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Senate Democrats propose investor protections changes to House bill

By Lisa Mascaro, Tribune Washington Bureau –

WASHINGTON — With growing concern that investor protections would be weakened under a popular capital formation bill, Democrats in the Senate have proposed an alternative to the House-passed measure that seeks to beef up oversight to reduce the risk of fraud.

But the changes put the bipartisan legislation, which received qualified support from President Barack Obama, on an uncertain path. The GOP-led House approved the bill, but it is unclear if Republicans in either chamber would accept the changes.

“We can dial back this excessive legislation in a way that will provide capital formation, but will also provide protections to investors,” said Sen. Jack Reed, D-R.I., in proposing the alternative on Thursday.

The House’s Jumpstarting Our Startups, or JOBS Act, aimed to make it easier for small businesses to access capital by undoing some of federal regulations on business startups. House Republicans portrayed the legislation as one of their signature bills that would help to create jobs.

Obama had pressed Congress to send him such a measure, and House Democrats gave it their support.

But a growing list of current and former federal regulators, as well as consumer watchdog groups and AARP, have warned that the legislation could open the door to a new generation of fraudulent investment schemes, including those online. Vulnerable investors could be defrauded.

The Senate seeks to reinstate protections several ways. Democrats propose greater oversight of so-called crowd-funding — a relatively new approach to raising capital by soliciting investments online and through social media from a pool of many individual donors. The House bill loosened federal regulations on this emerging capital formation tool.

The House-passed bill also loosened restrictions that had been put in place after the dot-com era to oversee research and investment analysts that work for the same firm. The Senate re-erects those barriers.

Perhaps most likely to face objections from the GOP is a provision that might reduce the number of companies that could qualify for loosened federal oversight. Under the House-passed bill, businesses with up to $1 billion in annual revenues would be exempt from certain Securities and Exchange Commission reporting requirements when they go public. The Senate measure would drop that threshold to $350 million.

“We all should have learned from the painful recent past,” said Sen. Carl Levin, D-Mich., in supporting the changes. “The risks here are so great.”

Republicans have been cool to the changes, and it is unclear if Democrats could achieve the 60 votes that would likely be needed to amend the House-passed bill.

The alternative proposal includes other provisions important to Democrats, but unlikely to find broad support among Republicans.

One of those is to reauthorize — and increase — the lending capacity of the nation’s Export-Import Bank, which is set to expire in May.

Democrats want to increase the bank’s authority, which is now $100 billion a year, to $140 billion by 2015; conservative Republicans want to dismantle the bank as an unnecessary government venture at a time when exporters have global access to capital.

Additionally, Democrats want to boost a Small Business Administration venture capital pool by $1 billion, as Obama has requested.

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