The Sub $1bn Revenues IPO Act

There's a bill in Congress to reduce the regulatory burdens for public companies that have less than $1bn in revenues and/or have been public for less than five years.  The name is too long so I call it the "sub $1bn IPO bill."

This is a good bill. This undoes some of the bad stuff done to smaller public companies in Sarbox.

It should become law. I hope it will.

Here are some blog posts on this topic.

#VC & Technology

Comments (Archived):

  1. awaldstein

    I don’t know the details of the current laws but I do know the pain of implementing Sarbox in newer smaller public companies.Be great to have a CFO or attorney not currently affiliated with a public company who can speak openly about the issues and the changes that this bill could make.

    1. andyswan

      Does the CFO walking out of his office, walking to within 4 inches of a concrete support pole and screaming….”SARBANE FUCKLY IS THE BIGGEST PAIN IN MY FUCKING ASS EVER!  THIS IS WHAT IT IS LIKE TRYING TO TALK WITH THESE REGULATORY FUCKWADS!” and then turning to everyone else and saying “Congratulations people, we’re now in the NEVER ENDING FUCKING PAPERWORK BUSINESS!” count?

      1. awaldstein

        You whacked this morning into shape with this comment. Thanks!

      2. LE

        I think one offshoot of sarbox, if I remember correctly, was the resulting new pay disclosures. Resulting penis envy of other’s executive pay resulted in a great increase in executive compensation. Because it was now fully disclosed other prostate-score-comparing-golfers read about it and wanted their pay renegotiated. The feedback loop then drove the luxury goods and housing market. (Upside).Similar thing happened with the Law rankings and profit per partner disclosures and legal pay.Disclosure: One of the two congressmen involved was our fucking customer when he ran for Congress back in 2000 until recently. (Name redacted incase discus ever allows slurping of blog comments.)

  2. Ryan Frew

    It’s refreshing to see Congress doing something positive. Nonetheless, I don’t think this is enough. Under existing SEC rules, even the largest public companies have up to two years post-IPO to comply with SOX, so the difference is at most three years – and could be less if the newly-public company hits $1BN before the five year deadline. And does anyone really think that SOX is the primary reason that companies are refraining from going public? I don’t believe so. This is definitely a good bill. But it won’t cause a significant increase in the number of companies going public.All that being said, I have no idea what the alternative solution is to increasing the number of IPOs. So I’m just “that guy” today.

    1. testtest

      “But it won’t cause a significant increase in the number of companies going public.”maybe a significant increase in the short-term isn’t good anyhow. from the paper ‘Good IPOs Draw in Bad: Inelastic Banking Capacity and Hot Markets’:”We posit that identifying project quality requires specialized screening labor that takes time to train. Positive shocks to economy’s production frontier stimulate new equity issues. At this higher level of demand, screening labor costs must rise to clear the labor market. This resultsin underwriters optimally reducing screening quality, in the process encouraging firms with sub-marginal projects to also apply, further straining the screening labor market. In equilibrium, underpricing can be quite significant both because of lower quality screening and because of its role in lowering the quality of the applicant pool. Our model’s predictions are consistent with empirical results such as positive correlation between issue volume and underpricing, reduced information search per project during hot markets, and the persistence of high issue volume in the face of increased underpricing”…

      1. Ryan Frew

        Also, after reading more about the bill, it appears that they are doing more than just changing the SOX requirements, as I kind of made it sound. Okay. I’ll just say it. My hat is off to congress. Good point, Chris. Although do you think that research totally applies here? More IPOs is generally a good thing, as long as it isn’t all hot-market companies, like this essay is about.  

        1. testtest

          “More IPOs is generally a good thing, as long as it isn’t all hot-market companies, like this essay is about.  “isn’t that the point though, ryan? reducing the requirements heats up the IPO market, putting strain on the screening labour market, which results in underpricing and the increasing of under-performing companies, which then drives out the good IPOs who hold off on going public.

          1. Ryan Frew

            I think we just have a fundamental disagreement on perspective here. You seem to be suggesting that the underwriters are already “at capacity” and thus the extra stain on the labour market would cause underpricing and under-performing companies to go public. I disagree. Even though the essay is definitely accurate by stating that banking capacities are inelastic and hot markets cause bad IPOs. I think that the way it is now, though, we simply don’t have enough companies going public. In other words, legislation like Sarbox prevents good companies from going public. And that’s a huge problem. So, instead of worrying about bad companies going public, we need to worry about enticing good companies to have IPOs. Once the conditions of going public are more fair, the number of IPOs will increase, but it will be on a consistent basis. Thus, the underwriters will increase their capacity and we won’t have to worry about reduced screening quality.

