The protection of investors is a preeminent goal of federal securities regulation in the United States, yet a basic question about investor protection has been all but ignored: what harms are securities regulations intended to protect investors from? This Article seeks to answer this basic question.
The four distinct, but related, harms from which securities regulations might be intended to protect investors are: 1) fraud, 2) an unlevel informational playing field, 3) the extraction of private benefits from the firm by firm insiders,and 4) investors’ propensity to make unwise investment decisions. Concern about each of these harms was a significant factor when the federal securities statute swere first enacted, and these concerns continue to influence securities regulation policymaking today.
What benefits are provided by identifying the particular harms which underlie investor protection concerns? The JOBS Act offers an opportunity to address this question. Three features of the JOBS Act are analyzed: 1) provisions that create a new category of public issuer, the emerging growth company, 2)provisions that permit the public solicitation of investors in conjunction with Rule 506 offerings, and 3) provisions that make it easier for firms to avoid federal periodic disclosure obligations. Each of these JOBS Act provisions are analyzed from the perspective of the particular harms securities regulations might protect investors from. Carrying out this analysis generates several important new ideas about how to improve the JOBS Act.
These findings illustrate how a better understanding of the harms to investors that underlie investor protection concerns can improve securities regulation policymaking.