Talked about business regulations and their impact on the economy. The secs agenda and future priorities. From the heritage foundation, this is one hour and 20 minutes. Good afternoon. Welcome to our heritage foundation. Welcome to those of you joining us on our website or in house. We ask for a courtesy check to see that our various mobile devices have been turned off. Devices have been turned off. For those of you online, you can ask questions at any time by emailing speaker heritage. Org. Leading our conversation isine, you can david burton. Mr. Burton, before joining heritage, served as general counsel of the Small Business association, hes been chief Financial Officer and general counsel for the alliance for retirement prosperity and was as david partner at the argus group, a Public Policy and Government Relations firm. Please join me in welcoming david burton. David. David thank you for coming. It is my pleasure to introduce to you commissioner michael buehler. He was appointed to the securities and Exchange Commission by president obama and was sworn in in august of 2013. He was designated by President Trump to be acting chairman of the commission and served in that capacity if january 23 of this year to may 4, and his term expires in june of 2018. Previously, he was chief economist for the Senate Banking committee. And he was an economist with the council of economic advisors. He worked at the s. E. C. In the office of Economic Analysis which is now dera, or the division of economics and risk analysis, as an academic scholar on leave from iowa state university. He was professor of finance at iowa state university, he earned a b. A. In Foreign Service and International Politics from penn state, an m. B. A. From georgetown and a ph. D. In finance from penn state. Today were not going to have a set presentation but instead we state, an m. B. A. From georgetown are going to have a less formal question and answer format. Im going to ask mr. Im going to ask him a number of questions to get the conversation rolling and then well open it up to audience questions and answers so that you all can participate in the discussion. Commissioner, we have a new chairman of the securities and Exchange Commission. Whats he like to work with . What do you think will be the prior thousands of reconstituted securities and Exchange Commission . Michael first of all, thank you, david, and thank you heritage for hosting this great event. I look forward to questions from folks in the audience. Anyone who has seen an f. T. C. Commissioner speak knows whats coming next. The views i express are my own they do not necessarily reflect those of anyone else on the commission. That said, its awesome working with the commission. Back before the election, we were a commission who cared about enforcement first and the doddfrank death march second. We have a new chairman who was chosen by the president to remember that we have a threefold mission, to maintain investors and a fair market but also promote Capital Formation. When you saw the press releases when he was announced a as the nominee, in chairman claytons nominee, in chairman claytons speech last week you see the Capital Formation part of the mission is a broad theme well continue to work on at the s. E. C. . David in terms of the s. E. C. Are you thinking about the legislative agenda . Michael the chairman is the one who sets the agenda but he and i and the others working together are working together. Last lot we can do that does not require legislation. As one example of something threefold mission, to maintain weve already done, our new director, the division of corporation finance, bill hindman on behalf of the commission announced about a week or so ago that we are going to extend the relief for companies that want an i. P. O. On a confidential basis so companies can file on a nonpublic basis so people dont know theyve started the filing process on an i. P. O. It was something that the jobs act added for emerging Growth Companies, weve announced that were extending that for any company that wants the i. P. O. Regardless of size and including foreign private issuers that want to list in the United States as well too. And the one piece of that that people have been focused on, it not only extends the confidential filing for initial public offers but offers that occur in the first year of an i. P. O. That was Just Announced about a week and a half ago. We already have companies that have decided to take advantage of that so we have companies that are Filing Foreign i. P. O. On a confidential basis, and we also have a company thats filed for confidential filing for a follow on offering. Were already seeing some of the things in that space. There are a number of issues that were looking at. I dont want to front run the chairman in terms of all those issues but whats important to know is that the action last week showed that not only are there things that we can do as a commission that dont require legislation, but the action last week actually didnt even require a commission vote. Theres a numb of things that can be done at the staff level and some very so im very excited we have bill hindman as our new Division Director who can direct the staff to actually start moving on those items that dont require a commission vote. So were under active discussion to see what we can do at the staff level what we can coat the Commission Level and then thirdly what requires legislation. David regulation d is now the largest single means of raising capital in this country, accounting for about 1. 3 trillion annually. Are there things in your judgment that can be done to improve regulation d . Michael first and foremost, we need to tell the public were not going to move garden proposed amendments the commission did in 2013. So when the commission lifted the prohibition on general solicitation in 2013, prior to me joining the commission at the same time, they proposed additional amendments that would have some enforcement hooks for things that are sort of like foot faults in the registration process. Thats given people some pause in terms of whether or not thats going to go final or not, whether some people actually think it is final. I think we need to do a Public Statement that says that these are that were not going to move forward on these amendments and give people some comfort that they can move forward on the regulation offerings without being put in ha time out because of david would be good if you could withdraw it. Michael that would require commission action. I think there are things we can do to signal. I have been in venues like this saying i have no interest in moving forward on that i think withdrawing it would be the sensible thing to do david under regulation d, investors can invest in private offerings but theres also a provision with respect to sophisticated investors that is rarely used. One of the reasons is that the s. E. C. Has never provided very much guidance as to what constitutes sophistication for purposes of regulation d. Theres been increasing talk about providing some test with respect to what constitutes sophistication, for example that youd pass a series seven exam or you have certain private accreditations or you pass the test or have a graduate degree in finance or what have you. Do you think there would be some openness to that at the commission . Or do you think its best considered by congress . Michael i dont know in terms of i cant speak on behalf of my fellow commissioners, i for one have questioned the premise of having an accredited versus nonaccredited investor definition. The rationale is that the commission, prior commissions and until