January 13, 2008
Scanning through the list, I don't see any comments submitted from small investors. So, I'll serve as their voice since I am one. Let's review who the winners and the losers are here.
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The Winners: 1) reporting companies 2) SEC 3) financiers
1) Reporting companies: The changes will save companies a lot of time and money as there will be far less reason to file registrations. Why bother dealing with regulator questions over a filing for several months when one can wait the same time period doing nothing? It could potentially attract more investors especially those who want to keep a very low profile.
2) SEC: With less registrations filed, SEC employees will be freed to do other work.
3) Financiers: Although the changes specifically exclude hedgers from the decrease in holding time, IMO it will encourage hedging. The SEC doesn't have the resources to monitor compliance. Chances of a cheater being caught are extremely small. When caught, punishment will be a mere slap on the hands.
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The Losers: 1) small investors 2) non-reporting companies 3) shells
1) Small investors: The government operates with the mindset that as long as the public is provided adequate disclosure we can protect ourselves. In reality, we ended up with contracts (mortgages, credit cards, etc) and SEC filings that are voluminous and written so the average American can't understand them.
We, the small investors, do not have the money like large institutions do to hire full-time traders, accountants, attorneys, or others to help shift through all the information and interpret it. Stock brokers are pretty useless. Discount brokerages provide zero assistance other than executing trades. Full-time ones are far more interested in pushing high-load funds where they receive hefty fees and we're penalized for early withdrawal for several years.
While we're buried under mountains of data, you want to make rule changes which in affect will shut off one of the most important pieces of information for us. These changes will encourage companies to stop filing non-IPO/shelf registrations making the system far more opaque.
Frankly, it doesn't matter if the holding time is one year or six months. All the shady characters running around in the market will continue to ignore rules. What matters deeply to us small investors is being warned AHEAD OF TIME that restricted stock is about to be sold into the float. Registrations helped served as a partial warning. These changes will take this away from us. The SEC will be hurting the very group they're supposed to be protecting.
2) Non-reporting companies: These should not be publicly trading. Although quite a number of honest companies fall within this group, there are way too many fraudsters as well. They target naive retail investors. The proposed rule changes though merely punish the honest companies. All the fraudsters will continue to ignore your rules.
There is absolutely no excuse why current non-reporting companies are not providing some sort of disclosure and held legally libel if it's fraudulent or misleading. If a company stops reporting, their stock should stop trading. Disclosure need not be as stringent and expensive to implement as Sarbanes-Oxley which has proven to ineffective at curbing dishonest and fraudulent activity. Once these companies provide disclosure, IMO they should be treated the same as full-reporting companies under 144/145 rules. Like I said, you're only punishing the honest ones anyway.
3) Shells: These should not be publicly trading. They too are a fraudster breeding ground. If start-up capital is needed, they should go to the SBA, accredited investors, or inner circle of friends/relatives. Allowing companies to backdoor their way to become public through reverse mergers into shells shows your registration system is a joke and those entering the front door fools.
Once a company reverts back to a shell, its stock should stop publicly trading. There are literally tens of thousands of tradable tickers on companies that went out of business or were abandoned many years ago. Why? The SEC is NOT doing its job in protecting the public by continuing to allow this.
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Bottom line: The SEC needs to protect us small investors. If the holding period is shortened, please require companies to file a separate document in EDGAR ahead of time warning us. Don't let this be buried in already voluminous financials. Form 144's are useless as they're often filed very late or not all without penalty.