White House allies are in an uproar over pro-business legislation embraced by President Obama, exposing a new rift in his relations with Democratic lawmakers and supporters amid his efforts since the fall to mend those ties.
The bill is designed to make it easier for growing companies to raise money and reduce the cost of complying with securities laws. But critics warn it would allow firms to avoid disclosing crucial financial information and elude government oversight, opening the door to fraud and investor abuse. The measure is set to pass Congress on Tuesday.
To rally skeptical Democrats, including some who were thinking of trying to keep the bill from coming up for a vote, Senate Majority Leader Harry M. Reid (D-Nev.) last week made a last-minute, behind-the-scenes appeal to let the bill proceed, according to congressional aides. In the Mansfield Room off the Senate floor, Reid warned his Democratic colleagues against obstructing a measure backed by the president and standing in the way of a bipartisan effort to create jobs.
The Senate voted on the legislation, although half of the chamber’s Democrats voted against passage. Congressional aides said the White House’s enthusiastic support for the bill left some Democratic senators feeling boxed in.
Republicans call the measure a “jobs bill.” Democrats call it an “IPO” bill, referring to the initial public offerings of stock made by companies to raise money from investors. The White House calls it a “startup bill,” and its swift progress through Congress reflects Obama’s desire to show he has strong business credentials and favors a sensible scaling back of regulations. The White House has also sought to demonstrate bipartisanship by supporting the measure — officially known as the Jumpstart Our Business Startups Act, or Jobs Act.
“Helping startups and small businesses succeed and create jobs is fundamental to having an economy built to last,” the White House said in a statement of support for the legislation this month.
Since the fall, the White House has worked hard to reconcile with liberal groups, adopting tougher rhetoric toward Republicans and advancing a series of policy proposals embraced by allies. But when liberals revolted over this recent legislation, the White House responded with what critics complain was only a token acknowledgment of their concerns. The bill has raised objections from prominent union, consumer and regulatory groups.
Richard Trumka, AFL-CIO president, said last week that the bill “will do nothing to create good jobs and stabilize the U.S. economy. Instead, it will deregulate Wall Street — voiding investor protections put in place after Enron and the 2008 financial crisis.”
Sen. Richard J. Durbin (Ill.), the second-highest-ranking Democrat in the Senate, said last week that the bill “would exempt firms from safeguards that we adopted in this country after Enron” — the energy company that imploded in 2001 after a massive accounting fraud, giving rise to far-reaching regulations overseeing disclosures by public companies.
The legislation scheduled to come up for a vote Tuesday would relax a host of federal securities laws to make it cheaper and less burdensome for companies to solicit and raise investor money during their early years of growth.
A senior Obama administration official said the White House had lent early support to a Republican version of the bill in the House as a way of supporting bipartisan efforts in Congress to help young companies. But the official acknowledged that some Democrats think the White House might have created too much momentum behind the approach advocated by House Republicans, making it difficult to pursue an alternative. The official added that the White House always favored stronger investor protections and worked with Senate Democrats trying to beef up the bill.
Any disagreement with liberal groups over the legislation does not represent a significant rift, the official said.
The bill has a number of fathers. The proposal dates back to a period after the 2010 congressional elections, when Obama sought to burnish his pro-business credentials after breaking with corporate America in his pursuit of financial regulation and expanded health care.
He hired a former banker who favored this rapprochement, William M. Daley, as his chief of staff and launched a Jobs and Competitiveness Council that included numerous executives. A conference convened by the Treasury Department set up an external, independent task force to determine how to make it easier for growing companies to raise money in the markets. Obama ordered a wide-scale review of regulations to see which ones might be trimmed.
Liberal allies, at the time, recoiled at the administration’s strategy.
Last fall, after discussions with Republicans about a “grand bargain” to tame the nation’s debt broke down, Obama shifted to more liberal positions. He pushed for a stimulus plan to create jobs and bypassed Congress to install regulators at the Consumer Financial Protection Board and National Labor Relations Board.
All the while, House Republicans had begun working on a series of measures to make it easier for companies to raise money from investors. Obama was eager to sign on, even referencing the efforts in his State of the Union message.
When House Republicans released an initial version of the bill this month, the administration endorsed it, calling for “cutting the red tape that prevents many rapidly growing startup companies from raising needed capital.” When the House passed the bill, the White House urged lawmakers to bring a bill to Obama’s desk “without delay.”
In the Senate, though, the legislation hit a roadblock. Regulators, labor unions, consumer groups and investor advocates said it did away with crucial investor protections. Even the Obama-appointed chairman of the Securities and Exchange Commission, Mary Schapiro, raised serious concerns.
Democrats such as Sens. Carl Levin (Mich.) and Jack Reed (R.I.) called for an alternative, and Reid pledged to offer a Democratic version of the legislation that provided greater investor protections.
But the White House and Democratic leaders agreed that though the alternative was substantively better, trying to throw out the House bill and advance the Senate version would be a mistake, because then neither bill would pass and it would seem as if Democrats were blocking bipartisan jobs legislation.
Last week, the Senate passed the House legislation, with one amendment to require enhanced disclosure by companies seeking to “crowd-fund” — or raise money from investors online.
Twenty-six senators — 25 Democrats and one independent who caucuses with the Democrats — voted against the bill. Twenty-five Democrats and another independent who caucuses with them joined with Republicans in supporting it.
Barbara Roper, director of investor protection at the Consumer Federation of America, said in a statement, “The White House, which pushed for passage of a bipartisan bill regardless of its attack on investor protections, and Senate leadership . . . bear a heavy burden of responsibility for the damage this bill will cause to vulnerable investors.”
A senior administration official said that federal regulators would closely monitor the impact of the legislation and that there is little reason to worry that investors could be harmed.
With the bill amended by the Senate, it heads back to the House, which is expected to quickly send it to the president Tuesday morning.