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Last week, Senators Elizabeth Warren (D – Mass.) and Chris Van Hollen (D – Md.) sent an 8-page letter to SEC Chair Paul Atkins asking the agency to reconsider its recent rulemaking proposals.  In the title of this blog, I said that the senators sent Chairman Atkins their love with this missive. I should clarify that I meant that in the same way King George III did in Hamilton, when he told his rebellious subjects that he’d “send a fully armed battalion to remind you of my love. . .”

In their letter, the soon-to-be Chair of the Senate Banking Committee and her colleague fire a broadside at all of the SEC’s recent proposals to ease the regulatory burden on public companies. This excerpt from the first paragraph gives you a sense of the senators’ position and the overall tone of their correspondence:

Although you claim to want to “Make IPOs Great Again,” the SEC’s specific proposals to deregulate the public company registration and disclosure regime represent an unprecedented attack on investors’ rights to transparency from public companies and threaten to undermine investor protection and market integrity. Your broad deregulatory agenda would compromise the integrity of our capital markets at a moment when Americans are already reeling from spiraling costs and unprecedented corruption in the Trump economy. We urge you to rescind these recent proposals that would put families and investors at even greater risk.

As I said, the letter asks the SEC to reconsider all of these proposals, but I want to focus on the authors’ objection to the SEC’s efforts to promote IPOs through deregulation. The letter argues broadly that the dearth of IPOs isn’t the result of overregulation but instead reflects, among other things, the impact of deregulation of the private markets. The letter contains a bunch of footnotes citing academic studies supporting these arguments, but it also refers to the SEC several times as the “Security and Exchange Commission,” which doesn’t exactly enhance the letter’s credibility when it comes ideas about securities regulation.

The way the letter lays out its argument about the supposed deregulation of private markets as a cause of the decline in IPOs is a bit of a head scratcher. Here’s what the authors say:

Expanded opportunities to raise capital with less expense and oversight in the private markets has created a structural disincentive to going public. In other words, it is not that public markets are overregulated, it is that private markets are underregulated, and repeated deregulatory reforms have pulled more and more capital from the public markets into the private markets. Lighter regulatory requirements – such as no obligation to provide investors with financial statements, quarterly reports, material event reporting, or disclosure about executive compensation – have incentivized a growing number of companies to raise capital in the private markets rather than go public.

Really? Private companies have never been required to provide annual executive comp information or periodic reports to investors and have been able to offer securities privately without any specific disclosure requirements – at least in offerings involving accredited investors – ever since Reg D was adopted in 1982.

It’s hard to see how pointing out things that private companies have never been required to do or have been permitted to do for nearly 45 years supports claims that “repeated regulatory reforms” have incentivized issuers to stay private. The letter goes on to cite the rise in Reg D offerings in support of its argument, but that seems to me to confuse cause and effect when it comes to the lack of IPOs. To be fair, the studies that the letter cites make more sophisticated arguments, but this is the one that, for whatever reason, the authors chose to run with.

The policy concept here seems to be that instead of lightening the load on public companies, the way to bring back IPOs is to drive “underregulated” private companies into the public markets with the lash. That’s absolutely nuts, and the fact that the authors offer it up with a straight face only confirms what many suspect: a lot of policymakers on the left think that companies exist for the sole purpose of churning out disclosures to satisfy ever-expanding activist group demands and to provide grist for the academic tenure mill.

That’s too bad, because an agency like the SEC that has acted without any input from commissioners who disagree with its swashbuckling deregulatory approach for nearly two years is in dire need of sober-minded congressional oversight. But if this letter is an example of what we can expect, those oversight efforts are going to fall far short of the mark.

– John Jenkins