          2. testtest

            you say:”You seem to be suggesting that the underwriters are already “at capacity” and thus the extra stain on the labour market would cause underpricing and under-performing companies to go public. I disagree.”And then go on to say:”Even though the essay is definitely accurate by stating that banking capacities are inelastic and hot markets cause bad IPOs” which part do you disagree with? underwriters are already “at capacity”or the extra strain on the labour market would cause underpricing and under-performing companies to go public…with my original statement in mind.”maybe a significant increase in the short-term isn’t good anyhow”drawing your attention to the word ‘significant’.

          3. Ryan Frew

            I’m sorry. My previous comment wasn’t worded very well. I’m struggling with your use of “significant increase” because it is totally objective. We can both think of significant in two very different ways. Anyways, if the IPO market begins to heat up, we’ll still be lucky if it’s enough to melt an ice cube. For smaller companies, going public simply isn’t even on the radar right now. And that’s a big problem. Any legislation that will encourage properly equipped firms to join the public market is a good one. We both know that this “on-ramp” won’t cause too much strain on the underwriters. 

          4. testtest

            “We both know that this “on-ramp” won’t cause too much strain on the underwriters.”i didn’t realize you were doing the thinking of the both of us… i joke. i’m being factitious”Anyways, if the IPO market begins to heat up, we’ll still be lucky if it’s enough to melt an ice cube”it’s relative.there were ~225 tech IPOs in 1999 and ~25 in 2011. http://static5.businessinsi…an increase of 25 IPOs a year in 1999 would only represent a ~10% increase. an increase of 25 IPOs in 2011 would represent ~100%. a ~100% increase in demand on the labour market, i would suggest, would cause strain. especially since the screening capacity is inelastic.

      2. Ryan Frew

        Chris, that graph that you posted is a total anomaly, and it would be irresponsible to use for the sake of our discussion. This legislation is not about hot markets; it is about the market as a whole. The statistics that you listed are clearly about hot markets though – they illustrate the dot-com bubble quite well.Here are the number of annual IPOs, post Sarbox, for the entire US market:2002     662003     622004     1752005     1602006     1572007     1602008     212009     412010     942011     81We can agree that a double in the number of IPOs would obviously be a significant increase, and yet, we were at double just 4 years ago. So, do we agree that the underwriters would be capable of properly handling a significant increase in IPOs, since they were handling them at double the current frequency, so recently? Of course, we both know that this legislation will not cause the number of public offerings to suddenly go up by 200%.Here is my source: http://bear.warrington.ufl….

        1. testtest

          “Of course, we both know that this legislation will not cause the number of public offerings to suddenly go up by 200%.”my original statement was:”maybe a significant increase in the short-term isn’t good anyhow.”it probably won’t increase 200% (or whatever). *i never said it would*. i said a significant increase in the short-term may not be good anyhow–agreeing that there isn’t going to be a significant short term increase, and that may be a good thing. “Chris, that graph that you posted is a total anomaly, and it would be irresponsible to use for the sake of our discussion”i was illustrating that a small *absolute* increase in total IPOs can result in a large *relative* increase (percentage increase). i could have illustrated the same thing using cupcakes.that being said, it doesn’t require a bubble to have a large % increase in screening labour requirements.”My previous comment wasn’t worded very well. I’m struggling with your use of “significant increase” because it is totally objective”the struggle isn’t with the use of the word ‘significant’. it’s that you’re arguing around points  i didn’t say. it makes it problematic to chain logic together to break down what i said originally, when the original statement is correct.

          1. Ryan Frew

            1. I never thought that you were trying to suggest that we would see a 200% increase. I just threw that in there since we were talking about relative increases. In other words, I just wanted to make the point that if we saw a HUGE relative increase over last year’s IPOs, it would still only rival numbers from a short time ago. 2. I see your point now about absolute:relative increases with that graph. I missed it the first time because I got hung up on the fact that it was about a hot market. If the graph hadn’t been titled, I would’ve actually been better off, haha. Of course it doesn’t require a bubble to see a large % increase in screen labor requirements.3. Not trying to argue around points that you didn’t say, but I think that we are miscommunicating a bit, perhaps. Honestly, our only disagreement is over whether or not an immediate *significant* increase in IPOs is a good thing. In this market, I find it difficult to believe it would be a bad thing though. I’d be thrilled to see a 20% increase over 2011. You’ll probably agree that would be significant, but it looks healthy to me.

