When President Obama signs into law the JOBS Act sometime in April, it will be a big blow to small investors and opponents of corporate accounting shenanigans — for the bill reads like a full employment act for unscrupulous executives, accountants and others.

Sure, in a recent report to clients, law firm Gibson, Dunn & Crutcher proclaimed the JOBS Act as “the most significant modernization of the federal securities laws since the Securities and Exchange Commission’s 2005 Securities Offering Reform.” The reason for this euphoria: The law firm asserts the new initiative will make it easier for companies to go public, raise private capital to stay private longer, and reduce the cost and burden on newly public companies during their first few years as public companies.

The act creates a new category of publicly held companies called “emerging growth companies.” These companies will then enjoy relaxed financial disclosure requirements. For example, they will be required to provide just two years of audited financial statements when they go public, compared to three years of such statements that are required currently. Also, less financial data will be required in registration statements and in reports filed with the commission. And they needn’t comply with new or revised financial accounting standards or Section 404(b) of the Sarbanes-Oxley Act, which currently requires their auditor to attest to their internal controls over financial reporting, until their revenues top $1 billion. Such companies will also be able to disclose less about their executive compensation. 

While proponents of the bill act like it is the next best thing to repealing Obamacare when it comes to business-friendly actions, it could have the opposite effect of what its proponents expect — by raising instead of lowering the cost of capital for such companies, since their investors face a higher risk of fraud and thus may demand a higher risk premium in terms of equity pricing.

True, less sophisticated individual investors are more likely to invest in the stocks of fledgling and other small companies. Institutions prefer to emphasize companies with larger market capitalizations mostly because their large size makes it harder to make a meaningful investment in a small-cap company without winding up with a large stake. And while institutions are big buyers of IPOs, they are interested only in high profile deals with sweetheart offering prices designed for underwriters’ best clients to feast at the opening.