By Jennifer Liberto, CNNMoney
WASHINGTON (CNNMoney) - President Obama on Thursday signed into law a bill that makes it easier for companies to become publicly traded by bypassing audits and disclosures now required for investors.
The bill is called the Jumpstart Our Business Startups (JOBS) Act and it sailed through both chambers of Congress last month with overwhelming support from both parties.
"Overall, new businesses account for almost every new job created in America," said Obama at the bill signing ceremony, standing beside Republican House Majority Leader Eric Cantor who pushed for the bill in the House.
"For start-ups and small businesses, this bill is a game changer. Because of this bill, startups and small businesses will have access to a bigger pool of investors."
But the measure is steeped with controversy, since it rolls back some rules the Securities and Exchange Commission enforces on small, medium and even some quite large companies attempting to make an initial public offering, or IPO.
Some of the investor protections on their way out came from beefed-up federal rules passed in the Sarbanes-Oxley Act of 2002, after hundreds of middle-class families loss their life savings in the Enron and WorldCom accounting scandals.
Parts of the bill have raised the ire of the national retirement group AARP, investor groups, institutional investors including pension funds, unions, consumer groups, and even SEC chairman Mary Schapiro. All of them say the bill could open the door for more failed IPOs and investor fraud.
"This legislation will unleash a new wave of damaging investment fraud, undermine market transparency, and increase the cost of capital for the small companies it purports to benefit," said Barbara Roper, director of investor protection at the Consumer Federation of America. "Unfortunately, both the administration and a bipartisan majority in Congress have chosen to ignore those warnings."
The bill would relax SEC rules for 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.
Critics said $1 billion is too high a threshold -- some 80% of firms going public would be able to bypass disclosures.
The bill would also allow what's called "crowd funding," allowing firms to bypass rules and raise up to $1 million a year from large pools of small investors by directly soliciting them over the Internet. Critics are concerned about the potential for fraud, since those shares wouldn't have to be registered with the SEC.
The bill would also allow firms to directly solicit investors -- including advertisements ranging from billboards to junk mail -- when going public, which had been prohibited. And it would allow them to raise money from larger numbers of small, less sophisticated investors, such as seniors with retirement savings.
The AARP and the Consumer Federation of America have warned the provision would make it easier for companies to lure seniors "with a lifetime of savings and investment" into sinking their money into an IPO or even a a fake 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 make it easier for companies with as many as 2,000 shareholders to avoid registering with regulators.
And it would 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.
"The bill is far from perfect, but it's a good bill," said Senate Majority Leader Harry Reid at the time it passed the Senate.
The SEC will have several months to draw up regulations fully implementing the measure.