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THE JOBS ACT AT FIVE: EXAMINING 

ITS IMPACT AND ENSURING THE 

COMPETITIVENESS OF THE U.S. 

CAPITAL MARKETS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS, 

SECURITIES, AND INVESTMENT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FIFTEENTH CONGRESS 

FIRST SESSION 

MARCH 22, 2017 

Printed for the use of the Committee on Financial Services 

Serial No. 115–9 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

DAVID A. TROTT, Michigan 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MacARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

CLAUDIA TENNEY, New York 

TREY HOLLINGSWORTH, Indiana 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

CHARLIE CRIST, Florida 

RUBEN KIHUEN, Nevada 

KIRSTEN SUTTON MORK, Staff Director 

(III) 

SUBCOMMITTEE ON CAPITAL MARKETS, SECURITIES, AND INVESTMENT

BILL HUIZENGA, Michigan, Chairman 

RANDY HULTGREN, Illinois, Vice Chairman 

PETER T. KING, New York 

PATRICK T. MCHENRY, North Carolina 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

ANN WAGNER, Missouri 

LUKE MESSER, Indiana 

BRUCE POLIQUIN, Maine 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

ALEXANDER X. MOONEY, West Virginia 

THOMAS MacARTHUR, New Jersey 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

TREY HOLLINGSWORTH, Indiana 

CAROLYN B. MALONEY, New York, 

Ranking Member 

BRAD SHERMAN, California 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

JAMES A. HIMES, Connecticut 

KEITH ELLISON, Minnesota 

BILL FOSTER, Illinois 

GREGORY W. MEEKS, New York 

KYRSTEN SINEMA, Arizona 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

March 22, 2017 ................................................................................................. 1 

Appendix: 

March 22, 2017 ................................................................................................. 37 

WITNESSES 

WEDNESDAY, MARCH 22, 2017 

Green, Andy, Managing Director of Economic Policy, Center for American 

Progress ................................................................................................................ 8 

Hahn, Brian, Chief Financial Officer, GlycoMimetics, Inc. .................................. 7 

Keating, Raymond J., Chief Economist, Small Business & Entrepreneurship 

Council .................................................................................................................. 5 

Knight, Edward S., Executive Vice President, General Counsel, and Chief 

Regulatory Officer, Nasdaq, Inc. ......................................................................... 10 

Quaadman, Thomas, Executive Vice President, Center for Capital Markets 

Competitiveness, U.S. Chamber of Commerce .................................................. 12 

APPENDIX 

Prepared statements: 

Green, Andy ...................................................................................................... 38 

Hahn, Brian ...................................................................................................... 57 

Keating, Raymond J. ........................................................................................ 66 

Knight, Edward S. ............................................................................................ 77 

Quaadman, Thomas ......................................................................................... 85 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Green, Hon. Al: 

Council of Institutional Investors FAQ: Majority Voting for Directors ....... 172 

Lynch, Hon. Stephen F.: 

Letter from the Council of Institutional Investors, dated March 13, 2017 . 182 

Written statement of Mike Rothman, President, North American Securities Administrators Association, Inc. .......................................................... 198 

Hahn, Brian: 

Written responses to questions for the record submitted by Representatives Duffy and Hultgren ............................................................................. 204 

Knight, Edward S.: 

Written responses to questions for the record submitted by Representative Duffy ....................................................................................................... 209 

(1) 

THE JOBS ACT AT FIVE: EXAMINING 

ITS IMPACT AND ENSURING THE 

COMPETITIVENESS OF THE U.S. 

CAPITAL MARKETS 

Wednesday, March 22, 2017 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON CAPITAL MARKETS, 

SECURITIES, AND INVESTMENT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:05 p.m., in room 

2128, Rayburn House Office Building, Hon. Bill Huizenga [chairman of the subcommittee] presiding. 

Members present: Representatives Huizenga, Hultgren, Stivers, 

Wagner, Poliquin, Hill, Emmer, Mooney, MacArthur, Davidson, 

Budd, Hollingsworth; Maloney, Sherman, Lynch, Scott, Himes, 

Vargas, Gottheimer, and Gonzalez. 

Ex officio present: Representative Hensarling. 

Chairman HUIZENGA. The Subcommittee on Capital Markets, Securities, and Investment will come to order. Without objection, the 

Chair is authorized to declare a recess of the subcommittee at any 

time. Just for a situational awareness for everybody, we are anticipating votes on the House Floor sometime shortly after 3:00, maybe 

3:15 or 3:30. 

Today’s hearing is entitled, ‘‘The JOBS Act at Five: Examining 

Its Impact and Ensuring the Competitiveness of the U.S. Capital 

Markets.’’ 

I now recognize myself for 3 minutes for an opening statement. 

While small companies are at the forefront of technological innovation and job creation, they often face significant obstacles in obtaining funding in the capital markets. These obstacles are often 

attributable to the one-size-fits-all securities regulations intended 

for large public companies, which are placed on small companies 

when they seek to go public. 

Signed into law on April 5, 2012, the bipartisan Jumpstart Our 

Business Startups Act, properly known as the JOBS Act, consists 

of six bills that originated here in the House Financial Services 

Committee to help small companies gain access to capital markets 

by lifting burdensome securities regulation. 

By helping small companies obtain funding, the JOBS Act has facilitated economic growth and job creation. Additionally, the JOBS 

Act has fundamentally changed how the Securities and Exchange 

Commission approaches securities regulation. 

2 

SEC Commissioner Michael Piwowar described how the JOBS 

Act has changed the SEC’s mission this way: ‘‘The JOBS Act requires the Commission to think of capital formation and investor 

protection in fundamentally different ways than we have in the 

past. 

‘‘The crowdfunding provision of the JOBS Act forces us to think 

outside of our historical securities regulation box and to create a 

different paradigm than the one we have used for the past eight 

decades.’’ 

The bipartisan JOBS Act was an attempt to remedy the SEC’s 

inaction on capital formation, and even President Obama called the 

law a ‘‘game changer’’ for entrepreneurs and capital formation. 

