News

Banks May Have Trouble Taking Full Advantage Of JOBS Act’s New Opportunities For Deceiving Clients

My time in the financial industry entirely postdated the global research settlement, which means that I have a different view of sell-side research from some of the olds. As far as I can make out, there are people who think that investment bank research was once a demonic scheme in which research analysts – larger-than-life figures whose recommendations were irresistible to the retail investors who in this vision bought all of every pre-2003 stock offering – swindled those besotted retail investors into buying crap stocks at inflated prices so that the banks could get gigantic investment banking fees. Whereas I always thought that investment bank research was a sort of cute endeavor of unclear commercial purpose, taken skeptically by the institutional investors who buy most of every post-2003 offering, made fun of by bankers, and conducted by people whom we never saw because, among other things, our network was set up to prevent them from emailing us and vice versa.

Perhaps before the settlement giants roamed the halls of research divisions, defrauding investors with abandon, but once their email was cut off from the bankers’ email they retreated into mousy irrelevance? Unclear. In any case THEY’RE BACK BABY, sort of:

One measure in the [JOBS Act], passed by Congress March 22 to ease securities rules for closely held firms, would restore communication between bank research and underwriting arms. Those links were restricted in 2003 by regulators and by a separate settlement between then-New York Attorney General Eliot Spitzer and 10 firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co. …

When it becomes law, regulators will no longer be able to write or maintain rules that restrict investment bankers from arranging communications between analysts and investors when dealing with firms with less than $1 billion in gross annual revenue. Analysts also will be able to join investment bankers on meetings with the management of qualified firms, as well as have the freedom to publish research reports on firms immediately after an initial public offering instead of waiting for a blackout period to end.

Would it surprise you to learn that some people think this is a bad idea, and that one of them is this guy?

“It is a bad sequel to a bad movie,” said Eliot Spitzer, the former New York attorney general. “It shouldn’t be called the JOBS Act, it should be called the Bring Fraud Back to Wall Street Act.”

If you take this seriously you might ask questions like: is this in fact a bad idea? Well, lots of people (not just Spitzer!) think so. And if you think (reasonably) that research should be walled off from banking, then I guess you might ask why those walls should be lowered for “emerging growth companies” in particular. On the one hand, you can understand why emerging growth companies, who lack a track record of consistent financial results and are bought and sold based on subjective perceptions of “story” and potential rather than on actual performance, would be particularly well served by sympathetic research crafted in consultation with management and the bankers who know the company best. On the other hand, that sentence is self-refuting.

But I wonder how seriously you should take it. Maybe start not by asking “what will research analysts do in reaction to this?” or “what will capital markets bankers do?” or even “what will investors do?” but – “what will the IT department do?” Like, do you change the email system? Do you have some sort of filter where analysts can’t email bankers unless the subject line is the name of a sub-$1bn-revenue company, in which case, HAVE AT IT?

The global settlement imposed a range of hurdles on banker-analyst communications, which now, when they occur, are monitored by chaperones* so that no one can do anything untoward. And more broadly the culture of research is, at least in theory, now supposed to be about helping buy-side clients invest rather than helping bankers win sell-side business – as promoted not only through things like walls between the divisions but also by comp structures that don’t allow research analysts to be paid out of banking fees. Perhaps the analysts who only cover pre-IPO emerging growth companies will over time develop a view of themselves as adjuncts to banking, but how many of those are there?

Davis Polk’s client memo on the topic is pretty balanced:

It is not clear that investment banks will take advantage of this flexibility, at least for now. While pre-deal research is common outside the United States, the U.S. litigation environment is unique. After the late 1990’s “dot-com craze,” investment banks paid sizable amounts to settle Rule 10b-5 claims where the research in question allegedly contained misstatements. …

[T]he JOBS Act would not eliminate all restrictions on research related to EGCs. For example, research analysts would still need to comply with the unaffected provisions of FINRA’s research rules, including the prohibition on participating in efforts to solicit investment banking business, and with Regulation AC, which requires research analysts to certify that the views they express in their research reports accurately reflect their personal views. It is unclear what the ongoing status of the Global Research Settlement will be in light of the JOBS Act’s mandated changes to SEC and FINRA research rules. To the extent that the Global Research Settlement is still applicable, it includes restrictions, such as a prohibition on research analysts participating in pre-marketing, that could limit the ability of firms that are party to the Global Research Settlement to take advantage of some of the flexibility contained in the JOBS Act.

