WASHINGTON — There was so much support in Washington two months ago for loosening rules on initial public offerings that Republicans and Democrats effortlessly passed a bill making it easier for smaller companies to raise money on Wall Street.
Now, Facebook’s IPO debacle could erode that enthusiasm.
As regulators and congressional committees review whether a reduced revenue forecast was improperly released only to certain large Facebook investors, some lawmakers and consumer advocates also are pushing for a thorough review of IPO rules with an eye toward tightening them.
“We don’t need to make it easier for companies to go public,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “We need to look at the IPO process to make sure it’s fair.”
Critics are particularly concerned about provisions in the Jumpstart Our Business Startups Act that would grease the IPO skids. Although President Barack Obama signed the measure into law with fanfare, the Securities and Exchange Commission still must adopt detailed regulations implementing the law.
The Facebook IPO has “raised a whole set of questions, not just about the provisions of the JOBS Act but about IPOs in general,” said Sen. Jack Reed, D-R.I., chairman of the Senate Banking Committee’s subcommittee on securities, insurance and investment. “Are the rules up-to-date, and do they adequately protect retail investors, who might not have the same access to information?”
The Senate Banking Committee’s initial look into the Facebook IPO, announced last week, will help determine whether changes need to be proposed, Reed said.
The JOBS Act applies only to firms with less than $1 billion in annual revenue, so it would not affect Facebook, which had $3.7 billion in revenue last year.
In the days before the offering, Morgan Stanley and the large Wall Street banks that underwrote the Facebook IPO issued warnings to top clients that their analysts had lowered their expectations for Facebook’s revenue growth this year. But the information was not shared with retail clients or the public.
In easing the process for smaller companies to go public, the JOBS Act removes a so-called quiet period that had prevented analysts at an investment bank underwriting an IPO from issuing research reports that could hype the stock.
