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Today, Congressman David Scott (GA-13) delivered the following statement during the House Financial Services Committee “Oversight of the SEC’s Division of Corporation Finance” hearing.

Click here to watch video of Congressman David Scott’s remarks.

Transcript of Exchange with William Hinman, Director, Division of Corporation Finance, U.S. Securities and Exchange Commission

MR. SCOTT

“Thank you, Chairman Huizenga. I’m very, very pleased to have Mr. Hinman here because you are in the crucible of what we really refer to as wealth building in this country. You are the SEC Director of the Division of Corporation Finance, Capital Formation and Public Offerings.

“There’s basically three ways we build wealth, meaning financial security and stability. That is either through a job, your business, or most acutely, through investments. So, I want to talk to you about the fact that we have some alarming news.

“My excellent staff has done some research that I want to bring to your attention - important research. They’ve informed me that in the past twenty years the number of new companies deciding not to go public has increased dramatically. As a matter of fact, they’ve informed me that in 1997, we had 474 companies that went public, while only 108 went public in 2017. That is astounding.

“With this in mind, I want to ask you about this expanding use of non-registered offering exemptions, because I truly believe that it makes sense to expand our security laws to make it easier for our businesses, especially our start-ups that we rely on – small businesses. Start-ups are still the driving force, and from that comes the necessary sources to make those investments through the public and private offering.

“One other thing I want to tell you is that I agree with you when you said this in your testimony. You said this: ‘It is far more efficient for retail investors to invest in companies through our public markets rather than our private markets.’ Now, that to me is very profound. As a matter of fact, I think it gives us the nobility of purpose for why you’re here. You went further by saying the SEC is conducting a look-back review of the impact regulation crowdfunding and Regulation A on capital formation and investment protection.

“So, my question is this. I’m very interested to know, first of all, what you think about the points I’ve made and also how this look-back is going with you. I’m curious to know if the SEC is including its look-back measure whether our capital markets are operating efficiently from the standpoint of retail investors.”

MR. HINMAN

“Well, thanks for the question. To comment on your observations around the decline in numbers of public companies or companies deciding to do IPOs, we share that concern. We do think, as you mentioned, I said in my testimony that public companies are terrific vehicles for the smaller investor to invest in. There’s more liquidity, and because of our regulations, there’s more transparencies.

“So, we do share concern that those numbers are declining in terms of the number of investment options, particularly for retail investors. In terms of the various ways that our rules are working together to hopefully encourage people to join the public reporting system, you’ve mentioned crowd-funding and Regulation A. Regulation A, at the time it was expanded by Congress, the thought was that is perhaps a bit of a roadmap to becoming public. It’s still very early days in terms of experience of Regulation A. We have seen some Regulation A issuers will get used to the idea providing disclosure and having it reviewed by the SEC and then maturing to the point that they now have a few that have been listed. Not all those are great successes, in the same way not all IPOs are great successes. So, we are monitoring the developments on Regulation A carefully - same with crowdfunding. With crowdfunding, we see a lot of activity on the Coasts. We see less in the middle of the country. We think it would be terrific to have more activity there. We’re looking at ways to stimulate portals interest in folks across the country, not just on the Coasts.

MR. SCOTT

“Thank you, very much Mr. Chairman, Mr. Hinman.”