“It has been about a year since the JOBS Act sailed through Congress with the support of bipartisan majorities, President Obama and the banking industry — despite warnings that it would harm investors by weakening the standards and procedures that companies and their bankers must follow when they seek to raise money from the public.
“A recent report in The Times by Peter Lattman and Susanne Craig shows that some of the predicted ill effects of the JOBS Act — for Jump-Start Our Business Start-Ups — are now coming to pass. The report detailed how stock analysts at Wall Street investment banks, whose recommendations are widely used by investors, are once again routinely communicating with companies that are shopping for banks to underwrite their initial public offerings.
“Mixing research and investment banking was barred in 2003 when Eliot Spitzer, then attorney general of New York, discovered that dot-com stock analysts were raving publicly about start-ups even as they privately disparaged them. The analysts’ rosy public statements were aimed at helping the banks they worked for win the lucrative business of taking private companies public.
“The result was to deceive investors, while inflating a bubble that burst with disastrous consequences. In a $1.4 billion settlement with the government over the practices, 10 banks agreed to split their research and banking departments. Analysts were also expressly forbidden from participating in efforts to solicit I.P.O. business.”
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