SEC Commissioner Uyeda Wants to Reduce Regulatory Barriers on Small Companies Going Public

Steven Lofchie Commentary by Steven Lofchie

In remarks at the "Going Public in the 2020s" Conference, Commissioner Mark T. Uyeda decried the decline in the number of companies going public and made several recommendations for reversing the trend, particularly for smaller companies, which he said would benefit Main Street investors.

Disclosure Rules for Public Companies

Mr. Uyeda argued that disclosure requirements should be based on whether the information is useful to investors in making their decisions, and should not be "one-size-fits-all." He argued that although most investors would consider financial factors material to investment decisions, there is less of a consensus on disclosures that involve non-financial factors. Mr. Uyeda stated that even just the possibility of future "burdensome and immaterial" disclosure requirements may be enough to dissuade some companies from going public.

Mr. Uyeda called on the SEC to recognize the limited resources of smaller companies that are going public, and to provide more opportunities for scaled disclosure and staggered compliance dates. He suggested revising tests to determine a company’s ability to provide reduced disclosure, which would lower compliance costs for smaller companies. He suggested, for example, that reduced disclosure could be based on lower revenue or gross profit figures, in addition to or in place of, "public float tests." Further, he stated that permitting smaller companies to have delayed or staggered compliance dates following new disclosure rules could reduce compliance burdens.

Access to Growth-Stage Companies for Main Street Investors

Mr. Uyeda also expressed concern that smaller companies no longer see the IPO process as a cost-effective method to raise capital. He asserted that the decline in IPOs has led to a decline in growth-stage investments available to Main Street investors. To help Main Street investors gain access to growth-stage companies issuing securities privately, Mr. Uyeda argued that the definition of "accredited investor" should not rely solely on an investor's income or net worth. He stated that this definition fails to consider (i) the differences in the cost of living and incomes throughout the United States, (ii) that younger investors lack the necessary funds to reach the required income and net worth levels and (iii) the need for portfolio diversification by individual investors, which growth-stage company investments can often provide through their high-risk, high-reward offerings.

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