Speech by SEC Commissioner:
Remarks at the SEC Open Meeting
Proposed Rules regarding Smaller Companies
Commissioner Roel C. Campos
U.S. Securities and Exchange Commission
May 23, 2007
I'd also like to congratulate the staff of our Division of Corporation Finance for all of their hard work. While I'm told this is not a record, it's not often that you see six proposed rulemakings from one Division on one calendar. (I guess the number is actually eight or nine, if you include the three releases on Management Guidance.) I know the Corp Fin staff has been putting in tremendous hours on these releases, and we're very grateful for it.
One of the Commission's missions is to promote capital formation. This is especially important for both smaller public companies and also private companies. As a former owner of a privately-held company, I understand how important this is. If our rules are out-of-date, unnecessarily vague or overly restrictive, smaller public and private issuers will face unnecessary obstacles in attracting investors.
There's been much discussion recently about IPO statistics, and how they allegedly evidence the decline in competitiveness in U.S. markets. What's missing from this discussion, however, is any talk of private capital raising (and in particular, by foreign companies). I would think that trends in this regard are as important as IPO trends, if not more so. For example, it seems to me that trends with respect to unregistered offerings by private companies correspond much more closely than IPOs with respect to critical measures of our economy, such as where jobs are created and where technology is developed. Start-up companies that must resort to unregistered offerings form the backbone of our system. If the private offering process is streamlined, these companies will have greater capacity to innovate and grow. And to bring us back to IPOs - statistics show that the vast majority of companies go public in their home market. So, it stands to reason that if private companies in the U.S. thrive, so too will ultimately the U.S. IPO market. With that said, let me turn to a few specific points.
First, I'm glad to see that the staff is proposing to revise the content of Form D and mandate electronic filing of the form. There's no reason that we should be stuck in the paper age here, when virtually all of the other required Commission filings are electronic. In addition, our staff has heard that Form D is confusing and complicated, and apparently many issuers are choosing simply not to file the form. By simplifying Form D and making it easier to file, we can hopefully reduce the burden on issuers. Moreover, this should make Form D a better tool to collect empirical information, so that we can measure private offering trends and report on capital raising. These are important trends that we should be measuring.
Second, I think the proposal to allow limited advertising to occur in an offering solely to "Rule 507 qualified purchasers" via proposed Rule 507 is very promising. On the one hand, it would relax one of the primary restrictions currently imposed on private offerings. On the other hand, by limiting the offering to an even narrower class of investors, the rule would seek to minimize the potential for fraud by unscrupulous issuers. It will be interesting to see the comments that we receive on this. I'm also curious to see what the commenters have to say about our revisions to the definition of "accredited investor." I know our proposal last December to amend this definition generated significant commentary, and we should be mindful of the comments we received in that regard.
I also should not overlook the fact that we are also proposing to remove some limitations on the ability of smaller public companies to conduct public offerings on Form S-3. This seems appropriate, given the more comprehensive real-time disclosure regime put in place over the past few years. Again, however, we're trying to balance investor-protection interests here as well, by limiting the amount of securities that can be sold by smaller public companies and by not allowing shell companies to take advantage of this proposed rule. I hope this is an appropriate balance, and I look forward to the comments.
Let me end by congratulating the staff on this fine and comprehensive work. I'm very happy to support these proposals.