Small biz bill goes to Obama after House OK

WASHINGTON (CNNMoney) -- The House on Tuesday passed a bill making it easier for more companies to become publicly traded by bypassing audits and disclosures now required for investors.

The House voted 380-to-41 to pass the bill, which the Senate passed last week. The passage sends the bill to President Obama, who has indicated support.

The measure rolls back some rules the Securities and Exchange Commission enforces on small and medium companies attempting to make an initial public offering or IPOs.

"It is a victory for small companies and entrepreneurs who want Washington to reduce the red tape that stifles innovation, economic growth and job creation," said Rep. Spencer Bachus, an Alabama Republican who heads the House Financial Services Committee.

The bill has sparked concern from the retirement group AARP, investor groups, unions, consumer groups and even the head of the SEC. All of them said the bill could open the door for more failed IPOs and investor fraud.

The bill would relax SEC rules for small and medium-sized companies with less than $1 billion in gross revenue seeking to go public. The measure gives them up to five years, or until revenue tops $1 billion, to supply an independent audit and certain investor disclosures.

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Critics said $1 billion is too high a threshold -- some 80% of firms going public would be able to bypass disclosures.

It would also make it easier for companies with as many as 2,000 shareholders to avoid registering with regulators.

The bill would also exempt firms from nonbinding shareholder votes on executive pay and benefits packages, which just came as part of the Wall Street reform law. In the aftermath of the financial crisis, the law made it tougher for CEOs to reap bonuses tied to soaring stock prices -- particularly when the company is over-leveraged and making risky bets.

Critics, including the Council of Institutional Investors, said that easing the rules applied to far too many companies and could make investors wary of investing in them.

"A company (with $1 billion in revenues) has the resources to comply with disclosures," said Jeff Mahoney, general counsel to the Council of Institutional Investors.

The bill would also allow companies to solicit investors -- including the use of advertisements -- when going public, which is currently prohibited. And it would allow them to raise money from larger numbers of small, less sophisticated investors.

Barbara Roper of the Consumer Federation of America warned the provision would make it easier for companies to take advantage of seniors, luring them to sink their retirement savings into an IPO.

"A retiree who has that nest egg isn't necessarily a sophisticated investor and shouldn't be speculating on private offerings," Roper said.

The bill would also allow what's called "crowd funding," allowing firms to bypass regulations to raise money from large pools of small investors by directly soliciting them over the Internet. Critics are concerned about the potential for fraud.

The only change that the Senate made last week was to require that those working as an intermediary to such crowd funding register with regulators.

"The bill is far from perfect, but it's a good bill," said Senate Majority Leader Harry Reid last week. "It'll help capital formation."