Regrettably, though, the implementation of the JOBS Act by the 

SEC languished under the chairmanship of both Mary Schapiro 

and Mary Jo White. By failing to fulfill this important part of its 

mandated mission, the SEC is hurting small businesses, impeding 

economic growth, and hindering the creation of new jobs. 

It is extremely troubling to me that the SEC seems more intent 

on pursuing highly politicized regulatory undertakings outside of 

its core mission. Instead of working to protect investors, maintain 

fair and orderly and efficient markets, as well as helping to facilitate capital formation, the SEC has been more focused on exerting 

societal pressure on public companies to change their behavior 

through disclosure rules such as the conflict minerals and pay ratio 

rules, et cetera. 

It is time to refocus the SEC to advance a broader capital formation agenda. Let’s continue to build upon the successes of the bipartisan JOBS Act by further modernizing our Nation’s securities regulatory structure to ensure a free flow of capital, job creation, and 

economic growth. 

It is time to get the Federal Government working to support innovation and to reward hardworking Americans. I yield back the 

balance of my time. 

The Chair now recognizes the ranking member of the subcommittee, the gentlelady from New York, Mrs. Maloney, for 3 

minutes for an opening statement. 

Mrs. MALONEY. Thank you so much, Mr. Chairman, and I look 

forward to working with you this Congress. And I want to welcome 

everyone to the very first Capital Markets Subcommittee hearing 

of the year. 

The basic mission of the JOBS Act, and I am proud to have been 

a sponsor of this bill, was to make it easier for companies to raise 

capital from investors, whether that capital was being raised in the 

public markets or the private markets. 

Two of the main provisions of the JOBS Act have gone into effect 

in the past year-and-a-half: Regulation A+ for small offerings; and 

crowdfunding. Both of these provisions were designed to make it 

easier and less expensive for small startup companies to raise capital, and both provisions targeted small companies that may not 

have been able to raise capital using the traditional methods such 

as an IPO or a private placement to sophisticated investors. 

So this is a good time to step back and evaluate the progress of 

these two provisions by asking some simple questions. Are they 

working as intended? Are investors using them? Have they caused 

3 

any investor protection problems? Are there any changes that need 

to be made to improve either of these provisions? 

The preliminary data suggests that both Regulation A+ and 

crowdfunding are working broadly as intended, although there is 

some room for improvement. Both provisions are being used by 

very small startup companies. 

The typical company using both Regulation A+ and crowdfunding 

only has 3 employees and has less than $5,000 in cash and no revenues. Crowdfunding is primarily being used by small companies 

that can’t raise money any other way, and only to raise a small 

amount of capital. 

The median amount raised using crowdfunding was only 

$171,000. Regulation A-Plus, on the other hand, is being used by 

a wider range of companies, mostly very small startup companies, 

but also some larger ones as well. 

Most of the companies that use Regulation A+ have also raised 

money by issuing private securities to sophisticated investors before, which indicates that Regulation A+ is being used as a supplement to other offering methods. 

I am concerned, however, about the fact that FINRA has already 

had to terminate one crowdfunding portal for allowing several companies that appear to be fraudulent from offering securities on its 

platform. This raises serious investor protection concerns that we 

have to keep in mind as we review the impact of the JOBS Act. 

I look forward to hearing from my colleagues, and from all of the 

panelists, and I yield back. Thank you. 

Chairman HUIZENGA. The Chair now recognizes the vice chairman of the subcommittee, the gentleman from Illinois, Mr. 

Hultgren, for 2 minutes for an opening statement. 

Mr. HULTGREN. Thank you for convening this hearing, Chairman 

Huizenga. Access to the capital markets and job creation is incredibly important to my district and to all of our districts, and we need 

to ensure that U.S. capital markets remain a competitive means of 

financing. 

It is very fitting that a review of the JOBS Act is our first subcommittee hearing topic in this subcommittee, in this Congress. Before speaking any further, I would be remiss to not mention how 

excited I am to be serving as the vice chairman of the Subcommittee on Capital Markets, Securities, and Investment this 

Congress. 

We have our work cut out for us, but I am optimistic that we can 

advance policy that will allow our economy to recognize its true potential. Competitive capital markets are important to job creators 

in my State and also to those who work to provide this financing. 

There are a number of important financial services entities in 

the Chicago area that are instrumental to ensuring robust access 

to financing that make Illinois the home of Midwest finance. 

To the point of today’s hearing, I know the JOBS Act has made 

a meaningful impact in Illinois and in my district, and I am eager 

to hear how Congress can do more. Understanding how difficult it 

is to operate as a public company really struck me the other day 

when discussing the reasons Michael Dell took his company private. 

4 

This gave Dell, which had long operated as a public company, 

more flexibility to pursue what it determined to be best for its 

growth. I am sure this statistic is going to be cited a number of 

times today, but we should not lose sight of it. 

The number of public companies today is about half of what it 

was 20 years ago. We went from about 8,000 public companies in 

1996 to some 4,400 public companies today. We need to learn more 

about why this is and how we can help change this trajectory. 

I believe it is important that job creators have both strong public 

and private financing options available. I look forward to the testimony today and to discussing some of the specific policy proposals 

mentioned in the written testimony. 

And I yield back. 

Chairman HUIZENGA. The gentleman yields back. 

The Chair now recognizes the gentleman from Connecticut, Mr. 

Himes, for 2 minutes for an opening statement. 

Mr. HIMES. Thank you, Mr. Chairman, and thank you for holding 

this hearing. We rise and fall on our ability to innovate. Companies 

everywhere are creating new products and new services that could 

change the world, but we might not see the next Pinterest, Blue 

Apron, Snapchat, or Google if we don’t make it easier for them to 

jump from upstart to established. 

Next month marks the 5th anniversary of President Obama signing the JOBS Act into law. The Act is an excellent example, in my 

opinion, of how the Federal Government can support business and 

job growth in our Nation by allowing fast growing firms to launch 

an IPO when they are ready to do so and then scale up to the full 

regulatory responsibilities and expenses associated with being public. 

At the crux of the JOBS Act, of course, is the creation of an IPO 

on-ramp, which makes it easier for small- to medium-sized companies to undertake an IPO, and creates a new category of emerging 

growth companies (EGCs) that would enjoy certain regulatory exemptions as a result of that status. 