          2. testtest

            “our only disagreement is over whether or not an immediate *significant* increase in IPOs is a good thing”my position is, i don’t know if it’s a good thing or a bad thing. there’s a negative aspect to a significant increase in the short-term, and i don’t know what weighting that would be. the greater the short-term increase the more the negative effect of the inelastic underwriter labour market would have.

  3. Bala

    I agree, having a market for companies in that stage really improves the access to capital, market reach and it makes individual investors to participate in the early stage of the growth of a company. Not sure if Wall Street will like this, they are always looking for the big ticket items and whether we like it or not Wall Street controls the access to capital. 

  4. Gartdavis

    I grew up in a time when young companies went public.  My first employer had revenues around $20m and profits of 15%.  It IPOed on NASDAQ and it was a big deal, but not really that distracting.  Almost all the colleagues I had (about 200 at the time of IPO) took away enough seed capital to start their own firms.  Many stayed to grow their stock option value.  Over the years, we all moved on and started a wide variety of important and irrelevant new institutions. After 7 years I did this as well.I and a partner run a company on a similar trajectory to my first employer.  Share options simply are not the economic engine that will enable my employees to become entrepreneurs in the same way they did for me.  Had I been born into their generation, I wonder if I would have gone down the entrepreneurial path.

    1. John Revay

      My sense today is that smaller COs who want to go public end up going to the AIMhttp://www.londonstockexcha… Looks like it may be great if we can right size the regulations and keep those companies and filings in the US.

      1. kidmercury

        canada too….i just opened a brokerage account to buy some canadian stocks. there are a bunch of companies that start on the TSX in canada, and then as their market cap grows and they want to target US funds, they get a dual listing on NYSE. 

        1. William Mougayar

          Not just the TSX, but other Cdn exchanges too. The biggest scam is the Reverse Take Over where shell companies sit dormant until another one backs into it with minimal scrutiny & capital requirements. Then the public gets snowed & suckered in. 

        2. testtest

          duel listing isn’t that uncommon, is it? i was under the impression that it didn’t affect share price and that it helped when there’s a geographic advantage to be had.

          1. JLM

            It’s all completely computerized and the ancient days of geographical inefficiencies are long gone.  There are still pockets of resistance but not many.

          2. testtest

            yeah, actually that makes sense for developed markets.

    2. fredwilson

      The point about making enough capital to start your own company is really important

  5. bob

    ok, techies and startup wizards everywhere….there are few things more important to entrepreneurs who have successfully searched for and found a business model…we need a massive e-petition signed by a million entrepreneurs and presented to the white house and sorted by state to be presented to senators in each state…entrepreneurs who’ve struggled to find traction shouldn’t be treated the same way as multibillion-dollar corporations. who’s in?

  6. Nathan Guo

    Is Sarbox really the limiting factor for the number of IPO’s? It seems like the big IPO stories of the last year (Groupon, Facebook) revealed that they were able to get much more value by holding out on an IPO than going public early. In fact, in Groupon’s case, it felt like they were able to overvalue themselves and cash in on this overvaluation as a result of delaying their IPO.

    1. pointsnfigures

      There are 500-600k companies started each year in America.  1/10 of those see angel money.  A smaller percentage of those see venture money.  The VC backed ones are the ones that have a small chance of going public. Companies like FB and Groupon might have gone public sooner rather than later without onerous reporting laws like Sarbox.  Then, unaccredited investors would have had the chance to put money into them.  

    2. fredwilson

      The biggest reason companies stay private is not economics. They dilute about the same either way. Its not having to deal with the reporting, disclosure and other public company requirements. And also they may not be ready to deliver highly predictable earnings quarter after quarter which is what public companies should aspire to do

  7. pointsnfigures

    At the Angel Capital Conference in Austin, TX yesterday, they talked about the Senate bills.  They need to be passed, but it would be better simply to get rid of Sarbox and Dodd-Frank altogether. They are causing our VC industry to contract.  That’s not good for innovation, entrepreneurs, or America.

    1. fredwilson

      Perfect is often the enemy of good

    2. ShanaC

      Why Dodd-Frank?

  8. jason wright

    I thought the secondary private market was having a restraining influence on going IPO.

    1. Max Yoder

      That could be true. It could also be true that folks began to embrace the secondary private markets because of the problems addressed in S. 1933. We can only guess.

