The U.S. Senate on Thursday afternoon voted overwhelmingly in favor (73-26) of a “crowdfunding” bill, one that would enable private startup companies to turn to social media and websites like Kickstarter to solicit early investments from the general public, a practice currently prohibited by the government.
But the bill, known as the Jumpstart Our Business Startups (JOBS) Act, was passed in an amended form that included more restrictions than a version of the same bill passed by the House on March 8.
Senators Michael Bennet (D-CO) and Scott Brown (R-MA), who introduced the amendment along with Jeff Merkley (D-OR), celebrated their rare bipartisan success.
“Crowdfunding is an important way to harness potential investments in small businesses and start-ups in Colorado and across the country,” Sen. Bennet said in a statement. “This amendment will help bring our securities regulations into the 21st century while driving innovation, promoting job growth and supporting small businesses in a way we have not seen before.”
“This is a victory for Massachusetts’ many startups and entrepreneurs that want to expand and create jobs,” Sen. Brown said. “Crowdfunding will allow small businesses to bypass Wall Street and go straight to Main Street for financing, freeing every American to invest in a local business or the next great idea.”
The restrictions in the amendement are designed to make sure that websites which will allow crowdfunding investments do thorough checks on both the startup companies and the potential investors in order to prevent fraud.
Now the new version of the JOBS Act is headed back to the Senate for another vote. House Majority Leader Eric Cantor (R-VA) told Politico that the House vote will occur next week and signaled that it would likely be in favor: “Today’s strong Senate vote combined with bipartisan support in the House, from the President, and the business community shows even in a divided Washington we can come together to get things done for our nation’s job creators.”
President Obama has vowed to sign the bill once it gets to his office.
Under the amended version of the JOBS Act passed by the Senate, websites that want to act as crowdfunding investment platforms will have to register with the Securities and Exchange Commission, which is then in turn instructed to work with state regulators to make sure that all of the crowdfunding is sound.
The amended version also puts tighter restrictions on how much money investors can gamble on the startups: 5 percent of their annual income or $2,000 in the case of those with annual incomes of $100,000 or less, whichever is greater, or 10 percent of income or $100,000 for those making $100,000 or more a year, whichever is less.
Despite the overwhelming bipartisan support in both Houses, some legislators are against the bill. In the Senate, 25 Democrats and Bernie Sanders (I-VT) voted “nay” over the shared concern that it could lead to gullible Americans getting swindled.
“At best, this bill could make it easier for con artists to defraud seniors out of their entire life savings by convincing them to invest in worthless companies,” Sanders said in a statement, continuing:
“At worst, this bill has the potential to create the next Enron or Arthur Andersen scandal or an even worse financial crisis…Have we learned nothing? Deregulating Wall Street led to the worst financial crisis since the 1930s. Now the same people who caused this horrible recession are telling us that more Wall Street deregulation will create jobs. Give me a break.”
Kickstarter, meanwhile, declined to comment on the effect the bill might have on its booming business. But sources close to the company pointed out that Kickstarter was founded and remains, at least for now, a platform specifically geared toward supporting artistic and creative projects, not startup companies.