we change it this commission as well too, believe that somehow we are protecting investors by prohibiting them from investing in certain highrisk securities. Ive been questioning that premise because as we know, highrisk also equals high expected return. So what were doing is actually, ill use, protecting in quotes, here, were protecting investors from potentially high expected return securities, you only have to look to Silicon Valley and see the unicorns out there that are attracting large amounts of private capital. I was out in San Francisco and the amount of private capital that folks are willing to throw at these companies is amazing. And so, at least in sill condition valley it doesnt seem like theres problems with access to capital. But from my perspective from the investor, mom and pop investors, main Street Investors arent sharing in these returns to these companies and companies are taking much longer to go public, in some cases are not going public. The average investor is being prohibited from investing in these. Some people may counter that and say, its high expected return but theyre, quoteunquote, too risky to let the average investor invest in. What we teach in portfolio analysis case is the benefits of diversify case. A lot of securities would provide diversify case in their existing portfolios. Thats something ive been trying to press the attorneys at the f. T. C. To think about. The f. T. C. Is mostly a lawyer driven agency and for historical region weve been thinking about the individual security offerings, its about the risk factors of a particular security, whether its in a prospectus or 10k or some other file. Ive been trying to get people ive been trying to get people to think more broadly and say, look, its not just the risk of that security in isolation. Its risk with a portfolio that a customer already has. Investor. And if this is uncorrelated with what they have even though its a customer already has. Investor. A higher Risk Security in isolation it can get portfolio diversify case and offer them high expected returns. I would like to question the premise of having these artificial distings distinctions. David you raise a good point in that companies are not going public or going public much later in their life cycle, so a lot of big gains that are lot of big gains that are attributable to the lenders are basically limited to accredited investors which is the top 7 roughly of the american people. And that raises the question of what can we do to make it more likely that a company will go public . We now have approximately half the number of Public Companies we had 20 years ago. The number of i. P. O. s, whether measured by actual number of offerings or dollar amounts are way down even compared to a couple of years ago but dramatically down compared to where they were 15 years ago. So what sort of things do you think we can do to make being a Public Company more attractive . Michael those statistics you rattled off, those are the type of statistics, when jay clayton met with thenpresident elect trump, those are the type of statistics he mentioned to him, where they were 15 years ago. So what sort of things do you think we can do to make being a those with the things that were so shock to the president that he wanted to have a new chairman at the f. T. C. To come in and try to think about regulatory fixes we can do to try to improve upon those numbers. So there are those who say, theres nothing the f. T. C. Can do because theres other macro things going on. Theres huge returns to scale, win take all, a lot of Tech Companies dont want to go arthritic public, they just want to get bought by google. You hear all those stories. But i still think theres things we can do and as evidence of that, look at the jobs act. So i mentioned the we expanded the confidential filings to include the unicorns and some of the other companies too. When the jobs act went through and it aloud for confidential filings for emerging Growth Companies, we had Something Like 80 bioTech Companies went public you hear all those stories. In the first year. So that shows that small changes to the Regulatory Framework can have huge effects and so were looking for what are potentially some of those next changes that some of those next changes that we could do to help facilitate Capital Formation which again is part of our mission. In terms of what are things we can do, ive actually over the last three or four weeks been on what im calling a Capital Formation listening tour, been to new york, San Francisco, even participated at the white house in tech week, on investing in Technology Companies and an arizona panel talking about how to increase geographic diversity of Venture Capital financing to start small, emerging Growth Companies that would want to go public. Most of the venture cap financing is occurring in Silicon Valley, new york, and boston. I think what we need to do is continue to listen to people, listening to folks at heritage, listening to various Interest Groups out there and think about, you tell us what we can do. We can constituent around in the building here in washington, d. C. And try to dream up what we think are important thicks to do but whats most important for us is to get out there and hear from people and say what are you finding as the impediments to Capital Formation . On that note, i mentioned bill hindman a couple of times already, our new director, hes been telling people he wants to accomplish three things. He wants to make the division more efficient, more transparent and more collaborative osm then efficiency front he wants to challenge the staff to get the review filing process more efficient, quicker review filing. Wants to be more transparent in terms of getting out and talking to people. He was out in San Francisco at the same time i was talking to people out there about expanding the confidential filings and he wants to be more collaborative. If you think about the last eight years, the relationship between the regulate and the regulators have been very much confrontational. The Capital Formation space thats one that in particular we could benefit from more and more collaboration. Were going to take more meetings with people, were going to listen to more ideas from as many people that want to give us ideas that we can do in terms of things that were doing and truth be told actually the staff has been wanting to be more and more collaborative. What it needed was a change in the tone at the top from a new chairman coming in and saying this is the way were going to work at the commission. David theres been a number of, i guess, possible culprits identified, one is, ill go into a few other, one is the Disclosure Requirements under regulation s. K. , the f. T. C. Released a study required by congress and some of those requirements are also a function of dodd 46 frank doddfrank, particularly the politically motivated disclosures with respect to conflict, minerals extraction, c. E. O. Pay raises and so on. Michael those are my favorites. Politically motivated david i figured that. Do you think theres room for meaningful improvement in the disclosure regime governing Public Companies at this point . David i figured that. Michael yes. Those are my favorites because when i was acting chairman, i tried to target them to start the process, for us to make those rules less burdensome, should congress not choose to repeal those. I think the first from my perspective would be if congress would help depoliticize the s. E. C. By getting rid of those special interestmotivated disclosures. The first best would be for congress to repeal those, which would be fantastic. There are things we can do to try to make it less burdensome as possible. Thats why on conflict minerals and for pay ratio, i opened Comment Period on those to feedback from the public in terms of we kept hearing from folks that they were particularly burdensome or the things we could do to help make them less burden some. We have exemptive authority in a number of spaces. Potentially providing some sort of scale disclosure or just outright exemptions for smaller reporting companies. Some of the ones where the burden of fixed cost of compliance fall disproportionately high. David the s. E. C. Estimated that its 1. 