By Jim Abrams Associated Press
WASHINGTON — Senate Republicans on Tuesday thwarted a Democratic attempt to add investor protections to legislation aimed at helping small businesses, leaving Democrats scrambling to find their next course of action.
Democrats also were stymied in an effort to link the small business bill to an extension and expansion of the Export-Import Bank, an agency that provides financing for U.S. companies trying to sell products overseas.
With those two Democratic reversals, Democrats postponed a vote on ending the debate and moving the bill toward passage. The House passed the legislation two weeks ago by a 390-23 margin and President Barack Obama supported that bill, which would relax federal regulations that can impede small businesses and startups from finding investors and going public.
Both Senate votes Tuesday were 55-44 to advance the amendments under a procedure that required 60 votes.
The bipartisan concord that existed in the House largely disappeared in the Senate, with Republicans nearly united in resisting Democratic efforts to increase investor protections and to attach the Ex-Im Bank bill to the measure.
Senate Republican leader Mitch McConnell, R-Ky., said many Republicans support the Ex-Im Bank, which has strong backing among the business community, but adding it to the small business bill “would only delay passage of this bipartisan jobs bill.” His Republican colleagues fell in line, including Sen. Richard Shelby of Alabama, top Republican on the Senate Banking Committee and a supporter of the measure to reauthorize the bank.
The two Democratic senators from Washington, Maria Cantwell and Patty Murray, were among the vocal advocates of the bank, which provides substantial financing to Boeing Co., which builds planes in their state. Delta Air Lines has criticized the bank for providing loan guarantees that allow foreign airlines to save money on new U.S.-made planes, resulting in unfair competition, and some conservative groups, including the Club for Growth, say the agency should be eliminated because it distorts markets and picks winners and losers.
Senate Majority Leader Harry Reid, D-Nev., said Republicans were making a “huge mistake” by denying action on the Ex-Im Bank. He said the crowded Senate agenda would make it difficult to return to the bill, hurting U.S. companies trying to do business abroad. The bank’s authorization expires on May 31, but it may soon reach its lending ceiling of $100 billion. The Democratic amendment would have extended the bank for four years and raised the lending limit to $140 billion.
Bank financing last year supported $41 billion in U.S. exports from more than 3,600 U.S. companies.
The small business bill, which its House Republican supporters refer to as the JOBS Act, would exempt small businesses and startups from some Securities and Exchange Commission regulations. The centerpiece for the six bills in the package is a provision that would reduce the costs of companies seeking to go public by phasing in over five years SEC regulations that apply to what are categorized as “emerging growth companies.” That status would be in effect for companies with annual gross revenue of less than $1 billion.
Senate Democrats argued that it would exempt more than 80 percent of current initial public offerings or IPOs. Their defeated amendment would have narrowed the qualified companies to those with less than $350 million in annual revenues.
The measure also removes SEC regulations preventing small businesses from using advertisements to solicit investors, raises from 500 to 2,000 the shareholders a company or community bank can have before it must register with the SEC and allows smaller companies to sell up to $50 million in shares, up from the current $5 million, without filing some SEC paperwork.
One of the more controversial provisions removes SEC restrictions on “crowdfunding,” a practice of using the Internet to raise capital from a large number of smaller investors. The measure limits individual contributions to $10,000 or 10 percent of the investor’s annual income and requires the intermediary or issuer of the offering to provide the SEC with information about the transaction.
Within days of the House vote, questions arose about consumer protections. Mary Schapiro, chairman of the SEC, listed a number of concerns, including that the bill would remove the firewall between research analysts who are supposed to provide objective information about investments and investment bankers in the same firm whose main function is to encourage people to invest. AARP said the elderly are disproportionately the victims of investment fraud and said it agreed with Schapiro that, absent safeguards, the House bill “may well open the floodgates to a repeat of the kind of penny stock and other frauds that ensnared financially unsophisticated and other vulnerable investors in the past.”
The White House, while maintaining support for the bill, issued a statement last week saying it supported Senate efforts to ensure there are sufficient safeguards to prevent abuse and protect investors.
“None of us wants this legislation to be a boon to boiler room operators and Ponzi schemers targeting our nation’s retirees or anyone else,” Sen. Jack Reed, D-R.I., said.
Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, stressed Monday that the House bill contains strong investor protections and that Senate Democratic objections were part of a “cynical campaign strategy of running against a so-called do-nothing Congress.”
House Majority Leader Eric Cantor, R-Va., the chief backer of the House bill, on Monday criticized what he said where “11th hour claims about phantom investor protection issues or adding partisan amendments like the Ex-Im Bank reauthorization that threaten to derail the bill.”
Cantor’s office said he was working on a separate Ex-Im Bank overhaul bill that he hopes to bring to the House floor before the end of the month.