EGCs now apparently dominate the IPO market, accounting for 

almost 90 percent of IPOs that have gone effective since the JOBS 

Act was enacted in April of 2012. The online travel site KAYAK, 

headquartered in my district, was able to go public in 2012, thanks 

to the JOBS Act, as an EGC. 

I am proud of the bipartisan manner in which the JOBS Act 

came into existence. It really serves as a model for how Republicans and Democrats can work together to help advance one of the 

primary American competitive advantages, which is good liquid 

capital markets. 

I do have one question which I hope the panel will address. In 

life, there is rarely such a thing as a free lunch. And obviously, 

every time we lighten regulations, there is always the possibility, 

maybe even the probability that you have more scope for abuse, 

bad behavior, and bad outcomes. 

So I hope we hear as much as we celebrate this Act and what 

it has allowed some companies to do, whether we have seen any 

downside or bad outcomes associates with this Act. 

5 

But nonetheless, this is proof of the progress we can make on behalf of the American people when we work together, and I hope 

that we won’t have to wait another 5 years to see similar successes. 

With that, I yield back the balance of my time. 

Chairman HUIZENGA. The gentleman’s time has expired. 

Today, we welcome the testimony of Raymond Keating, the chief 

economist of the Small Business & Entrepreneurship Council; 

Brian Hahn, the chief financial officer of GlycoMimetics, Incorporated; Andy Green, the managing director of economic policy at 

the Center for American Progress; Edward Knight, the executive 

vice president, general counsel, and chief regulatory officer of 

Nasdaq, Inc., in New York; and Thomas Quaadman, the executive 

vice president of the Center for Capital Markets Competitiveness 

at the U.S. Chamber of Commerce. Gentlemen, we welcome you all. 

You will each be recognized for 5 minutes to give an oral presentation of your testimony. As we had said, we are going to be a little 

pressed for time for some votes. So feel free to shorten it up, if you 

can. We do want to make sure we are able to get to some questions. 

And without objection, each of your written statements will be 

made a part of the record. 

Mr. Keating, you are now recognized for 5 minutes. 

STATEMENT OF RAYMOND J. KEATING, CHIEF ECONOMIST, 

SMALL BUSINESS & ENTREPRENEURSHIP COUNCIL 

Mr. KEATING. Mr. Chairman, I am from New York, so I will talk 

fast. Mr. Chairman, Ranking Member Maloney, and members of 

the subcommittee, thank you for hosting this important hearing 

today on the JOBS Act and the competitiveness of U.S. capital 

markets. 

I am Raymond Keating, chief economist for the Small Business 

& Entrepreneurship Council. We are a nonpartisan, nonprofit advocacy, research, and training organization dedicated to protecting 

small business and promoting entrepreneurship. 

Gaining access to financial capital is essential to the creation and 

growth of businesses. At the same time, access to capital remains 

a major challenge for entrepreneurs starting up and building enterprises. 

In my written testimony, I present data on the recent trends in 

banks, small business loans, angel investment, and venture capital 

investment. To sum up, the value and number of traditional small 

business loans are still down from pre-recession levels. 

Angel investment also remains down from its 2008 level, while 

also experiencing stagnation over the last 2 years. In addition, venture capital has really shown the most life post-recession, but a decline in 2016 is certainly troubling. 

So what is going on? First, it is about reduced levels of entrepreneurship. We did a study in August on examining levels of entrepreneurship in the economy. We looked at an assortment of data, 

which all pointed to declining levels of entrepreneurship. 

The mid-range of these data points we estimated about 3.7 million missing U.S. businesses in 2015 compared to where we were 

at previous times. Reduced levels of entrepreneurial activity naturally mean reduced loan and investment demand. 

6 

Number two is these loans and investment trends again speak to 

the struggles of entrepreneurs to gain access to the financial resources needed to start up and grow. Why does this matter? We all 

know, I think, the answer to that. Quite simply, entrepreneurship 

is the engine of innovation, productivity and income growth, and 

job creation. 

And in turn, entrepreneurship depends on the willingness and 

ability of investors and lenders to supply investment and credit. 

During the current recovery expansion period, the U.S. economy 

has grown at half the rate it should. And that has largely been 

about poor private investment growth. 

So providing small businesses with more options or avenues to 

expand access to financial capital is a clear positive. Two important 

parts of the JOBS Act focused on opening up new avenues for individuals to invest in entrepreneurial ventures, such as via 

crowdfunding. 

Title II of the JOBS Act was about accredited investor 

crowdfunding, and Title III was about crowdfunding for everyone 

else, if you will. As for the investment under Title II, according to 

a recent Crowdnetic’s report, the number of new offerings actually 

declined over years 1 to 3, but capital commitments at the same 

time rose substantially. 

Meanwhile, according to Crowdfund Capital Advisors, since Title 

III launched in May 2016, capital commitments registered almost 

$30 million as of March 10, 2017. 

Even given the positive changes, areas in need of improvement 

always exist, including government placing too many limits on the 

ability of entrepreneurs to gain access to capital, and/or on investors’ abilities to make investments in entrepreneurial ventures. 

For example, crowdfunding opportunities should be expanded for 

businesses of different sizes and stages, and therefore, the limit of 

raising $1 million during a 12-month period under Title III, 

crowdfunding, should be raised, for example, to $5 million. 

Jason Best and Sherwood Neiss of Crowdfund Capital Advisors 

have pointed out that 2.2 jobs are created within the first 90 days 

after a company is successful with a securities crowdfunding campaign. So we very much see job creation happening. 

Also, the ability of investors to invest should be expanded. In addition, it should be clarified that funding portals cannot be held liable for material misstatements and omissions by issuers unless 

portals are guilty of fraud or negligence. This assurance would reduce unnecessary risks for crowdfunding portals. 

In conclusion, U.S. capital markets are the envy of much of the 

world, but we must be vigilant in making sure that while regulatory policy protects against fraud and abuse, it also reflects the 

reality that free markets provide the foundation upon which entrepreneurship investment, innovation, and business can flourish, 

thereby providing a breathtaking array of goods and services and 

jobs that improve all of our lives. 

