Yesterday, Capital Markets Subcommittee Chairman Bill Huizenga (MI-02) held a hearing to examine how the Securities and Exchange Commission (SEC) has implemented the JOBS Act and what its impact has been on capital formation and job creation. During the hearing Huizenga called for the SEC to stop pursing political objectives outside its core mission and focus on creating a regulatory environment that supports innovation and job creation.
• While small companies are at the forefront of technological innovation and job creation, they often face significant obstacles in obtaining funding in the capital markets. These obstacles are often attributable to the "one size fits all" securities regulations—intended for large public companies—placed on small companies when they seek to go public.
• By helping small companies obtain funding, the JOBS Act has facilitated economic growth and job creation. Additionally, the JOBS Act has fundamentally changed how the Securities and Exchange Commission (SEC) approaches securities regulation. SEC Commissioner Michael Piwowar described how the JOBS Act has changed the SEC’s mission this way: “The JOBS Act requires the Commission to think of capital formation and investor protection in fundamentally different ways than we have in the past. The crowdfunding provision of the JOBS Act forces us to think outside of our historical securities regulation box and to create a different paradigm than the one we have used for the past eight decades.”
• The bipartisan JOBS Act was an attempt to remedy the SEC’s inaction on capital formation, and even President Obama called the law a “game changer” for entrepreneurs and capital formation. Regrettably though, the implementation of the JOBS Act by the SEC languished under the chairmanship of both Mary Schapiro and Mary Jo White. By failing to fulfill this important part of its mandated mission, the SEC is hurting small businesses, impeding economic growth and hindering the creation of new jobs.
• It is extremely troubling to me that the SEC seems more intent on pursuing highly politicized regulatory undertakings outside its core mission. Instead of working to protect investors; maintain fair, orderly, and efficient markets; as well as helping to facilitate capital formation, the SEC has been more focused on exerting societal pressure on public companies to change their behavior through disclosure rules such as the conflict minerals and pay ratio rules.
• It's time to refocus the SEC to advance a broader capital formation agenda. Let’s continue to build upon the success of the bipartisan JOBS Act by further modernizing our nation's securities regulatory structure to ensure a free-flow of capital, job creation, and economic growth. It's time to get the federal government working to support innovation and reward hardworking Americans.
Key Takeaways from the Hearing:
• The bipartisan JOBS Act is working, but Congress and the SEC must do more to help small businesses, entrepreneurs and emerging growth companies access capital.
• The SEC has a responsibility to facilitate, not frustrate, capital formation and must work with Congress to eliminate unnecessary and overly burdensome regulations that are restricting access to capital.
• The Financial CHOICE Act, the Republican plan to replace the Dodd-Frank Act, included numerous provisions to expand access to capital for small businesses and entrepreneurs.
Topline Witness Quotes:
“Even given the significant and positive changes being brought about for entrepreneurs and investors with the JOBS Act, areas in need of improvement always exist, including government over-regulating or placing too many limitations on the ability of entrepreneurs to gain access to capital, and/or on investors’ abilities to make investments in entrepreneurial ventures.” - Raymond Keating, Chief Economist, Small Business & Entrepreneurship Council
“Since the JOBS Act was signed into law five years ago, 212 emerging biotech companies have used provisions in the law to go public. For comparison, there were just 55 biotech IPOs in the five years leading up to the JOBS Act. The ability of growing businesses to access the public markets, as supported by the JOBS Act, is of paramount importance to biotechnology innovation because investment capital is the lifeblood of scientific advancement. It costs over $1 billion to develop a single life-saving treatment, and most companies spend more than a decade in the lab before their first therapy is approved. During this long development process, virtually every dollar spent by an emerging biotech comes directly from investors.” - Brian Hahn, Chief Financial Officer, GlycoMimetics, Inc.
“[I]nvestors do not benefit from an overregulated public market. Indeed, they are impacted when companies choose to avoid a public listing in order to escape unnecessary regulation. Let me illustrate the point by referring to the growth experienced by Nasdaq’s largest listed companies…most of the growth of these companies was experienced while being listed on Nasdaq. Why is that important? It means that hundreds of billions of dollars of wealth were created for the millions of individuals (including rank and file employees) who invested in those companies through the public market.” – Edward S. Knight, Executive Vice President, General Counsel, and Chief Regulatory Officer, Nasdaq, Inc.
“The Chamber remains very concerned about the long-term decline in the number of public companies in the United States, a development that has endured through varied market and political cycles… the United States is now home to roughly half the number of public companies as twenty years ago, and we have only slightly more public companies than existed in 1982. This is a tragic outcome for our economy, particularly given the body of evidence which shows that both job and revenue growth increase significantly once a company goes public…Whatever the exact economic consequences may be, it is indisputable that fewer public companies means less jobs, less growth, and less opportunity for American businesses and American workers.” – Thomas Quaadman, Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
Many West Michigan families have already begun, or are about to begin their holiday weekend. As you climb into your car and get on the road, remember to travel safely. Enjoy the weekend with your family, friends, and loved-ones, but please keep in your hearts the men and women who made the ultimate sacrifice in defense of freedom as well as the veterans and families who carry their memory.
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