    2. fredwilson

      It is. But that leaves the individual investor out of the game

  9. kidmercury

    why stop at 1bn? why not all public companies? not like sarbox is doing anything to stop fraud anyway. markets are more fraudulent now than ever before, making it tough for the untrained to participate. crowdfunding is the real financial revolution, but that will probably get started outside the US as it is disruptive and US is the incumbent in finance. maybe africa is where equity-based crowdfunding gets its real start. or maybe one of the countries that gets kicked out of the eurozone. it is kind of an exciting time for stocks thanks to all the monetary inflation and worthless bonds; i think there’s the potential for bubbles everywhere. fortunes will be made (and lost!). be careful out there.

    1. Max Yoder

      Are you suspecting the Democratizing Access to Capital Act won’t pass? If so, I’d love to hear why.

      1. kidmercury

        i hope i’m wrong, but i doubt it will pass. the larger reason is that i regard the US government as fundamentally broken. just as a car that is broken probably is not going to be an effective means of transportation, a government that is broken is not going to be an effective means of legislation, in my opinion. but more directly, there is the question of does this benefit goldman sachs and the banking terrorists? if the answer is yes, i think that increases the likelihood of any proposed legislation being passed at the federal level. if the answer is no, i think that decreases the likelihood of the legislation being passed. in this case i think the answer is no as crowdfunding is what will ultimately put goldman sachs out of business. hopefully they don’t realize that and will just let it pass because they think it is some dinky little law. i am very much a fan of equity-based crowdfunding, though. i think it has great potential to help heal the global economy. so i hope it gets passed and have signed the petitions and stuff. 

        1. Max Yoder

          Thanks, Kid. I’m also a big fan of equity-based crowdfunding. We can’t have an honest conversation about the rich getting richer and the poor getting poorer if we don’t address the whole “accredited investor” thing. From my perspective, forbidding less-wealthy people from making small, smart investments is not helping us close the income gap. A couple years ago, my friend wanted to make a small, $5,000 investment (roughly 75 percent of his personal savings) in a startup. He was unable to do so because he didn’t fit the accredited-investor criterion. That company is now absolutely killing it, and all he can do is sit on the sidelines and say, “Damn.”

    2. markslater

      i violently agree – what has sarbox done really? there is more fraud and theft within our financial system today than there ever has been. I beg for future generations to take this ubiquitous distrust and atomize some of these won ton financial constructs for good. They have become blood sucking succubus’s and they need disrupting.just yesterday i saw a bunch of people wanking on about the amex twitter deal – and that it had “cracked” social commerce. that’s taking a dinosaur financial product and trying to stuff it in a round hole. disrupt amex i say – stop regurgitating and re-skinning a horrible dinosaur of a business, and telling me i need to be an amex customer now because they are twittered.

    3. Rohan

      I like how you come alive when there’s a finance related post.On a slightly unrelated note – The more I think of it, I find we all come alive depending on the topic.Arnold on marketingAndy on building start ups, capitalism etcJLM on everythingThe Grimster on hot tubs..;-)Very small sample group mentioned.. but you get the picture.

      1. ShanaC

        wouldn’t fg get rusty in a hot tub?

        1. Rohan

          Let’s leave a bit of this to our imagination, shall we?;-)

      2. Alexander Close

        Rohan on inspirational words of wisdom. 🙂

        1. Rohan

          And Alexander on being nice.. haha

    4. fredwilson


      1. kidmercury

        maybe, although they are re-applying to the eurozone which would likely require adopting the euro. at that point all progress is virtually out the window — adopting the euro is like adopting poverty. they need to figure out what htey are going to do with their currency. just like everyone else i suppose.maybe singapore, that’s developing into a major financial hub. and india and lots of africa, both of which are having their own internet boom and have a microfinance infrastructure that is growing.

  10. markslater

    OT: sorry but voice bunny needs to loose the plug at the beginning of the transcript. I know its voice bunny – i dont want the ad. Other than that – its a cute feature.

    1. fredwilson

      I agree. I requested a few changes today and that’s one of them. Move to post roll

  11. William Mougayar

    This is good for jobs & growth. More  available capital means more innovation & opportunities. But how many companies does it affect in reality? Can we quantify this potential at least for software tech/Internet companies?