Financial regulation must recognize these realities, recognize the 

transparency that technology has imposed upon the system, and be 

built on a respect for free enterprise. Thank you for your time, and 

I look forward to the discussion and questions. 

7 

[The prepared statement of Mr. Keating can be found on page 66 

of the appendix.] 

Chairman HUIZENGA. Thank you, Mr. Keating. 

Mr. Hahn, you are now recognized for 5 minutes. 

STATEMENT OF BRIAN HAHN, CHIEF FINANCIAL OFFICER, 

GLYCOMIMETICS, INC. 

Mr. HAHN. Thank you, Mr. Chairman, and Ranking Member 

Maloney. As a CFO of a company that benefited from the JOBS 

Act, I would like to personally thank the subcommittee for its hard 

work as we celebrate the law’s 5-year anniversary. 

The JOBS Act was a game changer for biotechs like mine, because it increases the capital formation potential of an IPO and decreases the capital diverted from science to compliance. Two-hundred and twelve biotechs have gone public under the JOBS Act, a 

fourfold increase from the 5 years before JOBS. 

Since our IPO, we have nearly doubled our employee headcount, 

and we have moved two additional new drug candidates into 

human clinical trials. These 212 innovators are seeking treatments 

for a wide range of devastating diseases. 

At GlycoMimetics, we are working toward therapies for patients 

suffering with sickle cell disease, acute myeloid leukemia, and multiple myeloma. 

Under the JOBS Act, the industry has seen a surge in IPOs for 

diseases that were previously difficult to finance, including diabetes 

and Alzheimer’s. We have also seen a dramatic increase in earlystage financing. There were just 3 early-stage IPOs in the 5 years 

before JOBS, but since JOBS was enacted, there have been 48. 

The JOBS Act’s testing-the-waters and confidential filing provisions were vital to the success of our IPO, and we continue to benefit from the 5 years of reduced compliance with costly burdens like 

SOX 404(b). In short, the JOBS Act has changed the game for financing therapeutic innovations. 

JOBS Act’s biotechs have 696 therapies currently in development, and the FDA has approved 18 new treatments from JOBS 

Act’s companies. I am excited that the subcommittee continues to 

consider ways to build on the success of the JOBS Act. 

Many of the capital formation provisions for the Financial 

CHOICE Act would further support the growth of small, public 

biotechs. In particular, I strongly support the Fostering Innovation 

Act introduced by Representatives Sinema and Hollingsworth. 

The JOBS Act’s 5-year SOX exemption has saved millions of dollars for growing biotechs, but most will still be pre-revenue when 

the IPO on-ramp expires. 

GlycoMimetics expects annual expense to increase by upwards of 

$350,000 starting in year 6 on the market, capital that could treat 

over a dozen patients in the clinic. 

The Fostering Innovation Act would extend the JOBS Act exemption for pre-revenue companies. This bipartisan bill recognizes that 

a low revenue company that has been on the market beyond the 

5-year EGC window is still very much an emerging, growing business. 

8 

The continued cost-savings in the bill are vital because every dollar spent on a one-size-fits-all burden is a dollar diverted from the 

labs. 

I also support Congressman Duffy’s Corporate Governance Reform and Transparency Act. Proxy advisory firms’ outsized influence on emerging companies has proven to be uniquely damaging 

to growing biotechs, to say nothing of the firms’ conflict of interest 

and opaque standard-setting processes. 

Mr. Duffy’s bill to regulate proxy firms would be a welcome 

change from the status quo that forces companies to contort themselves to satisfy proxy advisors rather than making decisions in the 

best interest of the company and its shareholders. 

These important bills and other capital formation provisions in 

the CHOICE Act, like cost-savings from XBRL and SOX, will build 

on the JOBS Act by supporting the growth of the 212 newly public 

biotechs that have enjoyed big success over the last 5 years. 

The JOBS Act has shown the strong impact that a policymaking 

drive toward capital formation and away from one-size-fits-all regulatory burdens can have. I applaud the subcommittee for considering further initiatives to support small business innovators, and 

I look forward to answering any questions you may have. 

[The prepared statement of Mr. Hahn can be found on page 57 

of the appendix.] 

Chairman HUIZENGA. Thank you very much. 

Mr. Green, you are recognized for 5 minutes. 

STATEMENT OF ANDY GREEN, MANAGING DIRECTOR OF 

ECONOMIC POLICY, CENTER FOR AMERICAN PROGRESS 

Mr. GREEN. Thank you, Mr. Chairman, and Ranking Member 

Maloney for the opportunity to testify on this important topic. I 

would like to make three points overall. First, the impact of the 

JOBS Act has been mixed, although many results are not in. 

For the public markets, regulation is not the problem, rather a 

focus on structural issues, which is where competition would be 

very helpful. And then for the private markets, small business access to capital impacts have also been mixed and investor risks remain. A new focus on the wealth, skills, and network gaps for 

would-be entrepreneurs is needed. 

One of the principal goals of the JOBS Act was to increase IPOs. 

For better or worse, the IPO market is now dominated by EGCs. 

But being an EGC has nothing to do with any particular nature of 

the company itself, whether innovative and exciting or non-innovative and not exciting. It is just a regulatory label. 

Unfortunately, data suggests that these EGCs tend to be lower 

in quality from a listing and investment perspective—46 percent of 

EGCs that filed a management report on internal controls reported 

material weaknesses in those controls. 

One study found EGC companies had a 21.8 percent lower return 

on assets, and a 3 percent lower stock performance on average. 

Capital formation and market liquidity for any stocks also appears 

negatively affected. And another study found that EGCs experienced 7 percent more underpricing than similarly sized companies 

prior to the JOBS Act. 

9 

Another study was more positive about the JOBS Act effects on 

IPOs. It found a 25 percent increase in IPO volume compared to 

the 2001–2011 levels. But this was largely due to the confidentiality and test-the-waters provisions that de-risked the offerings in 

terms of their outward-facing communications with investors. 

The de-burdening provisions such as reduced disclosure and 

lighter accounting rules were not meaningful. And this is an important conclusion because it shows that most provisions that reduce 

investor protection were not important in terms of increasing IPO 

availability. The study also found little evidence of improved analyst coverage despite the reductions in investor protection on conflicts of provisions. 

