Global Market Thoughtware, Inc.
|Bought - Sold
Capacity - Sophistication
Established market risk - Emerging market uncertainty
Capital markets underwrite innovative issues that have to be "sold". These offerings are "sold" in target markets by refining the transactional processes through "intermediation" and "infomediation6". Target markets effect transactions in quasi-venture capital issues that trade in the micro-cap market. Issuer agents provide sponsorship to compensate for uncertainty relative to a lack of issuer information and/or a lack of micro-cap market efficiencies. Transactions that are "bought" in reverse markets are self-selected by consumers employing risk management portfolio techniques. A reverse market is where the customer initiates a transaction with a vendor. These near-equilibrium transactions are complete with respect to both issuer information and related market efficiencies.
Determining whether an issue is categorized as "sold" or "bought" is a function of its cash flow. Until an EGC achieves and maintains a positive cash flow, its existence is dependent upon selling its product/service and selling its corporate stock. This causes the CEO to divide his/her energies between selling stock and managing the business. Definitions of cash flow are: operating cash flow: earnings before taxes plus noncash charges (EBITDA); cash flow: net income plus noncash charges; and "free" cash flow: cash flow less contractual commitments and capital budgeting items. EGCs generating free cash flow are better able to control their environment rather than having to respond to their environment. Free cash flow enables EGCs to: buy-back their stock or position their company as a take-over target, merge with or acquire a competitor to reach critical mass, use trade discounts to buy equipment to become a low-cost provider, explore distressed-sale opportunities, issue or increase their dividend, and reduce amount of debt and/or increase debt rating for existing debt thereby lowering their cost of capital.
There are approximately 15,000 publicly registered companies in the United States-approximately 50 percent categorized as micro-cap stocks that are typically "sold" and approximately 50 percent categorized as mature stocks that are typically "bought".7 For the purposes of this paper the capitalization profile of publicly traded securities in the micro-cap market is defined as less than $100 million8, the small-cap market range is $100 million to $500 million, and the established market is more than $500 million.
The importance of emerging-growth companies ("EGCs") and the micro-cap market is not balance sheets and market capitalization, but potential for job creation and technical innovation (as well as the potential for being a portal for global capital markets). In the United States while the S&P500 companies were exporting jobs, the very smallest firms - those with between one and four employees - created 450,000 jobs in 1995, or 35 percent of the jobs created in that year9.
Entrepreneurs are vital to the economic growth process. They are essential agents of change in a market economy, driving the efficient use of resources and facilitating trade between parties with different comparative advantages. Entrepreneurs accelerate the generation, dissemination, and application of innovative ideas. The popular image of the entrepreneur as a risk-taker, an adventurer, or a speculator no longer reflects reality. Today's entrepreneur is an achievement-driven detector of new business opportunities. Indeed, a firm is very often the result of the experience accumulated in an area or region. In modern, global, markets it is not size but innovative capability that is the key to success.10
Unlike the CEOs of large corporations, entrepreneurial CEOs are usually the largest EGC shareholder. When regulation raises their financial cost of doing business without providing commensurate benefit, EGC entrepreneurs seek low-cost alternatives. The diminution of value resulting from regulatory redlining that constrains the micro-cap market's network into N isolated components is 1/N'th the value of the original network. This follows directly from Metcalfe's Law11 that states that the utility of a network equals the square of the number of users. Until a critical mass of users is reached, a change in technology only affects the technology. But once critical mass is attained, the social, political, and economic systems change12. The effect of the one-size-fits-all regulatory regime upon domestic and foreign emerging markets has created an asymmetrical burden upon micro-cap participants by increasing the cost of sales practice compliance and lowering market capitalization13. What EGC entrepreneurs require is a regulatory regime tailored to the micro-cap realities that fosters best practices for economic growth. Or, to paraphrase Hernando DeSoto's insight in The Mystery of Capitalism, it is not so much that EGC practitioners break sales-practice rules promulgated for the established, large-cap market, as it is that de jure, sales-practice rules break EGC practitioners.
