualified investors (accredited) or institutions, who supposedly can take care of themselves. 3. if you don't want to read the prospectus but want other information that's "guaranteed" to match the prospectus and you are an individual investor, just read the information that is provided after the prospectus is filed (which is all you should be able to get your hands on anyway, absent the above exclusions).
- Tangurena 14y ago
  Section 201 of HR 3606 says > Not later than 90 days after the date of enactment of this Act, the Securities and Exchange Commission shall revise subsection (d)(1) of section 230.144A of title 17, Code of Federal Regulations, to provide that securities sold under such revised exemption may be offered to persons other than qualified institutional buyers, including by means of general solicitation or general advertising... http://www.govtrack.us/congress/bills/112/hr3606/text http://www.govtrack.us/congress/bills/112/hr3606/text They no longer have to limit their pre-prospectus info to qualified investors - it is now wide open to advertising to everyone. And instead of only selling to qualified investors, they now can sell to anyone that the seller reasonably believe is a qualified institutional buyer. I can imagine the conversations now: "I can only sell to qualified investors wink, so since you want to buy it, I believe that you are a qualified investor!"

clavalle 14y ago

Not only that but the required intermediaries for the crowdfunded companies will be required to do background checks, verification of financials...etc, etc. The details on what will be required, reporting wise, from these companies and the intermediaries that handle the crowdfunding are being worked out now. I can guarantee it is going to involve a bit more than a powerpoint presentation. I don't know why they are spreading this FUD.

praptak 14y ago

> "Look companies that are "bad actors" are going to cheat the SEC and the public anyway, and companies that aren't "bad actors" had to go through the additional expenses[...]" Isn't it a universal argument against any law?

joeag 14y ago
See my analogy above to income tax filing requirements. It's not an argument against any law but rather reporting requirements. If you lie, cheat or steal, it's against the law. However what you have to do to prove you have not lied, cheated or stolen(prior to any accusation being leveled against you) is the point of reducing the regulatory burden.

rayiner 14y ago

> Isn't "post-factum civil litigation" an even better mechanism for enforcement? I'm completely in favor of more civil litigation, but I'm reminded of something Ronald Coase,[1] wrote half a century ago: "The fact that actions might have harmful effects on others has been shown to be no obstacle to the introduction of property rights. But it was possible to reach this unequivocal result because the conflicts of interest were between individuals. When large numbers of people are involved, the argument for the institution of property rights is weakened and that for general regulation becomes stronger." Ronald Coase, The Federal Communications Commission (1959). In that paper he was talking about property rights in spectrum, but the principle is generalizable. Legal action is a great way for a few individuals to enforce claims against a few other individuals. When large numbers of peoples' rights are violated, however, general regulation becomes a more efficient mechanism for enforcement. [1] An economist whose theories are a bedrock of modern conservative thinking.

Tangurena 14y ago

> Isn't "post-factum civil litigation" an even better mechanism for enforcement? That hasn't worked out well for Madoff's "investors". > Look companies that are "bad actors" are going to cheat the SEC and the public anyway... And Congress passed Sarbanes-Oxley to prevent future Enrons and WorldComms. HR 3606 repeals SOX for the first 5 years of an "emerging growth company" stock issuance and returns us to the "good old days" when fraudsters were able to run wild.

hristov 14y ago

No after the fact litigation is usually a bad idea because by that time most of the money is gone. You will only get part of your investment and then you will have to pay about half of what you get to the lawyers. And that is if you are lucky. In most securities fraud the money is usually all gone by the time they catch the bad guy. Furthermore, if you have a couple of bad high profile thefts, that would poison the water for the honest companies too. As in most cases prudent prevention is better than punishment. And by the way Taibbi's right. Allowing people to lie on presentations is always a bad idea and will always result in people lying in presentations.