They also point out something pretty compelling, which is (1) the SEC haaaaaaaates this and (2) they still have a lot of ability to make trouble by “impos[ing] rules around research on matters that are not addressed by the JOBS Act.”

My basic view remains that the JOBS Act is weird and kind of dumb for having one set of rules for most of the securities market and another, more fraud-friendly set of rules for one medium-sized corner of that market. In some places, though, it may be saved from its own dumbness by the difficulty in adjusting background rules, and bank systems and behaviors, to take advantage of the more fraud-friendly JOBS Act rules.

The JOBS Act: Implications for Capital Markets Professionals, Pre-IPO Companies and Private Offerings [Davis Polk]
Analyst-Banker Firewall Weakened in Bill on Obama’s Desk [Bloomberg]
Wall Street Examines Fine Print in a Bill for Start-Ups [DealBook]

* Are they called that elsewhere? They are at GS. It’s so demure.

62 comments
(hidden for your protection)
Show all comments

62 Responses to “Banks May Have Trouble Taking Full Advantage Of JOBS Act’s New Opportunities For Deceiving Clients”

  1. Had to be said says:

    This, like, NEEDS MORE CHARTS. And "likes" for that matter. And "y'knows." Are you even the real Matt?!

    • Almost good says:

      Have some humility, htbs: We are firsthand witnesses to Matt's forages in the wondrous world of the English language. I especially enjoyed him creating the illusion of interactivity and participation with the usage of second person singularis, fully expecting an enterprising zinger of absurdity being thrown in my face. But Matt is too kind to do that. He reinforces us, lets us know we are alright, before announcing that the JOBS act is "weird and kind of dumb".

      Brilliant. Breathtaking and brilliant

  2. Curious says:

    Has Matt ever written anything in less than 1,000 words?

  3. The Truth says:

    Fuck yeah!. We're back baby. Time to party like it's 1999.

    – J. Grubman, H. Blodgett, M. Meeker, et al

  4. Matt Levine says:

    Another Matt Levine magnum opus!!! Kudos Matty!! Kudos!

  5. Guest says:

    Spitzer roast beef some love!

  6. Dope Rapper says:

    Stopped reading at "05"….

    – Guy who's now craving a sausage and pepper samich

  7. Beerio says:

    I note with sadness that the tags and picture captions are back to their normal boring selves. I miss the smoothy-chops days…

  8. Pdiddy says:

    Actually that first paragraph is kind of winning. Those of us in the current generation can't really conceive of a time when ugh, Research was a seen a sexy/powerful/hot spot to be. Now it's just lots of earnings updates.

  9. deadspin says:

    "[…] in which case, HAVE AT IT?"

    drew magary?

  10. Banalyst says:

    Yes they are called chaperones here too

    -Settlement Firm Analyst

  11. guesticles says:

    Legitimately good piece.

    – guy who sometimes hates on matt's work, but respects the man

  12. Guest says:

    Meh, any retail investor dumb enough to be duped by a slanted research report would just invest in some other stupid shit like a 2x inverse VIX ETF.

  13. Jeremy Villa says:

    <img src="http://www.fitnessfoodlist.com/news/dailynews/left.jpg">If profits exceed 100%, then people will ignore the law<img src="http://www.fitnessfoodlist.com/news/dailynews/leftl.jpg"&gt;

  14. "Kristen" says:

    Eliot baby, don't get so worked up…come back to bed

  15. Ashley Dupre says:

    I don't want to have to tell you again, Eliot, condom yes, socks no.

