Rolling Stone | RS_News | June 8 2012
OPINION ~ I’m on vacation, very far from home, so apologies for the short post. I’ll be back online next week, and we have a fun story coming out in Rolling Stone the week after that.
In the meantime, I wanted first of all to thank everyone who participated in the Thunderclap Twitter experiment. I’m away, and haven’t heard the full report yet, but I understand it was a rousing success. I’ll find out more when I come home, but until then, thank you all again for taking the time to sign up.
One story I did want to pass on while I was gone is a very interesting Wall Street Journal piece entitled, “Meet the JOBS Act’s Jobs-Free Companies.” A few months ago, I wrote a few articles about the JOBS Act, which a number of friends of mine from congress and from the regulatory community insisted would pave the way for a return to the IPO fraud boom of the late nineties, if not for a return to the penny-stock fraud age.
Well, eight weeks after the passage of the law, we’re finding some unexpected results. Among the more controversial provisions of the JOBS Act, remember, was a sort of blanket regulatory exemption for so-called “Emerging Growth Companies,” which were loosely defined as public companies with less than $1 billion in annual revenues. Among other things, the new law allows such companies to avoid independent accounting requirements for the first five years of their existence.
According to the WSJ, what’s happening now is that the JOBS Act is being used to facilitate what are known as “reverse mergers.” Because it’s traditionally been difficult for new companies to meet the regulatory requirements for going public, what’s often happened is that young companies look for dormant or dead corporations that are already registered. They then merge with those “empty shell” companies, use their corporate structures, and thusly avoid the IPO process altogether. This process is called a “reverse merger.”