    1. fredwilson

      Its an economy. There are second order and third order effects. Capital gets recycled

      1. kidmercury

        is there a difference between what you call recycling and what others call trickle down economics…..silicon valley, like trickle down economics, is characterized by greater and greater consolidation of wealth

        1. fredwilson

          i don’t think that is true about silicon valley

  12. andyswan

    Note to self:  File at $999,999,999 even if you have to tell that last client “no”.Kidding aside….it’s nice to see gov’t at least tinkering with the idea of pulling back regulations. What most people should be upset about is that the government requires people to have a certain level of income before it “allows” them to invest the fruits of their labor.  It’s just so….nanny.  And offensive.

    1. kidmercury

      that’s the one part that really infuriates me, so insulting and antithetical to the concept of a free society. as if i’m some kind of stupid moron just because i don’t have the money to be an accredited investor. but of course that’s part of the way the racket works…..they have to keep some folks out of the early rounds so there is enough room to flip, and of course to get that beloved first day IPO pop…..

      1. Elia Freedman

        Not to get you started, kid mercury, but the role of government, as you know, is largely about protecting us from ourselves.

        1. Rohan

          Cue: @jasonpwright:disqus  @aaronklein:disqus 😉

          1. Aaron Klein

            I sense the sarcasm in Elia’s comment so I’ll refrain 😉

          2. Elia Freedman

            Just a little.

        2. ShanaC

          you know, I know I you mean this ironically, but as a paternalistic liberatarian, I sort of agree with this statement.  Gov’t should protect us from our own bad choices (or more encourage us to make good choices than protect us from the bad) so that more governing isn’t needed to clean up the mess

          1. Elia Freedman

            That sounds oxymoronic: “paternalistic libertarian”

      2. Emmanuel Makris

        It would be amazing to see the effects if they ended the accredited investor bs. The 1% would become the 10%, and maybe you would begin to see trickle down economics. A world where the wealth is redistributed not by government regulation but innovation and disruption,and the problems of “wealth” or lack there of would disappear. In poker there’s a concept of a chip and a chair, in life there doesnt seem to be. 

        1. alphaG77

          Accredited investor rules made sense in the early-80s when pump-n-dumps were selling $10mm valuation IPO penny stocks to grandmothers in the midwest and Florida, but the market has certainly changed since then. The amount of information available to people about companies along with the advent of the secondary market for pre-IPO shares should be sufficient to protect most people from their stupidity being taken advantage of by the unscrupulous.  Well, I’d like to believe that to be the case at least…

          1. ShanaC

            Now we have the too much information problem though – there was tons of information available about the housing bubble at the time, it was all dispersed – so grandmas still got taken in.

          2. LE

            The amount of information available to people about companies along with the advent of the secondary market for pre-IPO shares should be sufficient to protect most people from their stupidity being taken advantage of by the unscrupulous.Firmly disagree.Here is my first witness:…Second witness:…Third witness: (skip to 40 seconds..)…

          3. alphaG77

            I’m repeating a comment found below, I had intended it to post next to this one:Yes, I’m being somewhat facetious — there is some logic behind some of these rules, people without the means or knowledge to know better should probably be protected from themselves and those that would take advantage of them, but these rules certainly need to be reformed or adapted for the market we have today.

          4. Mark Essel

            Sputtering, coughing, ecstatic laughter at Miss South Carolina’s intriguing analysis of US American geographical education.

      3. LE

        “if i’m some kind of stupid moron just because i don’t have the money to be an accredited investor. “I think the intent is (or should be) to prevent someone without a certain level of assets from gambling (because it is gambling) their money away.While you might be quite able to understand the risk I am almost certain that the “average” person is most likely not able to do that. So the purpose of the accredited investor thing is to prevent people from their folly basically.Also, unlike gambling on stocks (or commodities) the liquidity issue is different.  You can’t get out of the investment as easily.I think you have to understand that this applies to many things. I have a car that is capable of going very fast and I’m able to handle that speed. But I understand that doesn’t mean that it’s good for society to allow average people to drive whatever speed they want to drive in their piece of shit. And I don’t want them doing that either.

        1. kidmercury

          but then why stop at stocks? i mean shouldn’t people keep their rent/mortgage below X% of their monthly income? and how about vacations — poor people really shouldn’t go on vacations (they should build savings first), so why not have an “accredited vacationer” program to protect people who really are not in a financial position to go on vacation? or how college loans — where was the beloved government when it came to stopping the disaster of kids taking out 6 figure loans to drink beer and study philosophy? of course the banking institutions that control government are selling the college loan disaster, because they make money off it. just like they like the accredited investor rules because it lets them do lots of risk-free flipping.i understand your point in that not everyone is prepared or positioned to take the risk, and that investing requires a sufficient amount of education in addition to psychological poise. but these rules penalize people who are prepared and accustomed to take the risk. in doing so, this actually magnifies the bigger problem of allocating capital to entrepreneurs and helping the market discover what works and at what price.