Societal participation in investing nearly tripled during the last 25 years of the Twentieth Century14. Not only did the bull market, baby-boomer's excess cash, and technological market enhancements create many new investors, but they also provided the resources to fund investments in many emerging-growth companies. The combination of new investors and new issuers exponentially raised the degree of difficulty for capital market compliance under a uniform regulatory regime.
Furthermore, the fraction of individuals owning different types of financial assets usually changes gradually over time. In the last decade, the number of individuals owning corporate stock (either directly or indirectly) increased by nearly sixty percent. Thirty million individuals became new stockholders in the 1990s. This is a far greater change in the segment of the population owning stock than in any earlier postwar decade.15 Not only has the capital market landscape undergone a material change, but this change took place at an unprecedented rate.
These facts underscore the need for the Commission to review existing standards and rules to determine their applicability to current market incentives. The SEC contends that its considerable regulatory experience with the use of the term "accredited investor" leads it to believe the term strikes the appropriate balance between the necessity for investor protection and meaningful relief for small business offerings. Yet the "accredited investor"16 test is primarily a measure of self-insurance that neither addresses an investor's financial sophistication nor differentiates financial knowledge relative to securities that are "sold" from securities that are "bought." The "qualified purchaser" definition mistakenly continues the equation of financial capacity with financial sophistication. This raises the question whether the SEC can reconcile its desire for uniformity relative to investor protection and robust capital formation. Moreover, is the goal of protecting unsophisticated investors imposing commercial censorship on the next generation's Henry Kravis (venture model for stocks that are "sold") and Peter Lynch (portfolio model for stocks that are "bought")? In an attempt to ensure the standard of "fairness" for novice investors, has regulation "dumbed-down" the consumer base at the expense of market efficiency?
Modern portfolio theory states that the volatility associated with a diverse portfolio of risks is lower than that associated with the same risks managed separately. In a diversified portfolio, the costs of managing higher-risk activities can be offset (a GM-Exxon hedge for example) by the costs associated with managing lower-risk activities. Risks that do not correlate create uncertainty (indeterminate) and are triggered by entirely different loss-producing events. Unlike the verifiable results from earnings-driven stocks that are "bought" in established markets, the results from event-driven stocks that are "sold" in the micro-cap market can only be falsified when the critical event does not happen. This precludes the standard deviation from being used as the measure of risk and limits the application of modern portfolio theory.
Most regulation has been promulgated in a manner that is consistent with established markets where securities are "bought". The trading pattern of an efficient market exhibits a smooth, continuous function proportionate to the risk incurred. However, this trading pattern is not consistent with the bifurcated "outlier effect" of private and public emerging-growth companies when the desired event either does or does not occur. Emerging markets deal with uncertainty resulting from indeterminate forecasting attendant to micro-cap companies17. The inability to create a portfolio effect raises the cost of capital for these quasi-public companies that trade in the micro-cap market.18 Additionally, the stakes to play in the public stock markets are getting higher. Costs associated with being a public company continue to rise. While large public companies are able to digest these additional costs relatively easily, micro-cap public companies lack the overhead capacity to absorb these incremental costs and may opt to reduce their public company expenses entirely by "going private". Adding regulatory costs without commensurate benefit alters the reflexive relationship between incentives and regulatory commands (standards and rules) to change the de facto governance structure of the micro-cap market.
The question remains whether the "accredited investor" concept is a valid construct to reconcile investor lifestyle (net worth and income) with investor life cycle (financial knowledge and micro-cap sophistication) given investor preference changes to the capital market's landscape during the last twenty-five years. The SEC posits that the regulatory and legislative histories of "accredited investors" and "qualified purchasers" are based upon similar notions of the financial sophistication of investors. This suggests that financial sophistication is an undifferentiated skill. If qualifications for corporate finance issues that are primarily "sold" and investment analysis for established public companies that are primarily "bought" are similar, why then does the NASD give separate principal qualification examinations for each?
