Lawmakers relish the opportunity to latch on to current events in order to craft legislation or a political message — and the controversy surrounding Facebook’s initial public offering last week was no exception.
Indeed, Facebook is getting the full Congress treatment, from bills and hearings to statements, press conferences and floor speeches. Last week, Democratic Sens. Charles Schumer (N.Y.) and Bob Casey (Pa.) introduced a bill penalizing Americans, such as Facebook co-founder Eduardo Saverin, who renounce their citizenship and avoid taxes. That same day, Sen. Carl Levin (D-Mich.) renewed his push to close stock option loopholes that he said would allow Facebook to claim it has “no taxable income for years to come.”
Now, following news of a lawsuit filed by stockholders against Facebook challenging the legitimacy of the IPO, prominent Congressional panels are beginning to probe the social media company. The Senate Banking and House Financial Services committees are conducting briefings on the matter, though the inquiries are not yet formal.
“There’s a lot that we don’t know about this IPO but a lot that we do,” said Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection. “We know that the [Securities and Exchange Commission] must fully investigate and take appropriate action if it discovers any violations. The conduct in this highly publicized IPO only reinforces that the Senate was mistaken in voting to remove oversight from approximately 98 percent of all IPOs — for companies making less than $1 billion per year.”
Though several Members, such as Brown, have expressed criticism over Facebook’s actions, it was not immediately clear when, or whether, formal action would be taken.
The Senate Banking Committee is in the middle of a series of investigations of the implementation of the 2010 Dodd-Frank Wall Street reform law. The capstone of that set of hearings is expected to come early next month when Jamie Dimon, head of JPMorgan Chase & Co., testifies before the panel about the bank’s multibillion-dollar losses.
“I have instructed my staff to conduct due diligence regarding issues raised in the news about Facebook’s IPO. My Banking Committee staff is coordinating bipartisan staff briefings with Facebook, regulators and other stakeholders,” Senate Banking Chairman Tim Johnson (D-S.D.) said in a statement Wednesday. “Once these briefings have concluded and the staff reports back to me, I will determine if a Senate Banking Committee hearing is necessary.”
A Congressional investigation would be a closely watched test of Facebook’s emerging influence inside the Beltway. The company, which opened its Washington, D.C., office in 2009, is widely regarded as one of the most Washington-savvy Internet companies. In comparison to its high-tech predecessors such as Google and Microsoft, which waited until they were in hot water to staff up on lobbyists, the company came early to the lobbying game. Facebook spent $1.35 million on lobbying last year.
A spokesman for Facebook declined to comment for this story.
The Facebook kerfuffle, combined with the massive losses at banking giant JPMorgan, has intensified the spotlight on Wall Street issues nearly two years after President Barack Obama signed Dodd-Frank into law. Democrats and Republicans are exploiting the opportunity to re-litigate the issues that divided them two summers ago.
Democrats are pointing to the recent events as reason to have more Wall Street regulation and empower the agencies charged with writing the rules to finish their work. Republicans, on the other hand, are pointing to the losses at banks such as JPMorgan as examples of how regulation is not helping, despite the fact that the rules are still largely unwritten and the GOP has been successful at siphoning off funds from the responsible agencies.
The Facebook issue has also opened up the doors to debating tax reform, an endeavor both sides love to talk about but acknowledge likely cannot be done in an election year.
Schumer and Casey’s offering was the most specific tax-related conversation proposed in response to Facebook. The two Senators’ plan would forbid any person who relinquishes citizenship for tax purposes and has in excess of $2 million of net worth from returning to the United States. The person also would face a 30 percent capital gains tax on any future American investment regardless of where he or she resides.
Republicans used the targeted proposal to launch a critique on the larger tax reform issue.
“As usual, the response from the other side of the aisle is a talking point rather than a real solution. The root cause of the problem — an archaic tax code and massive tax burden that incentivizes people to do something like this — must be fixed,” said Antonia Ferrier, spokeswoman for Senate Finance ranking member Orrin Hatch (R-Utah). “Tax reform would not only be a more effective way of discouraging people from emigrating from the United States, but would also ensure that the United States remains competitive in the global economy.”
But in the absence of major reforms, lawmakers can still zero in on specific proposals as news continues to break on the markets.
Levin, for example, touted a $16 billion tax deduction Facebook received when issuing stock options as part of its initial offering as justification for closing the stock option loophole.
Rep. Elijah Cummings, D-Md., right, hugs Harold Schaitberger, General President of the International Association of Fire Fighters, after the Congressman spoke at the IAFF's Legislative Conference General Session at the Hyatt Regency on Capitol Hill, March 9, 2015. The day featured addresses by members of Congress and Vice President Joe Biden.