          1. LE

            “i mean shouldn’t people keep their rent/mortgage below X% of their monthly income?”If you try to apply for a mortgage you will find that this is being done. ‘Agree with the other things you are saying though.  

          2. kidmercury

            yes, it is being done — which shows that that the market can develop its own regulatory mechanisms. as an example, many online stock brokers will not let customers place orders on certain pink sheets because of the risk involved. i like that policy and think it makes a ton of sense for a broker to implement, as the broker is the one who will know the customer best and will be able to guide him/her as well. if someone ever doesn’t like that rule they can go to another broker, or have multiple accounts.

        2. andyswan

          The GOVERNMENT will sell them an unlimited number of lotto tickets.With that information, do you maintain your stance?

          1. kidmercury

            lol great point!!! i mean that is quite possibly the worst investment ever, pure gambling……and that’s what the state sells! but if you want to invest in a startup — sorry, too risky unless you’re rich enough. lol wtf

          2. LE

            “.and that’s what the state sells!”Actually  a tax on poor people to benefit older people.

          3. LE

            Two wrongs don’t make a right.Look I don’t like lotteries or any type of gambling (personally). On the other hand I wonder what people would spend that money on if they didn’t spend it on those things. More cigarettes? A warmer blanket? Better food? A tailgate party? Piano lessons for their children?

    2. testtest

      yeah, 1m not including primary residence, or 200k for the past two years with the expectation of that continuing, or 300k in a joint house-hold. (off the top of my head).i was reading a paper the other night that highlighted retail investors get worse at investing in IPOs (at least in the short-term and mid-term). Due to naive reinforcement learning: if they get a good return initially they become overly optimistic/aggressive in subsequent IPOs. i do think it’s a human right to be incompetent, though. 

    3. Aaron Klein

      A regulatory monopoly for the rich on the best investments in the world. Seems like the Occupy folks might have picked the wrong target last year.

      1. ShanaC

        The occupy people are having trouble now – message issues.  I think overall they’re right, but they risk being taken out by their more extreme elements

  13. Tom Labus

    Does this Bill have any shot at passing in this Congress?

    1. fredwilson


  14. Richard

    2011 Number of initial public offerings:Asia 892North America 152China Exchanges raised over 55 billion in 2010, number 1 in the world.This puts the US deficit of 1.4 trillion in perspective. I call it the real crowd sourcing!

    1. fredwilson

      yup. this is the crux of the issue.

  15. Emmanuel Makris

    SOPA was dropped among other reasons because Congressman feared the backlash of the public’s mass disapproval, especially in an election year. We may as well start the upheaval again for this fall. Crowdsourcing and ending the regulation nightmare are MUSTS to get us out of this depression/recession/Repression whatever you want to call it. Either way, as was displayed earlier this year, the people have the power. And for the first time in history  the Gatekeepers (tech community) are pretty open to the peoples perceptions. Lets make it happen

  16. Brad

    The more the government makes rules, the more burdensome it gets. This sounds like a “good idea” but otherwise there will be a something new that comes out of it. That is the unfortunate side of government, there are always unintended consequences.

  17. Richard

    On a related note: Algorithmic trading companies get fined routinely for sending in fake / false bids, I look at this as a tax in main street buyers. Though I dont have the data to back that up. Public markets need to get the algorithmic trading companies in check. 

  18. Brandon Marker

    What do you think of the Crowdfunding bills, Fred?

    1. fredwilson

      we should allow innovation in capital formationbut we should also be careful with itthere is a huge potential for fraud

      1. Brandon Marker

        Absolutely, thanks for the reply!

  19. alphaG77

    Yes, I’m being somewhat facetious — there is some logic behind some of these rules, people without the means or knowledge to know better should probably be protected from themselves and those that would take advantage of them, but these rules certainly need to be reformed or adapted for the market we have today.

  20. LE

    Saw this today and think it’s a great idea: think I was talking with an AVCer about a related idea which was a marketplace to find temporary housing and sponsor someone looking to work in the tech community for short periods of time by taking advantage of spare bedrooms around the city. The idea would be that if a  @fakegrimlock:disqus  wanted to test the waters here before moving they could hang out, interview and see what it’s like without having to commit to a lease, pay a hotel, or even an airbnb.Essentially tech people helping future tech people.

