The SEC is to embark on a “return to normalcy,” according to the agency’s Acting Chair Mark Uyeda. Speaking at the Florida Bar’s 41st Annual Federal Securities Institute and M&A Conference in Tampa, FL, Uyeda called the agency’s leadership in the Biden years “a stark aberration from longstanding norms as what the Commission has historically viewed its legal authority, policy priorities and use of enforcement.”
His remarks offered some insight into how he – and presumably the SEC as an agency – will view issues from shareholder proposals and capital-raising by entrepreneurs to retail investor access to private companies.
Uyeda reminded us that the SEC has already rescinded Staff Legal Bulletin No. 14L and Staff Accounting Bulletin No. 121, which had effectively prevented banks and broker-dealers from taking custody of crypto assets.
And he noted how he has designated Commissioner Hester Peirce to lead a crypto task force that will seek to develop a comprehensive regulatory framework to provide realistic paths to registration and to craft sensible disclosure frameworks.
Climate
His speech contained hints that there is another SEC mandate he is considering – the SEC’s climate-related disclosure rule. It is currently being challenged in the US Court of Appeals for the Eighth Circuit, and Uyeda said he’s begun the process to allow the agency to consider the appropriate next steps for the litigation.
“During the adoption of that rule, I expressed my concerns regarding the Commission’s lack of statutory authority, shortcomings in the rulemaking process, and the potential harm that the rule could inflict on our capital markets and economy,” he said.
Finally, he said the Consolidated Audit Trail (CAT) and the personally identifiable information (PII) being collected by it needed prompt addressing, and the SEC has already exempted certain of that PII from CAT to address the cybersecurity concerns raised by some market participants and others.
He reminded his audience that the agency’s enforcements were far from over, and he interestingly chose three areas about which to say “we are still bringing charges here”: Insider trading, inflating financial performance, and breaches of fiduciary duty by investment advisers.
Access to capital
Uyeda lamented the fact that although there are SEC rules available to entrepreneurs to raise capital without registration, 77% of small business owners reported being concerned about their ability to access capital.”
He said that to ensure entrepreneurs have access to the capital needed to fund their ideas and grow their startups, he has requested SEC staff to begin the process of exploring ways to implement the recommendations of the Commission’s own Office of the Advocate for Small Business Capital Formation. They involve targeted regulatory changes to the exempt offerings regime to lower legal, compliance and transaction-related costs – while also providing investor protections.
Uyeda addressed the topic of non-accredited investors having some access to investments in private companies. Qualifying as an accredited investor can serve as a gateway for individuals to invest in them, but the current income and net worth thresholds for an individual to qualify as an accredited investor often impede this opportunity. Uyeda believes those income and net worth thresholds should be revisited.
In particular, he would like to see those investors purchasing private company shares through pooled investment vehicles to have greater access – so some exposure to private offerings is permitted to non-accredited investors.
IPOs used to be sexy
Uyeda rhetorically asked this: Without attractive opportunities for an emerging growth company (EGC) to sell itself or become publicly traded, what incentive does a venture fund have to make an investment in it?
He said that tailoring the SEC’s wide-reaching disclosure requirements for newly public companies may, on the margin, incentivize more companies to go public. “In turn, venture funds may see more attractive exit opportunities for their investments and decide to provide funding. This funding would then enable companies to execute their business plan, create jobs and contribute to economic growth.”
He said he has asked the Commission staff to review the EGC definition and recommend potential changes, “including how a company qualifies and the duration for which it retains the status.”
Less is more – disclosure
The SEC introduced scaled disclosure based on a company’s size in 1992, Uyeda pointed out. But its “current rules with respect to filer categories and associated disclosure obligations are needlessly complex and do not provide sufficient scaled disclosure benefits,” he said.
As an example, a company with a $250m public float is subject to the same disclosure requirements as a company with a $250 billion public float, he said. This is because the Commission has not changed its thresholds for a company to qualify as a large accelerated filer or accelerated filer since they were established in 2005.
Depending on a company’s public float and revenue, it can qualify as both a smaller reporting company and either an accelerated filer or a non-accelerated filer.
“This distinction has real-world cost implications as non-accelerated filers do not need to provide an auditor attestation of the company’s evaluation of its internal control over financial reporting,” Uyeda said. The Commission should be considering whether to re-align its filer categories to reflect the size and makeup of public companies today, he recommended.
“Following any potential re-alignment, the Commission should also review its disclosure requirements and identify rules that should apply only to the largest companies,” he said.