History indicates that whenever different things are grouped together: issuer securities that are "sold" grouped with securities that are "bought", investor financial capacity grouped with investor financial sophistication, and established market risk management grouped with emerging market uncertainty disclosure, and treated as things that are similar, error is likely. To reduce the likelihood of error and the possibility of promulgating unequal treatment,19 the SEC must determine whether its goal of uniformity unintentionally discriminates against micro-cap companies.
IV. Problem Solution
The goal of the proposed tiered regulatory regime20 is to make the micro-cap market more efficient. To this purpose, binary benchmarks are combined to build a model to determine the best path for providing consumer advocacy to protect unsophisticated investors while at the same time providing a dynamic capital formation process for EGC issues that are "sold". Reconciling the SEC's dilemma includes but is not limited to providing relevant consumer education and certification programs to enable investors to become sophisticated as to micro-cap metrics and to provide sponsorship and development programs to enable the evolution of micro-cap issuers.
|SEC Objective||Sponsorship and development|
|Unsophisticated||Education and certification||SEC Dilemma|
Accordingly, to provide a robust governance solution, it is proposed that:
Separate or tiered regulatory regime
Proposal 1 provides for a separate or tiered regulatory regime for those event-driven stocks that are "sold." This proposal states that governance metrics should follow the incentives attendant to the micro-cap market's investment metrics. The proposal argues for a more appropriate regulation of the micro-cap market's de facto and de jure governance structures to address the same market realities. Rather than limit activity attributable to these far-from-equilibrium transactions, make the micro-cap market more efficient by creating a hybrid Securities-Commodities regulatory regime. Event-driven emerging growth companies are securities that trade like commodities. Their generic market profiles are more indicative of success than their unique corporate characteristics (e.g., I would rather invest in a CEO that has been successful in previous entrepreneurial ventures than a brilliant software engineer with a new program). Accordingly, it is suggested that these quasi-venture capital securities that trade in the public domain be regulated with a commodities-like, uncertainty disclosure regime.
In the absence of a critical level of best practices to codify, the micro-cap market's limitations should be delineated through a uncertainty disclosure regime. Market participants would segment the market through a tiered governance structure that is proportionate to their stage of development. This would enable micro-cap participants to self-select the degree to which their participation requires regulatory supervision.
Investors and issuer agents who are active in the micro-cap market can elect to demonstrate their financial sophistication by passing an examination upon completion of an education program. Thereafter, investors and issuer agents would be certified on a registry that would provide a safe harbor exemption from existing "bought" rules that currently govern the micro-cap market. Similarly, EGC managers could conduct a cost-benefit analysis when searching for ways to lower their cost of capital (the rate the company must pay for its funds). There are two main components of an enterprise's cost of capital: information availability; and, information content. Given an EGC's level of capital market development, how much information an issuer provides (availability) is as important as what information is volunteered (content). Issuers have an obligation to be factually accurate with what they disclose. How much they choose to disclose is determined by issuer discretion. Information asymmetries then become the first analytical screen. Issuers interested in corporate governance and transparency relative to prospective corporate finance are duly incented to put forth an appropriate level of effort. Interested issuer agents and certified investors respond by providing incremental, scalable sponsorship. This disclosure would include but not be limited to representations that:
It should be noted that disclosure is not a remedy for fraud, but due to the indeterminate nature of the micro-cap market, factual discrepancies would be subject to binding arbitration among certified participants. This would lower the cost of compliance and provide proportionate incentives to develop commercial activity.
New trade association for sponsorship
Proposal 2 creates a new trade association or separate NASD subsidiary to provide sponsorship for marketing emerging-growth companies. A menu approach will be used to provide a composite definition for "sponsorship." This contains an overview of key services that the Association could provide. Proposal 2 is subdivided into two parts-Part A addresses core competencies and Part B addresses a value-added component for developing global financial markets.