5 million a year in Compliance Costs to be a Public Company. Which means if youre a small company, thats an insurmountable burden. With a normal ratio, its like erasing 15 million of shareholders equity right there. Michael one of the things that was striking to me when i was out in Silicon Valley, i met with one of these private companies, unicorn has a 1 billionplus valuation. Theyre a private company. Their entire legal death two people. Imagine that for a Public Company Legal Department is two people. Imagine that for a Public Company. They have 12 chefs. The ratio of chefs to legal is six to one. Thats probably a good ratio. David theyre required to disclose that ratio. [laughter] michael it was striking to me. Imagine a company that size as a Public Company, they have an army of people in the Legal Department, in Investor Relations and the like. David another thing thats constantly referenced as a problem and of course emerging Growth Companies under the jobs act are exempted, is the internal controls reporting under sarbanesoxley. In point of fact you see a tremendous number of companies that went private right after sarbanesoxley and the decline in Public Companies really dramatically accelerated at that point. Do you see room for improvement there . Perhaps making the emerging Growth Company exemption permanent instead of a fiveyear layoff . Michael even revisiting the threshold for which they have to comply. With sarbanesoxley. Its clear that sarbanesoxley did have benefits for investors and for Public Companies. But the cost side was a lot more than anybody anticipated. The costs have are very high fixed costs. Theres a lot of things they all have to do. Those costs fall disproportionately on the Smaller Companies. I think it would behoove us to find out where that costbenefit ratio is right. For large company, the benefits outweigh the costs in terms of complying so its ok for them. My preference would be if we had private ordering and let companies sort of figure that out. But sarbanesoxleys been the law of the land for a long time now. If we can at least exempt Smaller Companies up to a certain threshold, and not prohibit them from complying, if theres Certain Companies that say, were willing to incur those costs because we think the benefits in terms of the information thats out there or in terms of investors are more comfortable and it lowers the cost of capital, fine, let them do that. I think it would behoove us to actually increase that threshold to the point where we can sort of see where Companies Find the benefits to justify the costs. David former commissioner once wrote a law review article called blinded by the light. The premise of the article being that the disclosure documents have become so massive that the relevant information is getting lost in hundreds of pages of dense legalese. Or disclosure documents now obfuscate rather than inform. The length of 10ks is dramatically increased. Ive seen some estimates that say that by a factor of two. Do you think its a fair criticism of reforming regulation s. K. Thats going to hurt investors or do you think it can be done in way that both simultaneously reduces the burden and improves the accessibility of this in way that both simultaneously information for investors . Michael the latter. I couldnt agree more with former commissioner on that. If you look at the size of a 10k now and try to find useful information in there, it takes forever to find that information. Somebody recently gave me the prospectus of walmart when they went public in the 1960s. It was 28 pages long. One of those was a page where it if you look at the size of a 10k now and try to find useful says, this page left intentionally blank. Right . So you can flip the page over. Theres a lot of useful information in these reports. But to your point, theres a lot of redundant information. We have some rulemakings in progress that would help sort of clean up some of that. And allow the more Material Information to sort of rise to the top for people to find that information. Unfortunately its become politicized from a number of folks on the far left, that somehow less information, less redundant information is going to be giving less real information to shareholders. With the pay ratio and conflict, theres useless disclosure thats being thrown in there thats not providing good information to shareholders. Its something we need to constantly be vigilant about. I think we can actually do more on some real things, real reforms where we can get rid of some of this stuff. Accounting principles change over time. Industries change over time. And so its up to us to keep up with all those changes. Some of these risk factors become boiler plate, where one company add as risk factor and then another company thinks, i need to add that same risk factor. Now you have a list of 21 risk factors that are the same, with everybody in the same industry, rather than giving you very good, meaningful information. Its interesting to me, historically, where did this notion of materiality come from . It came from a famous Supreme Court case where there was a 90 decision by the Supreme Court written by then Justice Thurgood marshall, where they talked about materiality has to you have to have a limit there, otherwise youre going to if you think everything is material or potentially useful to anybody, theres going to be what they said an avalanche of information or the metaphor, blind by the light. Its amazing to me how far weve come in that where that was a 90 decision written by Justice Thurgood marshall saying we need to hold the line on materiality and how we need more and more special interests, wanting to turn it into a social Justice Agency for their particular interests rather than having us be an agency, which is our statutory mandate, to provide investors with Material Information. David under start with blue sky laws is the name that is commonly used for state Securities Laws. Under current federal law, theres a concept called covered securities. The securities that are covered securities dont have to make 50 different state filings, get it from 50 different state different state filings, get it from 50 different state regulators. Exchange traded securities which are generally the largest companies, the exxons and walmarts of the world, are treated as covered securities. So is regulation d. Crowdfunding securities. But small Public Companies and regulation a are not treated as covered securities and therefore have to comply with 50 different state Securities Laws, both in their initial primary offerings and also in the secondary markets. Except for two primary offerings. Do you think it makes sense to rationalize that and try to get to a world where small Public Companies are not regulated more than the exxons and walmarts of the world or private offerings . Michael its something were looking at. Its an issue that was identified by our Advisory Committee on small and emerging companies. It is something that were working with the state securities regulators, nasa, the National