    1. Cynthia Schames

      Love that.

    2. kidmercury

      that’s a great idea, i love that type of community resource sharing stuff……lots of economic value there

    3. fredwilson

      that is awesome. thanks for sharing it with me.

  21. ShanaC

    @daveinhackensack:disqus usually has made comments about how SarBox decreased coverage of small cap stocks, which meant people were also less likely to invest in them – would that change with this act passing?  How much would this regulation help smaller companies that go public but stay small?

  22. Site Designer

    The issue of accountability is not as easy as one thinks. Systemsthat make it possible for CEOs to easily track the legitimacy of transactionsis something that is lacking in companies of any size; hence the reason so manycompanies end up in said position. Likewise, sophisticated software designusing complex audit algorithms would give regulators, auditors, CEOs and othersa fighting chance to spot red flags in operations such as Madoff’s, Enron’s etc, whether there wereminor indiscretions or massive fraud from top to bottom. Key is governmentaudits, required CEO accountability, right on down the line only works if eachlevel of scrutiny has the tools to make the job easy. I am developing suchsoftware for one of my projects. Have a read:http://bill-gates-venture-c…  

  23. William Mougayar

    Yikes. Does your Lobbying schedule allow you to partake in straightening this one? 

  24. Luke Chamberlin

    I would love to better understand which sections are the most onerous or expensive. The two examples I see in your post are an extra letter that you have to sign and some Visio charts your accounting team made in a couple of weeks. I’m curious what I’m missing.Your comment about scumbags not following rules is SPOT ON.The part I find ironic is that the big accounting firms were just as culpable as Enron et al in those scandals and yet new laws like this just reward them with massive amounts of new work.

  25. PhilipSugar

     I have always said if you made everybody that makes over a certain amount lets say $500k sign a document saying that as a highly paid officer they know the statements are correct (that’s why you get paid so much) and if they have to be restated the money gets clawed back from them, that would suffice.It takes away the Ken Lay defense of “I didn’t know what was happening”.  As the son of an oilman that met Ken Lay many times I assure you he knew everything that was happening.Watching two fraternity brothers quit and dump shares that were paid a ton means everybody knew, those gains should be erased. The way you hurt people who do anything for money is take away their money. (Trading Places is a great example)

  26. Dave Pinsen

    There has to be a better way to sniff out bad eggs. Maybe instead of hiring 20-somethings who hope to get hired by the private sector after their stints as regulators, the SEC should hire retired corporate execs and accountants. And instead of adding new regs, they can work harder to catch real fraudsters.Instead of boiling the ocean, a good place to start might be to use one of the automated forensic accounting services, such as Audit Integrity, to surface candidates for further investigation, and then send someone like you down to their offices to see if anything smells fishy.  

  27. Brandon Marker

    Thanks for the perspective!

  28. ShanaC

    But doing that work seems like a huge transaction cost (going back to yesterday’s discussion)

  29. fredwilson

    good rant. well played

  30. JLM

    Not a chance in the world.My business is subject primarily to State regulation so I have done some good work in individual States but I am a gnat on an elephant’s ass when it comes to the Feds.The entire regulatory framework — SEC, PCAOB, GAAP, IRS, public exchanges — is all geared to huge companies with amazing amounts of resources.None of the recent laws improves anything.  They all make it harder to operate.Small companies just hang on for dear life trying to wiggle out a profit in the face of a forest of regulation, any one tree which can fall on you and put you out of business.And the Administration thinks that every business in America is capable of ingesting newspaper and regulations and defecating money.  Hence the nonsensical reality that the USA has the highest corporate tax rate in the world.But it’s still a grand place.

  31. PhilipSugar

     You know its really important to put in that last line.

  32. JLM

    Think back about Bernie Madoff and the many ways he could have been caught and was not.  Every single opportunity was blown simply because he had stature as an esteemed member of the investment world and his detractors were bean counter numbers guys.Of course, the bean counter numbers guys were all perfectly correct.Look at Jon Corzine.I think you can find the shitheads if you have the courage to follow up the obvious.

  33. kidmercury

    the regulators don’t care. it’s the same story with all the bureaus, SEC, FDA, FCC, etc. all a bunch of captive regulators who exist to protect incumbents/cartels. it doesn’t matter if they hire geniuses or idiots, if they don’t have the desire to uphold justice it doesn’t matter as they will just turn the other way and lack the courage to prosecute.  