Unfortunately, this good news did not last. In 2015 and 2016, 

IPO volume fell to the lowest level since the Great Recession. I am 

not pleased to note this. I would just highlight that other factors, 

other than compliance requirements, may have a much stronger influence in IPO behavior. 

So the question than is whether the lighter compliance requirements of Title I make sense? It appears that the confidentiality and 

test-the-waters provisions seem like good ideas, seem to be working, and seem to have limited negative consequences, so let’s keep 

them. 

It may make sense to revisit some of the de-burdening provisions, at least by giving the SEC more flexibility to restore those 

that were removed by statute, given the somewhat lower quality 

results in EGC companies. 

If Congress wishes to boost the viability of the public markets 

overall, it needs to turn its attentions to other factors. One I would 

particularly like to highlight is competition policy. Mergers and acquisitions are now the biggest reason for the market decline in listed companies. And there is growing evidence of market concentration across the economy. 

Stronger approaches to antitrust enforcement are needed. The 

SEC may have a role to play as well. The Exchange Act, Section 

23(a), mandates that the SEC consider competition as part of its 

rulemakings. 

Competition is sprinkled throughout the Federal securities laws 

as an idea. It is even part of the title of this hearing. And the SEC 

has a number of tools to boost transparency, better regulate M&A, 

and help level the playing field back towards the public markets. 

I don’t have specific recommendations today, but I think it is a 

topic that I would encourage all of us to think about more as we 

think about holistically how to boost our public markets. 

Let me briefly say a word about the private market provisions 

of the JOBS Act. First, old Rule 506(b) is still working very well. 

The market more than doubled from 2000 to 2014 in terms of the 

amounts raised annually. 

The Title II provisions of 506(c) are not widely used. So 506(c) 

is really the workhorse, and that is still a success. New provisions, 

such as Title II crowdfunding, appear to be working well. 

And we are in the early stages of Title III and State-based 

crowdfunding, which are not part of the JOBS Act but are part of 

the spirit of it. And I look forward to seeing the results as companies take advantage of it, and it goes well. 

10 

Risks are yet to manifest and we still need to be very careful 

about those. I remain deeply concerned about the broader reach solicitation. Even though most companies are not taking advantage 

of it, it is still used. 

And when there are problems, investors don’t get all their money 

back, and the SEC does not have enough resources to track down 

everything after the fact. That is why stricter requirements for filing Form D make a lot of sense. 

Lastly, I would like to encourage a focus on the wealth, training, 

and network gaps that would make a lot of difference in terms of 

enabling entrepreneurs from minority and women-headed households to have more opportunities to access the capital markets. 

There is a lot more I could say, and I look forward to answering 

any questions you may have. Thank you very much. 

[The prepared statement of Mr. Green can be found on page 38 

of the appendix.] 

Chairman HUIZENGA. Thank you. 

Mr. Knight, you are recognized for 5 minutes. 

STATEMENT OF EDWARD S. KNIGHT, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL, AND CHIEF REGULATORY OFFICER, NASDAQ, INC. 

Mr. KNIGHT. Thank you very much for inviting us here today. I 

want to highlight a few elements of my testimony. I have been general counsel at Nasdaq now for 17 years. I have seen the markets 

evolve a lot. One of the most consequential acts of Congress in that 

period has been the JOBS Act. 

It has been positive for both the public markets and the private 

markets. But I want to say up front that Nasdaq believes in regulation. We do a lot of regulation at Nasdaq. It is important to protect investors. 

We looked at 46,000 SEC filings last year. We deregistered, 

delisted 68 companies. We did background checks on 4,100 directors and officers before we allowed them to list. 

But there is no doubt that listing on a public market does have 

a positive impact in terms of, for instance, jobs creation. I think 

there is just irrefutable evidence that jobs get created once companies go public. Most public companies grow by 100 percent to 150 

percent in terms of their employment. 

In the last 5 years, Nasdaq has taken 621 companies public. They have a market cap of $850 billion. They raised about $100 billion in new capital in doing that. And it has had a huge impact, 

we think a positive impact, on the economy. 

The JOBS Act helped with that. I want to summarize what we 

see as the effects of it. As others have said, the ability to file confidentially, the ability to test waters, those provisions helped immensely, particularly with companies that were on the edge of 

going public. It pushed them to do it. 

Many in the healthcare area did it. And we have seen, I think, 

no adverse impact on investors because of these provisions. All we 

have seen is more entrepreneurship, more job growth, and I think 

a very positive impact. 

But it petered out after a while as the chart will show you, I 

think the number 2 chart in my prepared testimony. Over the last 

11 

few years, the number of companies going public has gone down. 

There are things that can be done to restore the vibrancy of these 

markets, to create an ecosystem that will be more conducive to 

companies going public. And I want to touch upon that. 

I do want to note that at the same time, while the U.S. markets 

have been dropping in terms of IPOs, other markets that we run 

in Northern Europe, for instance, are having a vibrant IPO market. 

So these things do react to public policy. This is not necessarily 

something that has to happen. 

I do also want to point out, even when the Government doesn’t 

regulate, these markets regulate themselves in the sense that 

major market participants, institutions, require of these companies 

a lot. 

It is not for everyone to go public. Not only is there regulation 

by the Federal and State Governments, but large institutions require a lot of these companies. And it is not for everyone. But what 

we are hearing over and over again from companies who are thinking about it, is not necessarily going private. It is the process of 

staying private and what they have to accept in terms of regulation 

that may not be directly related to running a company. In a highly 

competitive, global marketplace, distraction from the job of running 

that company and competing around the world is a cost that these 

companies pay. 

And you have to ask yourself, is this regulation really necessary 

for the running of this company, building these companies, creating 

opportunity, creating jobs, and creating innovation? 

Another key aspect of a public company that gets lost sometimes 

in the debate is when these companies go public, they are open to 

investment by individual investors. You do not have to be an accredited investor as you have to be in the private market. 

In my testimony, you will see one of the most dramatic examples: 

Amazon went from the 1990s with a market cap of $350 million to 

a market cap of over $350 billion, employing hundreds of thousands of people. In the last year alone, they have created 100,000 

jobs. 