Organization for state securities regulators, we have a wonderful relationship with our state securities regulators. Oftentimes theyre the cop on the beat in terms of rooting out fraud on particularly small offerings and also for small Investment Advisors. When i was acting chairman, we entered into an information sharing agreement with the state securities regulators so that we could share more information back and forth about small securities offerings and the rega space, regd space and some of the others too. The intent is for us to enter into more collaborative information with them, to think through a number of these issues and see if we can find a path forward on some of these secondary market trading issues. Whether or not the blue skies laws need to be preempted. Whether we can do a workaround for those types of things. The something were in active discussions with right now. David lets change subjects a little bit and talk about title three crowdfunding. In my judgment, its been a disappointment. About 10 million was raised in the first 6 1 2 months, according to a small fraction of whats raised using other mechanisms. To me its not a great surprise because title three really had just about every Regulatory Burden could you think of imposed on both the funding portals and these Small Companies. Which of course limits its attractiveness. Since its limited to the smallest companies, 1 million a year, what do you think do you share my view, its been a disappointment . What do you think we can do to improve title three crowdfunding . Using the internet to raise money from a large number of investors, making very small investments . Michael i agree with you that not only has it been a disappointment, but its also not a surprise. When it came time for us to finalize the rulemakings, i dissented and voted no. As you mentioned, theres a lot of prescriptive things there in terms of the funding portals and limitations on how much could be raised. A lot of that is statutory. Unfortunately. When the jobs act was working its way through congress, the house passed a sensible crowdfunding provision for the jobs act, which basically left a lot of flexibility for the s. E. C. To set up the Regulatory Regime and adjust as necessary. When the jobs act went over to the senate, harry reid decided to skip it going through regular order, through the committee, just have it going to the floor and allowed only one amendment on the jobs act. That was the crowdfunding amendment. And an amendment was substituted in which is highly sub scriptive and doesnt give us very much flexibility at all in terms of allowing for a framework that works. So that was proving challenging. The reason why i dissented was flexibility at all in terms of allowing for a framework that not only because it was prescriptive, but then the majority of the commission at the time decided to make it even more difficult. So there was a question there in terms of ambiguity, in terms of the limits of investing. There was a net worth test and income test. It was am big in the provision as to ambiguous in the provision as to whether somebody could meet one of those tests or both of those tests. The question was if somebody was retired by but had a High Net Worth and didnt meet the income test, but met the other test. The majority of the commission decided to move forward with a test where you had to meet both of them. Basically prohibiting a large number of retirees and other folks who want to diversify their portfolio from investing into crowdfunding. Having said that, we can go back and try to change some of the things where we have flexibility. But i think the first bet would be for congress to revisit it. I believe the choice act has the crowdfunding freedom act or bill thats in there that congressman mchenry is pushing forward. David the positive but small. Michael the other thing is recognizing that not only do we have a federal crowdfunding framework, but also each state has its own statebased crowdfunding framework as well too. Most but not all of the states have set up a crowdfunding framework that allows Smaller Companies within their states to engage in crowdfunding under have set up a crowdfunding their statebased framework and not trip the federal crowdfunding regulations. If they at the time it was offer or sell their securities within the state. We went back at the s. E. C. , one of the things i pushed for was making the exemption basically a safe harbor for them, to stay in the statebased crowdfunding framework. Making that easier by getting rid of the offer language in there. Now you can offer your securities to anyone. Basically making it easier to use the internet. But when it comes time to sell the securities, they have to then do their Due Diligence to make sure the people actually live within the state. My hope is by opening up the ability of the states to open and facilitate statebased crowdfunding, well be getting some data and information. Thats why its good for us to have that information sharing agreement with the states. So we can find out, were going agreement with the states. So we can find out, were going to have a diversity in terms of different states have different types of frameworks. Which ones work and which ones dont . So that we can then use that information in terms of how do we want to revisit the federal crowdfunding framework. Crowdfunding framework. David lets change gears and talk about regulation a. Regulation a had become almost a dead letter, part of the jobs act. I think in 2011 there was exactly one regulation a offering. Of course cant raise more than 5 million. Regulation aplus is what people have taken to calling the postjobs act regulation a. Theres a lot of hope that it will enable people to, in effect, access the Public Markets or enable Small Companies to raise money from ordinary americans. Dera has released some data that shows in the first 16 months, 81 offerings have been made seeking 1. 5 billion and raise 200 million. Of course some of that, 1. 5 billion is really going to get raised so we dont really know. Its likely that regulation aplus will ramp up relatively quickly. Theres, i think, probably things that can be done to improve regulation a. One of the most obvious is when the Commission Adopted the rule, it took the very positive step of preempting blue sky registration and qualification requirements with respect to socalled tier two primary offerings. But not secondary offerings. But are there thing that you think can be done to improve regulation a . And make it better for both the investing public and for issuers . Is that something you think the commission is going to be looking at . Michael on the secondary offerings, thats something were looking at. Engaged with the state securities regulators and trying to get as much information as possible. It was interesting, i got a text from one of my old College Roommates who said, were going to try a tier one regulation a offering. Weve been doing regd offerings. Ill let you know how it goes. Ill have a personal case study from someone switching. One of the things im very proud of in the aplus is getting my fellow commissioners onboard to extend the tier one to 20ds million. The tier two goes to 50 million. I wanted to get both of them to 50 million. Lets hold a horse race in terms of which one people prefer. Do you want to go through states or the commission . We can get a real controlled experiment. But originally it was proposed to tier one to only go to 10 million but we were able to get that up to 20 million. Were starting to get some data in from folks in there. That datas going to help guide us in terms of how people are using