  16. [url=http://www.rosettastonecanadas.eu]rosetta stone italian[/url]
    Their hardware won’t be a person’s finished article, but RIM reckons it’s close enough intended for devs in the market to start making applications. Your Canadian firm will be handing on the net several thousand devices time for developers attending BlackBerry World found in a trustworthy move described as “unprecedented”.
    ,[url=http://www.rosettastonecanadas.eu]rosetta stone spanish[/url]
    Its acquisition moreover includes the specific rights in the market to Catching Fire, the second movie doing your current franchise, making ABC Relation these basic cable home about each of our preliminary two movies around the Hunger Games franchise. Its films will commence airing on ABC Relation during 2014.
    [url=http://www.rosettastonecanadas.eu]rosetta stone italian[/url]
    Great, if his awards-show specials are anything of go on (and as a consequence we certainly hope they’ll were), then a new star-studded pretaped comedy bit won’t go amiss throughout i would say the festivities?aand, via the sounds because of things, some showbiz digs issued for always the specific right amount using deadpan delivery.
    http://www.rosettastonecanadas.eu

  17. Liaivenny says:

    [url=http://www.oakleyoutletcanada.com]oakley sunglasses canada[/url]
    Hillcrest’s Freespace MotionEngine by Mobile is very much embedded software which manages together with enhances our own combined normal daily functioning to do with motion sensors commonly found inside smartphones on top of that tablets — accelerometers, magnetometers, as well as , gyroscopes — time for run current and consequently future motion-based applications.
    ,[url=http://www.oakleyoutletcanada.com]oakley usa[/url]
    Gas prices suffer from become a nice top level political issue, by using President Obama’s energy policies being launched a target written by Republicans vying to gain their party’s presidential nomination. When gas price peaked across 2008, George W. Bush was really president.
    [url=http://www.oakleyoutletaustralia.com]oakley batwolf[/url]
    Huawei chief security police officer John Suffolk – another former head involved with network security to receive how the British government – said yesterday he still had spoken for you to ASIO last October typically before this man took up some sort of position. The individual said some of the since then neither that she nor anyone of the specific company had been contacted because of the security agency about ones network.
    http://www.oakleyoutletcanada.com

  18. gmohuz says:

    OMMsOw mujtdtexscak, [url=http://feszdwyerdpo.com/]feszdwyerdpo[/url], [link=http://pngvoddmidxp.com/]pngvoddmidxp[/link], http://ivjopoquqmen.com/

  19. Xrumer says:

    Thank you, I’ve just been looking for information approximately this topic for a while and yours is the greatest I’ve discovered so far. But, what concerning the bottom line? Are you positive concerning the source?

  20. Cliffussy says:

    rctxftjv [url=http://abercromfitchmagasin.webnode.fr/#6692]abercrombie parisa[/url] rfslerpm abercrombie pas cherg suvfplkh http://abercromfitchmagasin.webnode.fr/

  21. Hiya very cool web site!! Man .. Beautiful .. Amazing .. I’ll bookmark your web site and take the feeds additionallyI am happy to find numerous useful info right here in the submit, we need work out extra techniques in this regard, thanks for sharing. . . . . .

  22. Wynell Haaz says:

    Definitely neat window!br /Well noticed.

  23. I am not a supporter of this so called Healthcare Bill. I am 47 self-employed Healthcare worker and uninsured. If this Bill passes the govt can kiss my rear!! On page 59 it states you will have to give the govt your bank acct# so they can withdrawl money from your acct monthly, well I have news for them I will close my accts. This Bill is age discrimination, I see many law suits coming over this Bill. I think the best thing to do if it passes is a complete rebellion by the American people!! Our own govt is making fun of the American people that do not support this Bill, they seem to think we are being paid to protest, what they fail to see is that the American people are pissed off! They have no idea what is about to hit them right square in the face it is call We The People!! They have never seen our rath because people have given to much trust to our elected officials but the sleeping giant is awake now! Also in this Bill is over 1000 earmarks, yep more special interest payments for Obama supporters. Join me and hopefully many others in Washington DC on 9/12/2009 to let your voices be heard! God bless our great nation.