What we think should happen more often is early stage companies having the opportunity to go public, having a market that is 

more inviting than it is today, so that they will go public and grow 

in the public markets, not only to create those jobs but also to give 

the investing public an opportunity to grow with them, which they 

do not always have today. 

So there are a number of things we would focus on. One is the 

Main Street Growth Act that Congressman Garrett introduced last 

year that has been part of the CHOICE Act. We think that is positive legislation. The proxy reform legislation and modernizing disclosure in our markets, but we can get more into that. Thank you 

very much. 

[The prepared statement of Mr. Knight can be found on page 77 

of the appendix.] 

Chairman HUIZENGA. Thank you, Mr. Knight. 

And Mr. Quaadman, you are recognized for 5 minutes. 

12 

STATEMENT OF THOMAS QUAADMAN, EXECUTIVE VICE PRESIDENT, CENTER FOR CAPITAL MARKETS COMPETITIVENESS, 

U.S. CHAMBER OF COMMERCE 

Mr. QUAADMAN. Thank you, Chairman Huizenga, Ranking Member Maloney, and members of the subcommittee. The Chamber appreciates the continued work of this subcommittee on capital formation legislation, including recent efforts with the FAST Act, legislation to create the small business advocate in the SEC, as well 

as the Poliquin legislation, which forces the SEC to either modernize regulations or to explain why not. 

Yesterday, the Chamber, in conjunction with RSM, launched our 

quarterly middle market survey. And next week, in conjunction 

with the Morning Consult, we are going to release our small business survey. 

Both of these surveys find that while economic challenges still 

exist, there is increased optimism amongst middle-market and 

small business companies. However, that optimism is coupled with 

an expectation for Washington to remove barriers to growth. 

We need to have a balanced private and public capital market 

system in order to support our diverse economy. The JOBS Act was 

a bipartisan and helpful way of trying to address those imbalances, 

and it provided rules that would allow businesses to grow from 

small to large, make the IPO process easier, and to help companies 

to go public and remain public. 

There are initial successes with the JOBS Act, but the progress 

has been halting, and in some ways the situation is worse today 

than it was in 2012. More must be done and SEC implementation 

issues have also harmed and blunted the effectiveness of the JOBS 

Act. 

The public company markets are in worse shape today than they 

were 5 years ago. As Mr. Hultgren mentioned, we have less than 

half the public companies today than we did in 1996, and that 

number has gone down in 19 of the last 20 years. 

But let’s take a look at 1982. Since 1982, the population of the 

United States has grown by 40 percent. Our real GDP has increased by 160 percent. And we have roughly the same number of 

public companies today as we did in 1982. To put it in other words, 

the gains of the Reagan Administration and the Clinton Administration have been wiped out. 

There are four main drivers of this problem. One is structural 

and managerial issues at the SEC. We have issued three separate 

reports on that with 70 recommendations. I am not going to get 

into that today. Also, financing issues, regulatory obstacles, and a 

1930’s style disclosure regime that is increasingly used to embarrass businesses and not provide decision-useful information to investors. 

Combined, these issues create a tax on innovation and growth. 

And we if take a look at those numbers of public companies, as 

Justice Marshall observed 200 years ago, that power to tax is a 

power to destroy. We need to restore an ecosystem of growth that 

provides benefits throughout the economy. 

The Kauffman Institute did a study which showed that between 

1996 and 2010, IPOs created 2.2 million jobs. Boosting growth from 

2 percent to 3 percent takes 12 years off of the length of time needVerDate Nov 24 2008 18:33 Jan 24, 2018 Jkt 027250 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\27250.TXT TERI
13 

ed to double the economy, and reduces the deficit by $3 trillion over 

10 years. A 0.5 percent uptick in growth creates 1.2 million jobs 

and $4,200 in additional income for workers. 

We need to recreate that culture that rewards success, and celebrates when a UPS driver or a Microsoft executive assistant becomes a millionaire when their company goes public. In order to rebalance this system and reverse this trend, we think the SEC and 

Congress should do the following: 

Disclosure effectiveness needs to be a top priority. We shouldn’t 

talk about it any longer. The SEC needs to move forward and bring 

a disclosure regime into the 21st Century. We need to pass proxy 

advisory reform legislation that creates transparency, accountability, and oversight over proxy advisory firms. 

We need to recognize that capital formation and corporate governance are inextricably linked and have 14a-8 reforms, including 

resubmission thresholds, overturning the Whole Foods decision so 

the SEC is a fair umpire in the shareholder process, ownership 

verifications so that we know that a shareholder proposal proponent actually owns shares in the company that they are making 

proposals in. And Reg. D clarification to make the JOBS Act effective. 

We need to fix financing through the passage of BDC legislation, 

fixing crowdfunding, the Main Street Growth Act, as well as providing micro-offering safe harbors. 

We need to modernize rules including expanding the eligibility 

for Form S-3. Clarifying the definition of accredited investors exempting emerging growth companies from XBRL, and simplifying 

small private equity disclosure and registration. 

And we should also pass those remaining provisions of Title X of 

the CHOICE Act. These are, we think, very simple, common-sense 

reforms. We think that others can be done as well. And I look forward to answering your questions. 

[The prepared statement of Mr. Quaadman can be found on page 

85 of the appendix.] 

Chairman HUIZENGA. Thank you for that. At this time, the Chair 

will recognize himself for 5 minutes for some questions. 

Mr. Quaadman, while we were having this discussion, you noted 

that, I think, the average initial regulatory cost associated with an 

IPO is $2.5 million. And the estimated annual compliance costs for 

public companies average about $1.5 million. What are the main 

drivers of these costs? 

Mr. QUAADMAN. A lot of the costs that are associated with that 

are legal costs. And it is also a matter of being able to go out and 

talk to investors and the like. The JOBS Act actually did a lot to 

help facilitate that. However, with every IPO, there is a securities 

class action waiting to happen. 

And so the legal costs are actually high and that company is also 

going to be expected to be sued. So I would say that the costs are 

even more than that, but the regulatory costs are in that ballpark. 