Part A: core competencies
Regulatory practices and business practices develop reflexively. Good business practices beget good regulatory practices as best-practice commercial activity is codified. What the micro-cap market needs are incentives to develop best practices. To this extent, the "uncertainty disclosure" governance system provides commercial incentives to complement existing rules in support of capital market standards. The governance system creates a "preferred shoppers" program for participants in the micro-cap market through consumer education and market infrastructure enhancements. Issuer agents will be registered but not subject to routine regulatory examinations provided they limit their business practice to dealing with such certified accredited investors. In turn, lower cost and liability considerations drive order flow to a registry of financially sophisticated investors.
A core principle of the "accredited investor" concept is that investors should be financially sophisticated and therefore not in need of the protection of state registration when they are offered or sold securities of emerging growth companies. To this purpose, it is suggested that the Association provide an investor education program specifically tailored to the micro-cap market. The Association can contract with a distance learning provider for coursework for adult investors who find classroom study inconvenient, either because of the demands of their employment, obligations to their families, or remoteness from instructional sites. The Association would maintain a registry of those investors who satisfactorily complete their coursework that would serve as a safe harbor to the provisions of the penny stock rule (SEC Rule 15c2-4). Similarly, the Association should qualify and maintain a registry for all issuer agents who help obtain financing, facilitate secondary market activity, and disseminate corporate literature of emerging growth companies. This provides a forum for greater transparency to enable investors and issuers to select an appropriate form of sponsorship.
The Association should have the capability to provide pricing and financial information for the micro-cap market. The purpose of these products and services is to increase the transparency of information available in the micro-cap market so as to make it more efficient for all participants. IDAC advises micro-cap participants on the metrics for commercial market information and uncertainty disclosure systems. Issuers would be responsible for the accuracy of their filings, but the extent and degree of disclosure would be commensurate with the cost-benefit realized by the EGC issuer. This includes recommendations for information-sharing mechanisms between and among micro-cap participants to optimize their respective and proper roles within a new market-based, uncertainty disclosure governance system. IDAC's internet-based, real-time quotation service balances social responsibility with business requirements to determine the critical path for developing documentary and electronic information in a collaborative commerce role.
Part B: International Dealers Access Network ("IDAN") as value-added global incubator
The Association should form an International Dealers Access Network ("IDAN") to function as a financial advisory and funding service that facilitates economic development by serving as a global incubator. Emerging-growth companies recognize the desirability of obtaining a global distribution network and having the funding capability to finance global distribution. The dilemma that emerging-growth companies face is whether to join forces with a large international concern and face the risk of being acquired; or to form a collaborative alliance with a foreign emerging-growth company and face the development risk. IDAN's premise is that companies of a similar size, corporate culture, and product development stage are the preferred choice to become strategic partners. EGCs' comparative advantage is their scale and organizational flexibility that enables them to pursue opportunities too small for international giants. What emerging-growth companies have lacked to date is a suitable forum in which to operate. IDAN is that suitable forum.
International travel has taught me how much the world admires our intellectual property relative to American entrepreneurship, innovative capability, and access to risk capital. IDAN could serve as the platform from which to export globally our most desirable attributes to replicate the Silicon Valley experience. Between 1975 and 1990 Silicon Valley generated some 150,000 new technology jobs. By 1990 it exported more than $11 billion in electronics (more than one third of US total exports). It did this while challenging the organizational legacy of the vertically integrated corporation that was responsible for much of the great increase in the American standard of living during the twentieth century. The vertically integrated firm whose securities are generally "bought" typically controls a large set of unique assets through a command and control system.
Silicon Valley's success, by contrast, is the prototype for the information age. Non-accredited investors and college drop-outs invested their life savings in venture capital issues that had to be "sold". These micro-cap companies were diffuse networks spanning the entire industry, unlimited by the boundaries of individual firms. This openness promoted learning and mutual adjustment among specialist workers of complex and related technologies. Social networks and open markets for both corporate control and intellectual property have inspired unrivaled entrpreneurship and innovation.21
Silicon Valley's experience is consistent with the proposed uncertainty disclosure regime where strategic transparency decisions in global markets are determined to a large extent by the dominant investor. America is predisposed to investment banking and equity-driven markets, whereas Europe is predisposed to commercial banking and debt-driven markets. In general, bank-controlled firms prefer less information attendant to stock market trading. This tends to protect firms in a weak competitive position. Conversely, equity market-driven, micro-cap companies that are about to realize their corporate mission prefer more disclosure to promote the strategic advantage of a strong competitive position22.
