"We don't need to make it easier for companies to go public," said Barbara Roper, director of investor protection for the Consumer Federation of America. "We need to look at the IPO process to make sure it's fair."
Critics are particularly concerned about provisions in the Jumpstart Our Business Startups Act that would grease the IPO skids. Although President Obama signed the measure into law with fanfare, the Securities and Exchange Commission still must adopt detailed regulations implementing the law.
The Facebook IPO has "raised a whole set of questions, not just about the provisions of the JOBS Act, but about IPOs in general," said Sen. Jack Reed (D-R.I.), chairman of the Senate Banking Committee's subcommittee on securities, insurance and investment.
"Are the rules up-to-date and do they adequately protect retail investors, who might not have the same access to information?" he said.
The Senate Banking Committee's initial look into the Facebook IPO, announced last week, will help determine whether changes need to be proposed, Reed said.
The JOBS Act applies only to companies with less than $1 billion in annual revenue, so it would not affect Facebook, which reported $3.7 billion in revenue last year.
But the problems with the social network's offering, including questions about how important information was shared with the public, go to the heart of changes in the new law.
In the days before the offering, Morgan Stanley & Co. and the large Wall Street banks that underwrote the Facebook IPO issued warnings to top clients that their analysts had lowered their expectations for Facebook's revenue growth this year. But the information was not shared with retail clients or the public.
In easing the process for smaller companies to go public, the JOBS Act removes a so-called quiet period that had prevented analysts at an investment bank underwriting an IPO from issuing research reports that could hype the stock.
Supporters of the law argued that the restrictions needed to be removed because outside analysts don't cover many smaller companies and an underwriter's analysis could be the only forward-looking information that potential investors could get.
But the changes to the quiet period and the loosening of other rules drew concerns from current and past regulators as Congress was considering the JOBS Act this year.
Former New York Atty. Gen. Eliot Spitzer, who gained fame by pursuing Wall Street wrongdoing, said the law should be called "The Return Fraud to Wall Street in One Easy Step Act." And SEC Chairwoman Mary Schapiro warned key lawmakers that the definition of emerging-growth companies was "so broad that it would eliminate important protections for investors in even very large companies."
Still, Congress approved the JOBS Act in late March.
Anthony Sabino, a law professor at St. John's University in New York, said there were good reasons to loosen some IPO rules for small companies.
"One of the things that's hindered capital formation and business development in this country is the threshold for going public," he said.
The high costs of going public for smaller companies are compounded by the added costs of complying with federal regulations. Many must meet the same accounting and corporate governance standards as the largest companies do.
By Jim Puzzanghera