The JOBS Act: What It Means for Investors

A new piece of legislation called Jumpstart Our Business Startups, or JOBS Act, may have good intentions but could wind up harming some investors.  As reported April 2 by the New York Times, the JOBS Act is designed to help start-ups raise capital so they can go public but, according to the story, it may actually do more damage than good.

That’s because the JOBS Act promotes a technique called “crowd funding,” whereby entrepreneurs are allowed to raise up to $1 million online from individual investors – and they can do so with only the most minimal financial disclosures. In other words, if a company touts questionable financial metrics as a way to enhance the appearance of its fiscal health, investors may never learn the truth until it’s too late.

In times of an unsettled economy, investors are easily drawn to financial opportunities that promise a fast and hefty return on their investment. The JOBS Act “dismantles some of the most basic protections for the most susceptible investors apt to be drawn into get-rich-quick scams and too-good-to-be-true investment opportunities,” says the New York Times story.