The phrase "quality control" is synonymous with the thinking and work of Dr. W. Edwards Deming. His approach identified quality gaps23 and addressed those variables that had the greatest corrective effect. Statistics were at the heart of Deming's methodology. He believed that work that was measured was done on time, efficiently, and accurately. Following Deming's proven methodology, I tried but was unable to obtain SEC enforcement statistics for micro-cap issues involving unsuitability, non-best execution, and fraud. If a major component of the SEC's regulatory mandate is to protect unsophisticated investors in the micro-cap market:
The GAAMA model is introduced to address these issues. It is a diagnostic tool for stocks that are "sold" to measure the degree of compliance with the proposed governance system. GAAMA is an acronym for:
The GAAMA model analyzes far-from-equilibrium markets caused by standards that are either too high (i.e., too constraining) or too low (i.e. too lax) interacting with too many or too few rules for a given level of commercial activity. GAAMA markets are created when commands are disproportionate to incentives for a given level of commercial activity. Attempts to control a market by using too many rules or too-high standards result in reduced resiliency and increased risk of systemic failure. Additionally, GAAMA markets can be created whenever rules are confused with standards and employed prospectively to become commercial censorship. For those goods and services that have attained a critical mass of societal sponsorship, excessive commands do not limit activity. Rather, they serve as GAAMA incentives to direct the order flow to controlled, offshore, balkanized, or to an underground market that is the low-cost point of sale.
Top view of GAAMA Model
The GAAMA Model is a three-dimensional, non-linear paradigm. The x-axis depicts the volume function. It delineates commercial activity resulting from too many rules that cause confusion (i.e. the tax code) and/or too few rules or best practices that cause uncertainty (i.e. a computer problem without the help desk). The x-axis resolves bad trade practices. The y-axis determines the pricing function. Standards that are too high are exclusionary operational supports that direct order flow, while standards that are too low are indiscriminate price controls that act as a disincentive to commercial activity. The z-axis represents a ratio of commands-to-incentives for a given level of commerce. The z-axis posits that the smaller the ratio of commands-to-incentives, the larger the area of normative economic activity to provide a societal net benefit.24 The GAAMA model is able to systemically determine the variable best able to remedy regulatory perturbations. It results in just-right "Goldilocks" governance by balancing incentives and commands proportionately to the current level of commercial activity.
Regulation is a negative definition business: "thou shalt not ... except for." Regulation balances business prescriptions and legal proscriptions to provide a societal net benefit. Given the preconditions of sophistication and sponsorship, micro-cap participants should receive an "except for" exemption from the offices of State Securities Administrators and the Securities Exchange Commission relative to capital formation and secondary market oversight.25 The proposed micro-cap market's disclosure regime of governance better communicates to market participants the inherent level of uncertainty and enables regulators to allocate more efficiently their scarce resources to the established market in support of their consumer advocacy objective.
Rather than restrict micro-cap market activity in the name of uniformity, make the market more efficient to produce a net societal benefit. Facilitate investor sophistication through an education and certification program wherein investors differentiate and allocate their predictability profiles attendant to a savings account, an investment account, and a venture account.26 Sophisticated investors who are able to fend for themselves should be able to conduct business in a manner consistent with their expertise.27 Investors who are either not "grandfathered" or who choose not to become certified through an Association SRO-sponsored accreditation program continue to be afforded the same protections pursuant to the current regulatory regime.