  34. ShanaC

    Actually, that would make an interesting second act for people and help keep them honest – they’re going to have to catch friends if they don’t stay honest themselves.Either that or people will use their new found regulatory power to get vindictive….

  35. JLM

    I picked the 404 (b) section because it is the one that is being touted as providing the relief, truth be known is something I would have done anyway.  I like process flow charts as a means of understanding anything.404 (b) requires an outside auditor to attest to the company’s own efforts under 404 (a) which is the requirement to actually document your controls.I actually don’t think that the new regs are so awful — ineffective, not going to catch one scumbag, time consuming and confusing — yes.  But mostly meaningless.But I do this stuff all the time in an industry which is also highly regulated, so I have a high tolerance for pain and in some ways this adeptness with regulation is a bit of a moat and a meaningful barrier to entry.  Who knows?

  36. Aaron Klein

    A big part of it is the expense, the wasted focus and the bureaucratizing nature of all of these regulations and controls.Case in point: a few years ago, I worked for a company that held an annual customer conference. My job is leading product so I interacted with a lot of customers, but not typically in a sales capacity. But a customer walked up, asked me some questions, picked up a blank order form, filled it out and handed it to me with a check.All I can say is, it’s a good thing I had a good friend in accounting, or I’m sure the CFO would have blown their lid because I “violated the controls” in our SarbOx binders. Maybe there is a class for effective paper carrying skills, but as a relatively senior guy, I wasn’t on the list for who could hold money.We don’t worry about this in small business or startups. We all help customers, we all make the sale, we all carry their checks over to accounting, we all earn our paychecks every day.As @JLM:disqus said, crooks by definition don’t follow rules, so it’s silly to make even more ridiculous (though seemingly harmless) rules for the good guys to follow.SarbOx would neither have prevented Enron nor enhanced the opportunity for convictions. Ken Lay died in prison.

  37. Dave Pinsen

    The regulators who checked out Madoff’s shop were asking if he was hiring. The guy who knew what he was up to wasn’t a regulator, but securities industry veteran, Harry Markopolous. 

  38. LE

    “Every single opportunity was blown simply because he had stature”I think this is a part of human nature and most people are susceptible to it. I actually have a name for it I call it “the assumption of legitimacy”. I’ve seen this so many times.Having started several businesses with no experience in any of them (and not any stature by the way) I was always amazed at how I was never asked any questions and everyone assumed I knew what I was doing.  I knocked on doors and people said “here – you’re the expert”. I always ask numerous questions so this really surprised me.  (I tend to annoy salespeople.)Several years ago I even got a hospital group looking to hire a physician to sign a contract with me so that I could provide them a referral on a physician that I knew and collect a fee. I just dug up something on the Internet changed some wording and they signed it with a promise to pay me commission if they hired the person.  I think they changed 1 term on the contract. That was easy. I’m sure I’ve got maybe 15  stories like this over the years.Madoff of course (because of what you are saying about his stature) had it much easier. And he looked the part also.

  39. JLM

    But he went to the SEC and said that Madoff’s returns were mathematically improbable if not impossible.I am still waiting to learn about the clawbacks.That is going to be very interesting.Last I read, they were going to go get the charitable contributions.  Wow!

  40. ShanaC

    I’m not.  I’ve lost a job in a charity over him already. I just want that story to be dead, dead and gone.

  41. Dave Pinsen

    Clawbacks of gains by early Madoff investors? It’s an interesting conundrum with Ponzi schemes, since the early investors are unwitting recipients of ill-gotten gains. I think there’s a statute of limitations somewhere there though — they get to keep their returns X years before the fraud was uncovered.

  42. Mark Essel

    I’ll defer to my buddy Dan on this particular bill as a very well informed finance friend. The process and politics always confuses the hell outta me.Internal auditors, what?!? I could never understand that. External auditors – ok better but no guarantees. What about the investment shuffling regulations, are they still in place to prevent bad book trading in corporate shells?

  43. Mark Essel

    Finally got the quick and dirty on Dan’s rationale for regulation sub $1 billion IPO. In short a few bad eggs ruin it for everyone, the story of our society 🙁http://www.victusspiritus.c

  44. JamesHRH

    I like this Phil.Same ‘fat middle’ principle applies to societies. If you have a big enough middle class, they pull the top %1 back down when it wanders out of touch and you protect everyone from armed insurrection.