SEC Lessens Disclosures Requirements as to Business Acquisitions and Dispositions

Commissioner Allison H. Lee wrote a dissent that goes to the question of the proper role of the SEC.

Ms. Lee argues that the reduced disclosure requirements will result in a loss of information to investors, which reduction is to the detriment of investors. This argument, with which one may agree or disagree, is straightforward. Concerns as to the adequacy of disclosure are central to the mission of the SEC.

The second basis of Ms. Lee's argument requires closer attention. She argues that the reduced disclosures will benefit "large companies . . .[that] may pursue predatory takeovers of smaller, struggling businesses." She then goes on to say that increased mergers and acquisitions ("M&A") activity can lead to "greater risks of increased economic concentration." She argues that the failure to consider the risks of economic concentration is inconsistent with the SEC's obligation to consider the effect that its rules will have on competition.

It is true that the Exchange Act makes numerous references to the obligation that the SEC should not impose any "burden on competition" that is not "in furtherance of" the purposes of the securities laws. Ms. Lee seems to be interpreting this obligation to mean that the SEC is required to be concerned as to the extent of competition among commercial companies in their various non-securities businesses. Worrying about whether there is sufficient competition in the paper towel industry or in the computer industry is not part of the mission of the SEC. That concern is entrusted to the DOJ and the FTC. Not only is that role outside the mission of the SEC, but the implication of Ms. Lee's argument is that the SEC should raise regulatory costs in order to discourage M&A activity, on the theory that raising transaction costs will promote, or at least maintain, competition in various lines of commerce by discouraging mergers. That seems inconsistent with the SEC's obligation to reduce burdens that are not in furtherance of the securities laws.

The SEC should be reviewing its regulations to help "struggling businesses." But that means seeing whether the SEC can reasonably reduce the costs that its requirements impose on small businesses without materially reducing useful information provided to investors. The SEC does not help struggling businesses by making it more expensive for them to transact business, or by requiring that they spend more on accountants and lawyers.

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