Further, I recommend that the SEC replicate the "target" market that works well for top-tier issuers in the established market. For example, when a utility company desires capital improvements to add capacity, major "Wall Street" brokerage firms are able to efficiently and cost-effectively provide private placement funding from a qualified list of institutional purchasers. The recommendations propose a similar capability for a "Main Street" regulatory regime that facilitates raising capital for micro-cap companies and thereafter regulates the secondary market activity as a global financial enterprise zone. During the BETA test, certified issuer agents would receive non-transactional remuneration to refer accredited investors to issuers or other investors. In the absence of sales practice problems, a phase-in period would begin to enable "sold metric" commands and "sold metric" incentives to evolve. Attempting to restrict transactional related income for stocks that are "sold" is a false construct that results in the unintended consequence of subsidizing GAAMA markets.28
The micro-cap market is a dynamic, non-linear network. The SEC has an opportunity to establish IDAN as a global free-trade incubator to enable the exportation29 of American entrepreneurship. Entrepreneurs around the world face a common problem-obtaining the "sliver of equity" that enables operations achieve positive cash flow. The US is the only capital market that is able to provide this funding to any degree of scale. The proposed Association has an opportunity to provide sponsorship for the micro-cap market as a global portal for entrepreneurship, job creation, innovation, and risk capital. Let consumer choice rather than Commission commands determine the degree of micro-cap commerce. To do otherwise, subsidizes offshore market competitors.30
The ideas, proposals, and constructs frame the unique aspects of this market place and position its future in a global context. To this purpose, I suggest that the Commission form a working group of practitioners to undertake a study to determine the net benefit of a tiered regulatory regime for the micro-cap market.
I trust these comments have been responsive to your request. Should you have any questions, I can be reached at 301-215-6441 and would welcome the opportunity to discuss them with you in greater detail.
Stephen A. Boyko, President
Global Market Thoughtware, Inc.
Capital Market's Standards and Rules: FLITE Model
Capital market commands are a composite of rules and standards. The Danish philosopher, Soren Kierkegaard, stated that life is lived by looking forward, but learned by looking backwards-similarly with the command components of standards and rules. Standards are prospective societal policies. They are commercial prescriptions that enable the realization of industry norms relative to cultural values. Standards are defined in terms of "mass" indicating the number of people effected by the command and "materiality" indicating the relative importance of the command. Rules, on the other hand, are the retrospective codification of best-practice procedures that define operational efficiency. They are societal tests that validate a standard's end-condition. Rules are industry proscriptions that explicitly delineate organizational limits in terms of gravitas and granularity. Gravitas is the seriousness of a violation as measured in terms of the amount of a fine and/or duration of a sentence. Granularity is the degree of precision required to ensure compliance as measured in terms of practices and pricing.
The capitalization level for micro-cap companies is somewhat higher than small business defined in Rule 405 of the Securities Act of 1933. Generally, a small business that has $25 million in sales or capitalized market value qualifies as a small business issuer. Exchange Act Rule 0-10(a) defines a small issuers as one that on the last day of its most recent fiscal year had total assets of $5,000,000 or less. It is estimated that at least 3,000 OTCBB and Pink Sheet-quoted companies have a capitalized market value or total asset value to qualify as small business issuers.
Gap Management evolved from gap analysis methods used by management consultants to identify underperforming operations that, if brought up to best practice standards, would improve financial performance. Gap analyses of `Best Practice Reviews' and `Drill Downs' resulted in a Market Share and Profit Improvement Plan. Profitability was the primary evaluation criteria. Gap Management extended W.E. Deming's earlier concepts and techniques of planning, beta testing, controlling, and implementing to include enterprise valuation. Valuation is the criteria by which success is measured. Under Gap Management, a firm's Profit Improvement Plan is subordinate to increasing net worth. Gap Management also differs from gap analysis in that its practitioners tend to aim at the best practice methods that are practical. The preceding discussion presents the phases as though they were discrete and occurs linearly. In actuality phases overlap, are ongoing, and happen simultaneously with each action producing reflexive reactions.