Chairman HUIZENGA. And the significant portion of these costs, 

are they relevant to all publicly traded companies regardless of 

size? Or are some of them hit sort of disproportionally? 

Mr. QUAADMAN. What the JOBS Act did that was very beneficial 

is to allow emerging growth companies to ease into the regulatory 

14 

process. As you are a public company for a longer period of time, 

those costs are going to go up. 

And they are going to go up dramatically, because you are going 

to start to deal with different rules such as conflict minerals or 

whatever, which impose very expensive reporting regimes on companies. 

And that is actually the reason why Michael Dell said he was no 

longer going to run a public company, because he felt he would 

rather manage a company than having to deal with those extraneous issues. 

Chairman HUIZENGA. Okay. Mr. Knight, you testified that you 

had a number of discussions with CEOs and that the primary challenge is not about going public, but about being public. And it 

sounds like that is a consistent thing that you are hearing a lot. 

Why is that? Can you elaborate on that a little bit? 

Mr. KNIGHT. I will give you a statistic. If you asked a Silicon Valley accomplished lawyer who takes companies public a few years 

ago what the rule of thumb was in terms of revenues for a company before they go public, they would have said $30 million. 

Today, they would say $100 million. The infrastructure that you 

need in order to support all the reporting requirements and the 

regulatory requirements—I am not talking about the financial disclosure. No one is arguing about financial disclosure. That is a key 

to a well-run market and protecting investors. 

It is the other public policy goals that have been put on the public company model that makes the market look uninviting, particularly at a time when— 

Chairman HUIZENGA. Put on by whom? 

Mr. KNIGHT. By a CEO or a board that is considering options. 

Chairman HUIZENGA. Okay. 

Mr. KNIGHT. Shall we go public? Shall we be acquired? If we get 

acquired, maybe some of the R&D we are doing is going to be 

thrown overboard and the innovation in that company by the acquired company. The opportunity for investors to invest in that 

company through an IPO will be lost. 

The environment does not look very inviting, particularly when 

you have $8 trillion in sovereign wealth funds available to invest 

in these companies as private companies. 

Chairman HUIZENGA. But to interrupt here just a moment, on 

your Chart 1, that did strike me showing that—it is on page 2 for 

anyone who wants to take a look at it here. 

But you talk about the sovereign wealth funds and private equity 

firms and how they are the ones now capturing all that initial 

growth, rather than the public, who would be investing on that. 

And you kindly included two companies from my district, 

Macatawa Bank and Herman Miller, that have had that and have 

had challenges. And stock prices are going up and down. But— 

Mr. KNIGHT. And there is— 

Chairman HUIZENGA. —elaborate on that a little bit. 

Mr. KNIGHT. There is nothing wrong with this. The private market is vibrant. That is great. It gives people funding choices they 

might not otherwise have. But it won’t always be. And the public 

markets need to be there. And they need to be there in a modern 

way. 

15 

Many of the issues we are talking about on this panel are regulatory issues that haven’t been revisited in 20 years. We are not 

talking about getting rid of them. We are talking about modernizing them. 

We are not talking about getting rid of disclosure. We are talking 

about bringing it into the 21st Century where there is electronic 

disclosure. 

Why do you have to file with the SEC? That is an 18th Century 

concept. You can put it on a website. You can use other electronic 

means of communication. And modernizing these markets will 

make them more competitive with other markets at the same time. 

Chairman HUIZENGA. I have run out of time, and that was going 

to be one of my last questions, is what specifically can Congress do 

to alleviate some of those crippling burdens, for you and for Mr. 

Keating and others. But hopefully someone will be able to get to 

that. 

So with that, the Chair recognizes the ranking member of the 

subcommittee for 5 minutes. 

Mrs. MALONEY. Mr. Green, I would like to ask you about 

crowdfunding. As you know, the crowdfunding rules have been in 

place since last May. The SEC recently did a study of it and found 

that it was broadly working as intended, but noted that one funding portal had been terminated by FINRA for failing to supervise 

several potentially fraudulent companies that were trying to raise 

money on their platform. 

What is your take on how crowdfunding has gone so far? Is it 

helping small companies get access to capital like we intended? 

And are you concerned that one of the intermediaries that Congress intended to reduce the risk of fraud has already been shut 

down? What is your take on all of this? 

Mr. GREEN. I thank you for that question. I think it is going well. 

I think that it has only been a short period of time and the uptick 

is increasing. And we need to let the market mature. I am actually 

pleased to hear about this enforcement action because it shows that 

our regulators are on the beat. 

And one of the most important things to make crowdfunding be 

successful is that investors have confidence that when they go to 

the market, they are going to have opportunities to pick from reliable companies via reliable intermediaries, funding portals, and 

other broker-dealers that are running portals. 

So actually shutting down a portal that is not doing their job 

makes me think that things are on the right track. 

Mrs. MALONEY. Okay. Great. Does everybody agree? Are there 

any other takes on it that they would like to add from any panelists on crowdfunding? 

Then, I will go to Tom Quaadman. I noted in my opening statement that the new Regulation A+ has been used by a wide range 

of companies. Some are extremely small, with 2 or 3 employees. 

Some are much larger. 

I found it very interesting that many of the community banks 

have chosen to raise money through Regulation A+, even though 

they can raise capital in other ways, such as private placement to 

sophisticated investors. 

16 

Was this the target market? Do you think it is a problem that 

companies that can already raise money in other ways have been 

using Regulation A+ to raise capital? 

Mr. QUAADMAN. I think what the JOBS Act did is try to create 

as many different options as possible for businesses to raise capital. 

So if they could do it through Regulation A+, if they are eligible 

for it, fine. If there are other ways to do it, that is fine too. 

One of the things that Regulation A+ does is it creates a system 

whereby a smaller company can raise capital from a known investor base, which is why you also don’t see the testing of waters as 

you do in other places. 

And it would make sense actually for community banks to use 

that because as a smaller bank in a smaller community, they are 

going to know that investor base a lot better. And they are going 

to be able to use that as a device to try and raise capital from 

them, as well as the fact that there may be other costs involved 

with other systems that they may not have with Regulation A+. 