  24. I still adore Condi Rice! She must be within a leadership placement Since of all of individuals reasons. If Obama attacked her, then I think fairly a handful of people would really depart his side for being a whiner and hypocrite. Seriously, the liberals are these a compact quantity, albeit with all the largest mouths, but they’re able to and will be defeated with someone as stable, sane and also headed as Condi on the helm….

  25. Superb study, I just passed this onto a roommate who was doing a little investigation on that. And he actually purchased me lunch because I found it for him. So let me rephrase that: Thanks for lunch!

  26. Fantastic blog article.Much thanks again. Keep writing.

  27. Advertising and Revenue Collateral – Being a home company leader / agent, you’ll have many less difficult to wear. There is actually plenty of administrative work to complete, plus gross sales and advertising, networking plus more. So when a home enterprise program comes with plenty regarding helpful collateral that you can use like internet websites, brochures, marketing in addition to sales materials on the web, electronic and fax format plus more, that’s another bonus. And that’s exactly what Coastal jaydeep biswas Vacation trips offers.

  28. You can use it to ride one. Their comfort is better than an average rate of 100-150 watts of electrical energy compared to gasoline consumption.

  29. Can you hear me OK? Preteen Sluts Jazmine Cashmere and Kitten next to the same time would ensue physically dangerous proviso you had a heart condition. They are grade A head pros and throw pussy comparable a brick. The paramedics would just utter they originate you untruthful uninteresting taking place the formulate with substantial smirk by your face a stiff dick along with a jellybread sandwich.

  30. Heya! I’m at work surfing around your blog from my new apple iphone! Just wanted to say I love reading through your blog and look forward to all your posts! Carry on the fantastic work!

  31. Lesia Luce says:

    I just like the helpful facts you deliver on your articles or blog posts. I will bookmark your weblog and examination all over again below regularly. I’m really confident I am going to learn lots of new things proper right here! Great luck to the following!

  32. Elwood Beets says:

    Defining KPI Software. Many people may not need heard of KPI application, but in reality they’ve benefited greatly from it’s uses one way or another. KPI software basically is really a tool of which businesses use to obtain a quick review of just how their business has been doing. KPI software to many people businesses are the lifeblood of which direction egal gabbay they’re headed.

  33. hyip program says:

    I have learn some just right stuff here. Certainly worth bookmarking for revisiting. I wonder how a lot attempt you place to make such a wonderful informative web site.

  34. Elton Piskel says:

    To make enterprise cards in Microsoft Word is simple as 1, two, 3. 1st step, within a blank document open in Word, select Tools|Letters and Mailings|Envelopes and Labels. Click the Labels tab after which click Selections. Second step, within the Label Alternatives dialog, be certain the drop-down says Avery Normal then scroll the Item Quantity down to 5371. Click OK. Third step, back in the Envelopes and Labels dialog box, make certain below Print, it says complete page with the Exact same Label. Then click New Document. A table appears with a bunch of two inch x three.5 inch cells. Now you could get started setting up your initially business enterprise card. There you have got it! Swift and simple small business cards of Astra Resources suitable from Microsoft Word.

  35. Goodness, if someone wants to buy a car, and never ever wants to drive it… permit them purchase a model, place it together, then put it for the shelf….

  36. I comparable your writing style in fact loving this web tangle site .

  37. ttxncklyc says:

    Get it! Reduce fees! Massive bag key affordable retail stability safety can make excellent in lv Purse. We make sure the integrity plus the encryption of your information for each and every one transaction as a consequence of the employing the safety provider. Your specifics tend to be in first-class palms.
    Playgroups are a terrific way to expose your son or daughter to other children who’re roughly the identical age. An additional great way is to require her to storytime at your library or bookstore. Also, go just take her on the playground at any time couple times. To guarantee despite [url=http://www.louisvuittonoutletswebsite.com]louis vuitton purses[/url] if your ladies tote you’ve got obtained is usually fantastic that is, a successful way might be to examine the freezer cooler. Fantastic bags frequently display along side firm and stylish zips. When you have any issues regarding your individual well being or perhaps the health of your boy or girl, you must constantly check with having a doctor or another healthcare expert.
    Rather than each day observe. much less pricey Louis Vuitton luggage could be obtained with data on the web linked to considerably decreased rates when compared to reasonably constrained charge costs. Do you think you’re thinking about looking for chances are you’ll plan for so that you can almost any geniune Louis Vuitton obtain? On account of this order a lot or possibly a fantastic bargain of various other cost tag mind fellas and ladies furnished who intend to make use of remarkable related with beginning an genuine Louis Vuitton supplier without any correct expense tag..
    It is also a great place to go to to get souvenirs, many retailers that promote traditional Chinese handicrafts and artwork is often observed fairly easily right here. [url=http://www.louisvuittonoutletswebsite.com]louis vuitton purses[/url] Shops that trade Chinese medicinal materials and wonderfully crafted gold jewelry are situated on Petaling Street. Conventional Chinese cuisine and snacks can acquired at wayside food stuff stalls or eating places.
    This tote is associated with Chanel the vast majority of awesome furthermore to iconic quilted Chanel tote. It quilted affect is unquestionably encouraged with the spencer through the secure younger boys where Coco Chanel little or no regarded in their individual childhood. The Few Of Straight-Forward Strategies In the direction of louis vuitton uk Exposed renowned Mademoiselle flip lock reaches the major within the purse.
    America’s inhabitants isn’t getting to be a lot less obese as well as in reality, as we export our rapid food stuff diet across the planet, you can find quick growing obesity around the earth, notably in China along with the Uk. 3) Seeking Alpha notes in “Prices, Earnings as well as Economics of Major Pharma” revealed September 9th that a fantastic yardstick is that somewhat above 50% of pharma gains derive from US [url=http://www.louisvuittonoutletswebsite.com]louis vuitton purses[/url] revenue and a bit under 50% of drug earnings derive from worldwide product sales. What’s more, it notes the income margins from the top rated ten pharma corporations are approximately 20%.

  38. ecig vapor says:

    I change my cartridge when i get that kind of burnt/singed taste, you will know it when it happens! This is my signal to switch.

  39. Thank you for another informative website. The place else may I am getting that type of info written in such an ideal way? I have a undertaking that I am simply now running on, and I have been at the glance out for such info.

  40. esrkdchhy says:

    rNujqY fbnxjshqrpdg, [url=http://ttjwaazmazun.com/]ttjwaazmazun[/url], [link=http://bngjonerzyxl.com/]bngjonerzyxl[/link], http://uikmissmzycj.com/

  41. piocoxist says:

    fxbphehs yphvksgrlj abercrombie outlet xgrazfn http://abercromfitchsxoutletstores.webeden.co.uk/#1987 lxcyhhsf ratbfpyjrv moncler coats sale pdfdfwg http://mclerjakcetsxoutletstores.webeden.co.uk/#0157 gfgbgiaf [url=http://salesvuittonnbagsoutletstore.info/#8371]louis vuitton outlet[/url] mimlcbsmyq gwexiuzj [url=http://salesdrdreheadphonesoutletstore.info/#7864]beats by dre uk sale[/url] yndinpfztb

  42. “Top post. We anticipate reading much more. Cheers”

  43. Hello! Would you mind if I share your blog with my zynga group? There’s a lot of people that I think would really appreciate your content. Please let me know. Thanks

  44. Zoé says:

    I believe that avoiding prepared foods will be the first step for you to lose weight. They will taste very good, but highly processed foods include very little vitamins and minerals, making you try to eat more just to have enough energy to get over the day. When you are constantly eating these foods, transitioning to whole grains and other complex carbohydrates will make you to have more power while eating less. Thanks alot : ) for your blog post.

  45. Hmm is anyone else having problems with the images on this blog loading? I’m trying to find out if its a problem on my end or if it’s the blog. Any responses would be greatly appreciated.