Earlier today, the U.S. Senate failed to pass an amendment backed by institutional investors and regulators that would limit the broad corporate governance, accounting, and disclosure exemptions for new companies that are proposed in legislation passed by the House of Representatives. 

The amendment, which was sponsored by Senators Jack Reed, Mary Landrieu, and Carl Levin, received 55 votes, five votes short of the 60 needed for consideration, according to news reports. The three Democratic senators offered the amendment, known as the “INVEST in America Act,” as an alternative to the “Jumpstart Our Business Startups (JOBS) Act," which was passed by the House of Representatives by a 390-23 vote earlier this month.

The Senate, which has fast-tracked consideration of the bill during this election year, likely will vote on the House legislation on Wednesday. The Obama administration has welcomed the House bill, but also was supportive of Senate Democrats’ efforts to add investor protections to the bill. 

The JOBS Act would create a new category of newly public issuers, “emerging growth companies,” that would be exempt from say-on-pay votes; golden parachute votes; and various accounting, disclosure, and initial offering requirements for five years or until they reach $1 billion in annual revenues or $750 million in market capitalization. 

The Reed-Landrieu-Levin amendment called for lowering the threshold for these “emerging” companies to $350 million in annual revenues. “The House bill would allow very large companies, with up to $1 billion in revenues per year, to offer stock to the public and yet avoid financial transparency and auditing requirements designed to ensure they’re not cooking the books,” Levin said in a statement.

The Council of Institutional Investors, which represents public, labor, and corporate pension funds, urged senators to support the Senate alternative. SEC Chairman Mary Schapiro, Commissioner Luis Aguilar, former SEC chairman Arthur Levitt, the CFA Institute, the Consumer Federation of America, and the AFL-CIO are among those who have raised concerns about the broad reach of the House legislation.  

In an editorial, Bloomberg News warned that the House bill would “gut many of the investor protections established just a decade ago in the 2002 Sarbanes Oxley law." 

“A wave of accounting scandals--think Enron and WorldCom--had destroyed the nest eggs of millions of Americans and upended investor confidence in Wall Street. The relief would extend beyond small businesses and apply to more than 90 percent of companies that go public,” the editorial noted.