Yesterday, Acting SEC Chair Mark Uyeda delivered remarks to the Florida Bar’s 41st Annual Federal Securities Institute and M&A Conference focused on regulatory efforts affecting every stage of a company’s lifecycle. Setting the stage, Uyeda characterized his “first priority” as an effort to “return normalcy” to the SEC after the “stark aberration” of the immediately preceding Administration “from longstanding norms as to what the Commission has historically viewed its legal authority, policy priorities, and use of enforcement.” That means returning the SEC “to its narrow mission to facilitate capital formation, while protecting investors and maintaining fair, orderly, and efficient markets,” and creating “capital markets that facilitate the competitiveness and ingenuity of American industry.” And that effort begins with “enabl[ing] private companies to obtain more capital through cost-effective means,” “enabl[ing] more retail investors to place their capital into private companies,” regulatory actions to “help make IPOs attractive again,” and finally, revisiting the rules governing the disclosure obligations of public companies to reduce complexity and ensure that “smaller companies are not disproportionately burdened as they compete.” Given that Uyeda was previously counsel at the SEC to former Commissioner, now Chair nominee, Paul Atkins, I would guess that there’s a pretty good chance that his views on these topics are largely in sync with those of Atkins and, presumably, we can expect proposals on these topics in the new Administration.
Improving opportunities for private capital-raising by entrepreneurs. Uyeda began by acknowledging that Regulation Crowd-Funding has perhaps not lived up to expectations, in light of a 2024 report indicating that 77% of small business owners reported concerns “about their ability to access capital.” Uyeda has requested that the SEC staff examine ways to implement recommendations made in the last few years by the SEC’s Office of the Advocate for Small Business Capital Formation, following as a “guiding principle” for startup regulation that “the regulations must be relatively straightforward to comply with and not impose a disproportionate amount of compliance costs, while still providing appropriate investor protection.”
In addition, Uyeda observes that “entrepreneurs have raised concerns about the complexity of the Commission’s current regulatory regime for exempt offerings.” He advocates that the SEC “aim to reduce the complexity of its exempt offering regulations and their associated compliance costs”: “Paying operating expenses, such as legal and compliance fees, was one of the top three financial challenges facing early-stage companies, and running out of cash was one of the top two reasons that startups fail.”
Empowering retail investors. In this context, Uyeda turned to the “accredited investor” definition. Satisfying that definition implicates, under various exemptions, whether additional disclosure is required, whether general solicitation is permitted and, in some cases, whether sales can be made at all. Commentators have suggested changes to the current income and net worth thresholds—through indexing to inflation or even by permitting non-financial ways to qualify, such as “qualitative professional criteria or certifications, completion of an educational program, or an investor test.” If investments could be made through pooled investment vehicles, Uyeda suggests that changes to the Investment Company Act may be appropriate to “permit more retail investors to invest through private funds.” He also suggests that the current “all or nothing” approach be reconsidered; that is, “should the Commission’s exempt offering regime use a sliding scale approach and allow any individual to invest at least a small amount in private companies over the course of a year?” Uyeda recognizes that “most startup companies fail and return nothing to their investors. However, investments in private, growth-stage companies that are higher-risk, higher-reward may be beneficial as part of a person’s diversified portfolio, particularly if the exposure itself is through pooled investment vehicles. If an individual believes that the risk is appropriate and is protected against fraud, then our regulatory regime should not deny such individual a source of potential wealth accumulation and portfolio diversification. Investor protection cannot be achieved through paternalistic policies.”
Uyeda indicated that he has directed the staff “to explore regulatory changes that enable greater retail investor participation in the private markets…while continuing to ensure that those investors are protected against fraud and bad actors.”
Increasing interest in conducting IPOs. The concept in the JOBS Act of emerging growth companies and the related disclosure compliance on-ramp was, in Uyeda’s view, an innovative development, but one that has not been adequately deployed over the last few years. He notes in particular the failure of the SEC to provide relief for EGCs under several significant rulemakings, “including cybersecurity disclosure, amendments to rule 10b5-1, and clawbacks. Additionally, for the stayed climate-related disclosure rule, the Commission provided only limited relief for EGCs.” Uyeda suggests that it might “on the margin, incentivize more companies to go public” if the SEC would tailor its more “wide-reaching disclosure requirements for newly public companies,” and he has asked the staff to recommend changes, including qualification and duration of EGC status, along with adding on-ramps for some existing rules.
Scaling public company disclosure. Finally, Uyeda advocates that the SEC update and rationalize its filer categories and associated disclosure obligations “so that smaller companies are not disproportionately burdened as they compete.” The rules, Uyeda contends, “do not provide sufficient scaled disclosure benefits. As an example, a company with a $250 million public float is subject to the same disclosure requirements as a company with a $250 billion public float.”
Uyeda also argues that the current thresholds are stale. When first established in 2005, about 18% of reporting companies qualified as large accelerated filers, while 23% qualified as accelerated filers. Now 36% are large accelerated filers and only 7% are accelerated filers. In addition, he advocates more scaling of the “disclosure requirements between the two categories. Currently, only one requirement differentiates large accelerated filers—the 60-day deadline for filing Form 10-K.”
Uyeda also regards the SEC’s current rules regarding filer categories, such as smaller reporting companies and non-accelerated filers, and associated disclosure obligations as “needlessly complex.” Is there much disagreement on that? The potential overlap between those categories “increase[es] complexity and compliance costs.” For example, “[d]epending 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.” But non-accelerated filers do not need to provide auditor attestations for ICFR. “Does it make sense,“ he asks, “that some smaller reporting companies need to continue to pay for this annual attestation?”
Uyeda concludes that “[o]utdated financial thresholds, lack of scaling, and overlapping definitions can result in a complex and ineffective regulatory regime, imposing unnecessary costs on companies and their shareholders.“ Consequently he advises that the SEC consider a realignment of filer categories and identify which rules should apply to only the largest companies.
