Congressman Proposes Major Restructuring of SEC

US CapitolHouse Financial Services Committee Chairman Spencer Bachus has proposed the first major restructuring of the Securities and Exchange Commission in decades.  The Alabama Republican’s proposal, called the SEC Modernization Act, is underway and contains many of the reforms recommended by the SEC inspector general, and reports from the Government Accountability Office and an independent consultant.

“The SEC is structurally flawed and suffers from operational inefficiencies and organizational incoherence,” Bachus said in a statement. “This legislation will be a comprehensive restructuring of the SEC. It will make the SEC more efficient, consolidate duplicative offices, enable the agency to use better technology, and strengthen ethical safeguards to avoid conflicts of interest.”

Bachus said in a press release that throwing more funds at the SEC will not resolve the agency’s problems. He noted that “the SEC’s budget this year is at $1.185 billion, up 6% over 2010—and nearly triple what it was a decade ago.  Simply providing yet more funding to the SEC without first correcting its flaws will do nothing but prolong these inefficiencies and structural failures,” he said. “Without fundamental reform, there will never be any real improvement to the SEC’s operations.”

The legislation “will be a comprehensive restructuring of the SEC. It will make the SEC more efficient, consolidate duplicative offices, enable the agency to use better technology, and strengthen ethical safeguards to avoid conflicts of interest.  It is the structure of the agency itself that is the main problem and over the years Congress has only increased its dysfunctional structure through fragmentary and piecemeal amendments rather than the comprehensive reform that is needed.”

As an SEC Lawyer, I believe this clearly reflects general frustration in Congress and elsewhere with the way the SEC is currently going about doing its business.  This is a wonderful opportunity to address SEC restructuring issues specifically affecting smaller business going public, particularly as they currently hamper smaller business capital formation, such as:

  • Modification of SEC Prospectus Delivery Rules to allow smaller public companies going public that file full SEC registration statements on Form S-1 to use the internet to attract investors.
  • Allowing internet advertising and solicitation of Regulation D Rule 506 to pursue qualified Private Placements as long as all other requirements of Rule 506 are met.

I will be writing to the Congressman in the near future and will post my letter on the site when I send it.  I encourage all readers of this site to do the same.

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