these offerings. In the tier two, are they all close to 50ds million . This if thats the case, then maybe we should revisit and maybe think about increasing the threshold again. As you mentioned, when it was only 5ds million, there was hardly any offerings over a series of years. Its the cost of doing a 5 Million Offering are not that much different than doing a 50 Million Offering in terms of the fixed cost. The benefits are much higher for that. Just by simply increasing the threshold, were seeing more and more People Choose this. On the smaller end, on the smaller part, the dollar amounts and offerings, tier one and tier two, what were seeing, regulation crowdfunding is particularly prescriptive and people arent finding that as being potentially useful for crowdfunding. Were starting to hear anecdotes from people that rega offerings are filling some of that space. Sort of crowdfunding with the lower k. C. Rather than the regular. Its broadened its meaning on that. People are receiving articles being written and firms and consultants out there talking to people about sort of crowdfunding through regulation a. So that may be another mechanism for us. Our division of economic risk analysis has been starting to collect some of the statistics on that and were starting to analyze that and look at potential ways to that we can either make it easier or increased threshold. David congress recently created an office of the Small Business on that and were starting to advocate at the s. E. C. I think its a little different than the investor advocate. But its modeled on it. When do you think you all are going to be able to stand that office up . Michael my hope is by the end of the year. So congress authorized it last year. But we had to go through some hoops on the appropriation side. So it requires the sort of inside the beltway, whats called reprogramming dollar amounts. We just recently got approval from the appropriators to do that, to try to stand up the office and so the next step would be for us to go through the hiring process for the new Small Business advocate and were going to model that, my understanding of pretty much what we did for investor advocate and well have staff involved in the commissioners be involved in that process. My hope is that we can start that process, move that forward through the summer and fall and have something announced hopefully by the end of the year. David great. The Financial Industry Regulatory Authority is the primary regulator of broker dealers. It has a budget thats roughly 2 3 of the size of the s. E. C. And i think its staff is almost 80 of the s. E. C. Yet theres relatively little congressional oversight of finra. Last october the s. E. C. Created that was paired with some reforms, the way the s. E. C. Regulates broker dealers. How do you what you have learned about that . What has the s. E. C. Learned about how that office is operating . Do you have any thoughts on how it could be improved or the s. E. C. s relationship with them could be improved . Michael yeah, so youre right. There was sort of a couple reasons why we decided to reallocate staff within the commission. So the first thing we did was we reallocated staff on our exam team from overseeing broker dealers to overseeing Investment Advisors. So we have over 12,000 Investment Advisors out there. That we need to examine. The number of Investment Advisors keeps going up year after year. We needed to reallocate staff from the broker dealer side to the Investment Advisor side. By doing that, we also had conversations with finra and telling them that were going to rely on their oversight of broker dealers more to help fill that space. Of course we also oversee finra, to your point. And so what we also did was we made some adjustments within the offices in our office compliance, inspections and examinations, prior to this move. All of our oversight of the selfregulatory organizations, which includes finra, the exchanges, pcaob and the msrb, were all within one office. Because were going to be relying on finra more and more on the broker dealer side, we decided to split that office into two. One that focuses just on oversight of finra and the other one that focuses on the oversight of all the other selfregulatory organizations. In terms of both of those moves, were looking through, trying right now we just did those last year. Looks like we got the balance pretty close to right. Were going to continue to evaluate the balance on those, to make sure we got that right. Having said that, obviously finra has a new leader in there, robert cook coming in. Hes done a tremendous job on something called finra 360. He went on a listening tour, outside of washington, d. C. , and met people where they are and listened to criticisms in terms of the transparency and accountability. He is in the middle of that broad review right now. Hes already announced initiatives hes moving forward with. Trying to get the voice of particularly the smaller brokers more involved in finra. Very much in tune with whats going on capitol hill in terms of potential legislation that would give them greater oversight and doing a tremendous job there. Were going to continue to see those play out in the future. Were going to continue to rely on finra more. But continue to put more resources to make sure that theyre doing what theyre supposed to be doing. David maybe as long as a year ago, at least eight months ago, the s. E. C. Put out a very positive no action letter on business brokers. But there hasnt been any action with respect to finders or some people call them private placement brokers. Just so people in the audience understand, if two main street business people, one says, im trying to raise money and ill offer you a finders fee, but if you make an introduction to an investor, that works out and they make an investment, the s. E. C. 16 years ago or so changed its position and adopted the policy that they should have to register as a broker dealer. In effect, be treated the same as merrill lynch. Obviously, thats created a great deal of uncertainty. The American Bar Association task force estimates that as many as 40 of Small Businesses raising money actually use finders anyway. Because it hasnt been made explicitly illegal. Do you see any openness or do you personally think that that issue should be revisited and try to clarify the rules and allow intermittent small finders to not have to register as a broker dealer . Michael yes. This is an issue thats been brought to our attention i think almost every year by an Advisory Committee on small and emerging companies. By the Small Business government Small Business forum and by a number of other folks on this. As i mentioned, we now finally have a chairman who is committed to looking at Capital Formation issues and putting it squarely on the front burner in term of our agenda Going Forward. This is an issue that i would like to see. There are some folks that we had in prior leadership at the s. E. C. There were folk that said, well, we believe everyone is born a broker dealer until they prove to us otherwise. And the burden is on them. We need to have a space for finders to be able to do their job. And its particularly important for Capital Formation for the Smaller Companies. Where theyre not going to all of a sudden trip all of the requirements from being a broker dealer, which we can go through the whole list. David and force them to rescind the transactions and put their offering at risk. It creates a mess. Michael it creates a mess. What we need to do is find a space where we can carve out finders. Limit them to a certain set of activities, as long as theyre within those certain