In written testimony prepared for a hearing of the Senate Banking Committee conducted yesterday on Spurring Job Growth Through Capital Formation While Protecting Investors, Part II
, former SEC Chief Accountant Lynn E. Turner
said legislative proposals currently before the Committee, aimed at aiding emerging growth companies by relaxing certain public listing, audit and accounting requirements, pose "a dangerous and risky experiment with the U.S. capital markets, and the savings of over 100 million Americans who depend on those markets."
As I review the legislation before the committee, I find it reduces the level of transparency and amount of information investors will receive. It removes critical investor protections put in place to protect against a repeat of past scandals. It decreases the credibility of the information one will receive. It not only allows market participants such as analysts to once again engage in behavior and activities that were associated with prior market disasters, it treads on the independence of independent standard setters such as the Public Company Accounting Oversight Board (PCAOB) established by this Committee, as well as the Financial Accounting Standards Board (FASB). If ill-conceived amendments regulating the cost benefit analysis the SEC would have to perform, that were adopted in the US House of Representatives, I suspect investors would be well served to understand that handcuffs had been put on the SEC, rather than bad actors.
A range of views were expressed by the hearing witnesses, including support for the proposed legislation expressed by William Waddill
, CFO of OncoMed Pharmaceuticals, Inc., representing BIO (the Biotech industry Organization).
Others testifying at the hearing included Jay Ritter
, of the University of Florida, Kathleen Shelton Smith
, of Renaissance Capital, and Tim Rowe
of Cambridge Innovation Center.
In his opening statement (written statement) prepared for yesterday's hearing, Senate Banking Committee Chairman Tim Johnson emphasized the role of emerging growth companies in fueling jobs and the economy, and noted:
Businesses may attempt to raise more capital if the process of selling stock is made easier and less costly.... SEC Chairman Schapiro has said, “Companies seeking access to capital should not be overburdened by unnecessary or superfluous regulations. At the same time . . . we must balance that responsibility with our obligation to protect investors and our markets.”
In previous hearings, witnesses have discussed how public markets allocate capital and help create jobs, SEC requirements for a company to go public, why some firms prefer to remain private, how investors may be solicited to buy stock, how institutional investors decide whether to buy a company’s IPO shares, the importance of liquidity in the secondary markets, the importance of investor protections, measures to reduce the cost of selling stock and their potential impact on the cost of capital and other considerations.
Today, we will hear testimony from experts analyzing the history and state of the IPO market, the needs of start-up and small businesses, why investors buy IPOs, the role of accounting and other disclosures, analyst conflicts of interest and other matters.
Members of this Committee on both sides of the aisle including Senators Schumer, Crapo, Tester, Reed, Vitter, Merkley, Toomey, Bennet and Johanns have been working hard on bipartisan proposals and I welcome our witnesses to provide their insights on these measures and others on the topic.
I look forward to working with the entire Committee and with Senate Leadership to quickly move bipartisan legislation forward.
As we previously reported, studies conducted by the SEC's Division of Risk, Strategy and Financial Innovation found that smaller companies are increasingly turning to capital funding sources other than IPOs, and "the area of public vs. private is becoming increasingly gray over time," according to remarks made by Kathleen Hanley, Deputy Director of SEC's Div. of RiskFIN, at PLI's 2012 SEC Speaks conference
FAF Says S. 1933 Would Interfere with FASB's Independence
In a written statement submitted for inclusion in the hearing record pertaining to the above hearing, Terri Polley, president and CEO of the Financial Accounting Foundation (which oversees FASB) objected to a provision in one of the bills currently under consideration, S. 1933, that would require FASB to provide the same delayed implementation date for smaller public companies as it may deem appropriate for private companies. Polley claimed such a provision would impinge on the independence of FASB. Read the FAF Statement