John Coffee Jr. Testifies on Capitol Hill About Facebook, IPOs, and Securities Regulation

Prominent Securities Law Expert Discusses the JOBS Act and Judicial Reversals of Rulemaking by the SEC

New York, June 26, 2012—Columbia Law School Professor John C. Coffee Jr., a prominent expert in corporate and securities law, delivered testimony today before the House Committee on Oversight and Government Reform about the importance of trustworthy capital-raising mechanisms and effective securities regulation in stimulating job creation.

Coffee, the Adolf A. Berle Professor of Law, was one of four expert witnesses invited to testify at Tuesday’s hearing, titled “The JOBS Act in Action: Overseeing Effective Implementation That Can Grow American Jobs.” He detailed three main arguments to the lawmakers concerning securities regulation in the context of the Jumpstart Our Business Startups (JOBS) Act, which President Obama signed into law this past April:

  • “The greatest enemy of job creation today is not overregulation, but the loss of investor confidence. In particular, American investors have lost confidence in the initial public offering (“IPO”) process and in the integrity of the mechanisms for capital raising.”
  • “Virtually every page of the JOBS Act imposes obligations on the SEC to adopt rules implementing it. Yet, in light of recent decisions of the D.C. Circuit Court of Appeals, this is a task that is both time-consuming and fraught with peril, because the D.C. Circuit Court of Appeals has repeatedly indicated its willingness to substitute its judgment for that of the Commission as to whether the costs of an SEC rule exceed its claimed benefits.”
  • “Given that the risk of judicial invalidation is real, many have an incentive to sue to challenge SEC rules under the JOBS Act, as and when they are proposed. More than any other factor, this will create uncertainty and legal confusion for entrepreneurs, underwriters, promoters, and investors alike and will slow the implementation of the JOBS Act.”

In discussing the erosion of American investors’ confidence in the IPO, Coffee noted that it is essentially legal under current regulations for a company to selectively disclose crucial information about a public offering to preferred investors while withholding that information from retail investors. As an example, he cited the controversy surrounding the recent Facebook IPO. A copy of Coffee’s testimony is available here.

Other expert witnesses called to testify at Tuesday’s hearing on Capitol Hill included SEC general counsel Brian Cartwright; Professor C. Steven Bradford of the University of Nebraska College of Law; and Alon Hillel-Tuch, co-founder and CFO of RocketHub, an online crowdfunding portal for artists.