set of activities, then youre fine. Whether its a safe harbor or Something Like that. Then we can allow for that. Thats something absolutely i believe we need to move forward on. David President Trump put out an executive order, number 13781, basically in connection with government reorganization. It strikes me that there are certain aspects of the s. E. C. That could probably use reorganization. I believe theres 23 direct reports to the chairman now. Do you anticipate that there will be some sort of significant reorganization under the new chairman . Either in response to this executive order, or for other reasons . Michael yeah. The first is identifying all those. I think thats important. The executive order is a great place for us to identify. As you mentioned, theres like 23 direct reports to the chairman. When i was acting chairman i knew. Whenever i had a senior staff meeting, we had a couple rooms that were big enough to fit everyone in there. The difficult part of doing a whole scale reorganization is that a number of those direct reports are statutory. And so that would require legislation to give the chairman the authority to make those changes. And they sort of have been put in piecemeal. Theres a statute that goes through that says we create the investor advocate or some other position. Something like that. Then its a direct report and its like going, all right, that ones all right, fine. But do you this a number of times, pretty soon you end up with a number of direct reports in there. We can do things sort of around the edges, within sort of divisions, within offices. You can move people around to try to be more efficient that way. But in terms of the wholesale sort of changing these direct reports and thinking more creatively about how we want to organize the commission, that would require legislative changes. David im going to ask you one more question, then open it up to the audience. This is a Good Government question. In almost every other field i work in, theres a lot more Information Available to the public and to policymakers than there is in the securities regulation area. The i. R. S. Puts out statistics of income and an annual data book on the administration of the agency. The Commerce Department puts out the National Income counts and a tremendous amount of other information. Tremendous amount of data in the health care area. The bureau of labor statistics puts out just about everything youd want to know about the labor market here. Yet all the information we really have on the private Capital Markets, rega, crowdfunding and so on, is periodic, but not regular, but occasional reports from dera. Theres also relatively little information, theres some, on the enforcement side of the s. E. C, but almost nothing in terms of what kind of provisions are causing the enforcement or the infractions and enforcement engages in. Do you think that the commission should Start Publishing on a periodic, annual basis, information such as how much was used for regulation a crowdfunding, so on and so forth, so you have a time series and can evaluate it . Including the commissioners themselves. But also better information about what kind of things are causing enforcement problems in the real world . Michael thats a good idea. I hadnt thought about putting that out on a more regularized basis. We make a conscious effort to put up a statistics. All of our votes are available publicly. David they are not categorized so you know them. There was a private offering, and it was an inadvertent inadequate disclosure. Which aspects of the law are causing problems or which are not causing problems. Michael consulting firms try to provide this data. David we didnt have any information until we had someone go through the forms. It is very irregular. Good data. Ve a michael on the public side, we require a number of our filings to be done in a stricter data format. The data allows us, our bureau note goes through quarterly our Public Companies and puts together a database for researchers. You can download all the data to do largescale Academic Research on companies. We started doing that. We havent every quarter Going Forward, but in the private spaces what youre suggesting. David primarily. Even in the ipos, for example. The best data is by the university of florida. Let me ask for audience questions. We will start with brian. Listeners, ift of you could say her name and your affiliation before you ask your question. You to our panelist for this event. It is fantastic. Question for the commissioner. What is the s. E. C. Doing to try to address the disruption and innovation coming from technological innovation . A couple areas would be the use of distributed ledger for clearance, settlement, and recording, and the use of initial calling offerings coin offerings to try to circumvent the Securities Law . Dlink is the standing up anything more formal . Michael last year, for the first time, we had a roundtable on fintech. It was three years ago that i went to asia, and other jurisdictions i went to, telling, japan, hong kong, korea, wanted to talk about syntax. Fintec. What i realized is there with this emerging industry where there is Something Special about it that is different. Spans the gamut across jurisdictions and the Regulatory Framework. That is one of the difficulties for people trying to get off the ground with fintech in the u. S. There are so many regulators they need to talk to. If they stick your software investors, they need to talk to the s. E. C. It comes across all kinds of different industries. In addition to the table, we have a task force that the s. E. C. We have people across divisional ,ffices and out in the regions out in San Francisco, a Regional Office is helpful in identifying various trends. Fintech as transformational. There is a lot of hype into specific things, but there are number of things we can transform the efficiency of the Capital Raising process. I was in kenya last year and saw the transformational change that came across with their mobile payment system. Kenya now has a higher rate of Financial Inclusion of the United States, because we are still talking about the bank and unbanked. Kenya, they were not bound by that. They said, lets get people involved and then we will Start Talking about offering financial services. They can buy sovereign debt and 30 increments. A higher rate of return than putting their money into bank. We are seeing a number of instances of that moving forward that are transformational for investors and consumers, and we need to make sure we are not behind the curve. Willof the things i continue to focus on is to make sure our Regulatory Framework is not on that innovation. Part of our mandate is Capital Formation. We protecting investors, but we have to have to make sure we are not stifling innovation. That is the reason for when we start having discussions more seriously about Regulatory Frameworks. It is highly fragmented. It is difficult for people to manage the process. The s. E. C. Is in a prime position to take the lead role in this, because we have a Capital Formation. We have Regional Offices throughout the United States that conservative Intake Centers for our next generation of entrepreneurs. Whether it is Digital Investment advice, in the digital ledger technology. Doing in estonia, we are watching australia, where watching the state of delaware, committed to doing a number of things, and learning from all of those things. You have investing players fintech. Ith a new word that means cooperation and competition, working together to move stuff forward. That is an exciting area that will benefit consumers and help in the Capital