Able to Sell
Sell in Size
|Savings account||Cash, T-bills, money market funds, and CDs||Yes||Yes||Yes|
|Investment account||Stocks, bonds, mutual funds, and derivatives||Yes||Yes||No|
|Venture account||Micro-cap and private placements||Yes||No||No|
Insights from Current Articles in Business and Financial Periodicals
|1||Appendix A on page 17 presents a Governance Schematic for the capital market.|
|2||Appendix C on page 20 presents the respective valuation models for a given stage of firm development.|
|3||Compare commissions for a private placement that is "sold" versus a NYSE e-trade that is "bought".|
|4||Reference Appendix D on page 21.|
|5||Reference the FLITE Model in Appendix B on page 18 for an in-depth presentation of the capital market's standards of Fairness, Liquidity, Integration, Transparency, and Efficiency.|
|6||"Infomediation" is a term coined by McKinsey partner John Hagel in his best seller Net Worth.|
|7||Reference Appendix E on page 22 for a detailed presentation.|
|8||This is somewhat higher than the small business standard that is defined in Rule 405 of the Securities Act of 1933. Generally, a small business that has $25 million in sales or capitalized market value qualifies as a small business issuer. Exchange Act Rule 0-10(a) defines a small issuer as one that on the last day of its most recent fiscal year had total assets of $5,000,000 or less. It is estimated that there are at least 3,000 OTCBB and Pink Sheet-quoted companies that have a market value to qualify as small business issuers.|
|9||Sergio Arzeni, The OECD OBSERVER No. 209 December 1997.|
|11||Robert Metcalfe founded 3Com Corporation and designed Ethernet protocols for computer networks.|
|12||This is called the "Law of Disruption".|
|13||Reference the $1 billion income revision that Mercedes Benz experienced from its NYSE application.|
|14||SIA Factbook 2000.|
|15||Poterba, James. January 2001,The Rise of the "Equity Culture:" U.S. Stockownership Patterns, 1989-1998 by. http://econ-www.mit.edu/faculty/poterba/files/aea2001.pdf. It should be noted that much of the growth of individuals owning corporate stock was in the form of professionally managed investment companies shares.|
|16||Section 4(2) of the Securities Act (and Regulation D) defines an "accredited investor" as a natural person whose net worth or joint net worth with that person's spouse is in excess of $1,000,000, or, who has individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of the two most recent years. But how does this protect the numerous examples of mega-lottery winners who were unable to manage an excess of riches.|
|17||Reference Appendix D on page 21 for a comparison with established markets that manage risk through efficient portfolios.|
|18||This, in part, explains why venture capitalists confine their activities to a particular industry sector. As active investors, they are able to recapitalize and/or merge underperforming investments.|
|19||Over the past century, equality, as a founding principle, has broadened its defining parameters. Today the Fourteenth Amendment's prohibition against discrimination extends to any identifiable group or class of individuals, and has been successfully employed to protect against discrimination.|
|20||Reference Appendix F on page 24 for an overview of the proposed regulatory schematic.|
|21||Excerpted from a speech given by Dr. Hilton Root in China, December 2002.|
|22||Perotti, E. and Von Thadden, E. 1999 (http://netec.wustl.edu/WoPEc/data/Papers/femf).|
|23||Reference Appendix G on page 25 for a discussion of Gap Management.|
|24||The GAAMA Model was developed in conjunction with consulting assignments to develop the Ukrainian Capital Market. It was later published as a three paper symposium entitled "GAAMA: A New Perspective for Economic Development" in the International Journal for Economic Development (http://spaef.com/IJED_PUB/v4n2.html).|
|25||This request is similar in intent to the SEC no action letter provided Angel Capital Electronic Network (ACE-Net cite 1996 WL636094). https://ace-net.sr.unh.edu/pub/wel/whatis.htm|
|26||Reference Appendix H on page 26.|
|27||Under the present regulatory regime the SEC appears to be "free-riding" on sophisticated investors.|
|28||Using "bought metrics" for stocks that are "sold" is analogous to using football referees to officiate a basketball game. The result is mistaken infractions that constrain the contest. This, in part, explains the slower-than-expected development curve of domestic and foreign emerging markets.|
|29||Rather than imposing the Sarbannes-Oxley operational tax to exile entrepreneurs, use incentives.|
|30||Reference Appendix I on page 27 for Euromoney's competitive response prediction from the high regulatory cost of the Sarbannes-Oxley legislation.|