Raising process. David yes, maam. The only once they do on a routine basis are administered of proceedings done inhouse. They do not publicize the votes when cases are spent sent to Federal District court. The one exception was when a request is filed. You are not disclosing on an ongoing basis. That is privileged information. Do believe that should be privileged . Should that be put out on a regular basis . Michael there are difficult legal questions on that, but the fact it was able to get done, and the Commission Just won an award for being one of the most efficient agencies in terms of responding to foya. We have a page where we know we are going to get the request, so go ahead and put it out there. I dont see any reason why we can continue to make this information public. I have nothing to hide. David yes, sir. My name is jonathan. I am a ceo. Our company focuses on early cancer detection. We have taken advantage of raising capital under regd. We are going to try redcf. Cf. Reg most of the topics that have been on my mind have been touched on. Touch on ae to couple points. First, i would like to commend you for your Initiative Getting on the road and listening to entrepreneurs. I addition to being the ceo, chair a number of bioTech Companies. I met david in that capacity. A couple drews ago, i attended a Small Business conference at the s. E. C. I didnt meet a single Small Business person there. It was all lawyers, academics, state people. , butmend the initiative you are not going to hear from Small Business people. I can come down here pretty easily. Getting out on the road, talking to entrepreneurs, particularly in the socalled other 47 states , 75 are Venture Capital are going to Companies Based in three states. Getting out to the other 47, including maryland, talking to ,eos and their shareholders finding what is on their mind is important. I hope other commissioners will do so. Areother things that important for my company and most of the other ceos i know that raise capital, one, the brokerdealer rules and the finder rules are a tremendous impediment not only to finding capital, but the cost of raising capital. It is exorbitant. What we have to pay to angel clubs and groups like that to present, and able to you, because they are not allowed to get commissions, they necessarily have to pay the cost , and that is coming companies. That is the number one priority, liberalizing those rules. Secondly, the accredited investor rules need to be looked at. Thank you. David yes, sir. I didnt i know you said ead ofdnt want to get ah the chairman and his commissioner. Since you opened the docket, d believe at this point that the implementation deadline will be delayed . Could you give us some color on how you think that is going to go . Endnd question, at the tail of her tenure, she talked about some of the rules she felt could have been finished. She mentions some of the title vii rules. What is the fate of title vii of this point . Is the commission never going to adopt some of those rules that were ready at the end of her time . Michael title vii, for those of you that are familiar, this is drt of a dart frank deal a oddfrank deal. They are going back and revisiting some of those, looking at the implementation. The acting chairman has announced they are going to start revisiting some of those. We have not gone as far on a number of roles rules. We need to make sure we work with the cftc to make sure our rules are harmonized. The participants, whether on the dealer or customer side, are in both markets. There is an opportunity for us , to workith the cftc on a couple where roof to work on a collaborative basis. I think you are going to see more collaboration, more cooperation between the two agencies on those rules Going Forward. Staff is looking to the, thought we will see what we can move forward on. I was wondering if you could share some of the top lines, either what people are seeing saying consistently or some of the most surprising things you have heard that might not have occurred to somebody. Michael i mentioned Silicon Valley. The reason why a lot of these large unicorns are staying private, they can literally make a phone call he get hundreds of millions of dollars in capital. That is private capital. That is nice to hear, but on the even hand, this makes me more strong in my belief that we need to get the average investor the ability to get involved in a number of those offerings. I think the biggest feedback in terms of positive feedback we got from people was they were very appreciative of the change in tone. At the commission and out of the white house as well. That we of recognizing have had the best Capital Markets in the world for a long time, the rest of the world is catching up, and we need to make sure that we get the balance right in terms of the cost and benefit of regulation. For a long time, we were the listing venue of choice. More more companies are choosing to avoid. We need to make sure we remain. S competitive as possible got a lot of information from folks in terms of, do you recognize how burdensome it is to comply with certain regulations . How many defense lawyers to have to have looking at these things in the cost of a going to providing information for stuff that is of little or no value to investors, just sort of reiterated a lot of those things. The finders issue keeps coming up. Of regulars and crowdfunding is not as workable as one would think, and also the plus. Plus rega people are appreciative of the fact that we get out of washington, d. C. Washington, d. C. Can be in a coat chamber. We need to get outside and listen to the people that are subject to our rules and regulations. For me, it is important, because if you think about our mission, for me, you would it is protecting investors, maintaining markets, providing Capital Formation, but for me it is no less than actually helping to facilitate the American Dream. If you think about it, the dream of entrepreneurs to take their entrepreneurial spirit, put it into action, start a copy, raise , hire workers, bring a product or service to market. Thereby, increasing the standard of living to the customers that buy their product, their employees, and the investors that sharing their success. For others, it is taking their savings and investing it into the entrepreneurial spirit of others. Taking those investment proceeds, improving the standard of living for themselves, for their retirement, for their education, or the community, or by taking the money and giving it to charity. For me, our mission is to make sure that we are preserving the American Dream by allowing americans to invest in the American Dream by investing in each other. David two more quick questions. It have been a great discussion. I want to mention three things that i hear from a lot of Small Businesses looking to go public. It surprises me be mentioned these, because i care about them. Proposals, boxy advisors, and securities class action. These are three big monsters that they are worried about. Cane are things the s. E. C. Do under its own authority. The former commission has talk about desktop about proposals. Has talked about proposals. All sorts of things are used as evidence. Do you think the new director, with Everything Else going on, are paying attention to these vital issues . Michael thank you for bringing this up. For shareholder lawsuits, companies can come to us to ask for relief to put in mandatory arbitration in their charter. There was a company under the Prior Administration that thought about doing that. Hey decided to pull back, i would encourage copies to come and talk to us about that. On proxy advisory firms, i have come to the realization that they need robust regulations. Abouteone who worries high cost of regulations stifling competition in that area, im worried about, if we regulate too quickly, there is tremendous concentration and unbelievable conflict of interest. We regulate that in a number of ways, sometimes disclosure, sometimes prohibition. Ive come to the point where are so fullry firms of conflict and so influential in the voting process, they need a strong robust regulation, and minimum they need to be registered Investment Advisors. They should be prohibited from providing ancillary services such as consulting to companies. We need to think about managing competent terms of ownership of proxy advisory firms. Thethird you mentioned was 14 aa process. There was an article recently that was talked about, that the commission of the staff level is providing no action relief to not have to require companies to include proxies in statistics. I think youre going to see staff with our new Division Director and chairman, you are going to see more Companies Come forward come for no extra money come for no action relief on that. People talked about boats that keep coming up and dont get a lot of support from people. We have to have a small dollar amount. We need to look at increasing their recent thresholds or shoulders and get a vote on something. Reach a certain threshold, you cant keep bringing it up your after year. David last question. This gentleman. Following the question about icos, what is the s. E. C. s view of these . Im interested in your view. We are looking at that. There is a number of different icos out there. , for me,n area that just getting up to speed on the acronyms. There is a question of whether or not this is something that is innovative and ok to do, or something scurrying the federal Securities Laws. It is something we are looking at at the staff this concludes our event. [applause] [indistinct conversation] when i came in as acting chairman, i did not have to make any personnel changes and i kept a lot of people in the acting roles. New chief of staff, new chief counsel, all those types of things, so it is a matter of building up staff and working forward. If you look at what we did in the confidential filing space, i think that will have huge impact. That just required staff action on that so im not surprised or troubled by that. Going to do things that will be able to help the capital market. Do you think Capital Formation could be in the first what you were talking about earlier . Mentioned we are moving forward on the access efiling. We have got some fast act requirements that need to get done, some additional disclosure things started under chair white, and the exact timing of that is all up to him. There had been some numbers that indicate the commission has granted more no action relief recently. I believe it was an the wall street journal. I do not read it. So it was there, ok. Chairman clayton in his speech in new york, he had a line in there about urging companies to keep police, or commission. How much of the agenda Going Forward could be about, could be carried out at the staff level which is by granting individually tailored relief to issuers . Is that a possibility . We are ready saw that on the confidential filings, expanding that, and if you think about it, that means that the commission always had that authority, even for emerging Growth Companies, but it took an act of congress to tell the sec to do it. That was emerging Growth Companies and at the staff level we were able to expanded for all companies, private issuers, and extended for followon offerings within the first year. I think that is the piece that people are missing that will be really important. In men talks about how important that first offering is to the company in providing the relief for the confidential filing process, it will be hugely important. We already have companies who started filing for going public but for the followup offering as well. Arbitration, is that one of the things the chairman is also encouraging people to come forward and ask about . What his tie in with speech was saying . I do not remember if that was in his speech are not. Maybe you are already starting to see requests to include that. That is generally one of the things that is more collaborative in terms of talking to people. We can come up with ideas that we think are important, but mandatory arbitration is one where people seek a lot of it is us telling people to tell us what we can do. A Company Coming forward and asking for certain relief. The incident with the carlyle deterred a lot of people from asking about it . Absolutely, and that is why people need to come out and talk to us. It is a different administration, chairman, and Division Director. A review of delegate authority, i gather it is not yours anymore. The review was finalized. It was presented to me and the chairman and we are going to start to have discussions over whether there needs to be changes in delegations on a number of levels, whether or not individual delegations can be your staff toed give us a list of delegations and whether they have been seven , andated some delegated are there instances where you do not have delegations where you think it would be useful . These can be delegated and it is been a tradeoff in efficiency and accountability. Will that restriction remain in place where the director that is not delegated . It has remained in place, it currently is right now, and that question will be part of the broader discussion we will have overall on these things. Whether certain things could be delegated, certain subd elegations should be coming back. Where their recommendations in there . What i did was ask the general counsel to talk to each of the Division Directors in Office Directors and talk about the senior staff, you guys go out and do this and put it up and the general counsels office put it together for these recommendations. It is kind of like a big chart for the delegations, whether delegations, whether it is more ministerial or substantive, and that is the tradeoff between efficiency and accountability, so we can have that broader discussion. The Chairmans Office is reviewing it now and we will start having the discussion with commissioner stein in terms of, can we find a path forward . It is all about getting the balance right. Question [indiscernible] you till me, you guys have better information on that. They said it was good to weeks ago, a white house official. No guesses . Anybody in this room . A new one, yeah. I think it might be, at least one of them. Thank you. Thank you all for coming. [indistinct conversation] sunday night on afterwards, connecticut democratic congresswoman rosa delauro talks about her efforts to protect social programs in her book. Security reached its lowest point, we had Ronald Reagan and tip oneill who came together and acted, the congress acted to make Social Security solvent into the future. This, all of this wringing of hands about Social Security being insolvent can be solved immediately by lifting the cap. Watch afterwards sunday night on cspan twos book tv. Tv. Span2s book cspan, where history unfolds daily. In 1979, cspan was created as a Public Service by americas Cable Television companies and is brought to you today by your cable or satellite provider. White house budget director Mick Mulvaney has been with the Trump Administration since february. He sat down with cspan to discuss his personal life and career which included three full terms as the u. S. Congressman for south carolinas fifth district. He talked about
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