Mrs. MALONEY. You mentioned the testing of the waters. The 

vast majority of companies that have used Regulation A+ so far 

have not taken advantage— 

Mr. QUAADMAN. Correct. 

Mrs. MALONEY. —of this testing-the-waters option. So what do 

you make of this? Is testing the waters with potential investors just 

not that important for companies? Or is it too difficult and timeconsuming to go through the testing-the-waters process? What is 

your take on all of that? 

Mr. QUAADMAN. No. Actually, I think it is a very important device to use, and also, you could look at it in one context in terms 

of Reg D, general solicitation of Regulation A+. And I think with 

Regulation A+, again, you are dealing with sometimes companies 

that already exist that have a known investor based that they can 

go after. 

Obviously, you want to use testing of the waters when you are 

talking about a newer company that doesn’t have that known investor base. So I think actually being able to do it both ways satisfies the needs of companies at different parts of a maturity scale. 

Mrs. MALONEY. I would like to go back to Mr. Green. The current 

SEC rules require issuers using Rule 506 to offer private securities 

to file a form called Form D with the SEC only 15 days after the 

first sale. In addition, there is no penalty or disqualification for 

failure to file Form D. 

The SEC proposed to change these rules in 2013 when it implemented Title II of the JOBS Act, to lift the ban on general solicitation. Do you think these safeguards are important for securities offered under the new rule 506(c)? 

Mr. GREEN. I do think they are quite important. They are important for a number of reasons. One is baseline data collection. We 

don’t have a great deal of insights across the entire Reg D market. 

So having a full compliance with the Reg D for the Form D filing 

would be very helpful. 

But the more important aspect really is investor protection. As 

we move more towards making the private markets quasi-public by 

having public advertising, which is what general solicitation is, we 

need to be a lot more concerned about the impacts on ordinary inVerDate Nov 24 2008 18:33 Jan 24, 2018 Jkt 027250 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\27250.TXT TERI
17 

vestors who are liable to make bad decisions and be taken advantage of. 

And there is a very interesting study that the AARP put out only 

a couple of days ago that I would recommend that everyone take 

a look at. It has some amazing statistics. 

Mrs. MALONEY. My time has expired. Thank you. 

Chairman HUIZENGA. With that, the Chair recognizes the vice 

chairman of the subcommittee, Mr. Hultgren, for 5 minutes. 

Mr. HULTGREN. Thank you, Mr. Chairman. Again, thank you all 

for being here. I really appreciate your valuable insight and testimony here today. 

Mr. Hahn, I would like to start with you. I was drawn to this 

line in your testimony. You said, ‘‘The JOBS Act has been an unqualified success, enhancing capital formation and allowing companies to focus on science, rather than compliance.’’ 

I am also a member of the House Science Committee, and I am 

keenly aware of the innovative work that bio and its members are 

doing. I wondered if you could provide some insight into how access 

to the capital markets is driving changes in medicine? 

We are really talking about making lives better, saving lives. I 

wonder if you could just give a little insight into that? 

Mr. HAHN. Thank you. As I had stated in my testimony, the testing-the-waters provision of the JOBS Act was instrumental in our 

successful IPO. 

So at GlycoMimetics, it is a very novel, unique approach that we 

are taking that takes a very sophisticated approach that—with a 

single meeting with an investor before the JOBS Act in a 2-week 

IPO roadshow, investors could not get comfortable with the science 

and the technology. 

And testing the waters allowed enough time leading up in the 

months before the IPO to actually get their head around the technology and the science, and to ask follow-up questions. And that 

was instrumental in helping a successful IPO. 

Mr. HULTGREN. That is great. Thanks. 

Mr. Knight, thanks for being here. 

Mr. KNIGHT. Thank you. 

Mr. HULTGREN. I wanted to follow up on your testimony. In your 

testimony you mentioned the idea of permitting companies of all 

sizes to file for their IPOs with the SEC on a confidential basis, 

and permit other types of registration statements besides IPOs to 

be initially submitted on a confidential basis. 

Could you explain the benefits of filing under a confidential 

basis, and what other type of registration statements you believe 

that this might be able to be extended to? 

Mr. KNIGHT. Yes. I think it is important to understand when 

companies are considering going IPO, they are also looking at other 

options. And they want to be able to explore the option of going 

public while looking at these other options. 

If you have to file in the public, you are committing yourself in 

the sense that if you don’t do it, the market will exact a price on 

you for having ‘‘failed.’’ So they don’t want to fail at that. They 

want to explore it. 

These companies, like all companies, are dealing in a very competitive marketplace, and these filings often have information that 

18 

has a proprietary impact. And it is required. The public needs to 

know what your strategic plans are before they invest. But you are 

putting them out there for all of your competitors to see. 

So to have the option of deciding not to go public, but perfecting 

your disclosure, is very valuable to companies that are looking at 

this. 

Mr. HULTGREN. Mr. Knight, continuing with you, you mentioned 

briefly in your testimony about this, but I wanted just to drill a little bit further. As you are aware, the former chairman of this subcommittee, Chairman Garrett, sponsored legislation that would 

permit exchanges to list venture securities. 

Do you believe such an exchange would improve liquidity and 

price discovery for these securities? And could you explain how intelligent tick sizes would improve liquidity for these securities? 

Also, do you have any other feedback on the Tick Size Pilot currently under way? 

Mr. KNIGHT. The Tick Size Pilot, our current assessment is that 

it is, frankly, too early. It does look like there is more liquidity that 

is being generated, but it is too early to make conclusions. People 

are still adjusting to it. 

But Congressman Garrett’s bill had a number of what we think 

are very important features. The market structure that secondary 

trading occurs in has a cost associated with it. And we have a 

structure today that is designed to facilitate trading of Google and 

Amazon, which is great. 

But it doesn’t work for smaller cap companies. And there needs 

to be an examination of that to have a small cap company trade 

across 11 stock exchanges in 40 dark pools, fragments that liquidity. It undermines the price discovery process. 

So the Garrett bill would allow the company that lists to decide 

to aggregate that liquidity on one market. It would allow the exchange to adjust the tick size to encourage liquidity by having 

wider tick sizes, bringing more market makers into it. 

I would like to point out the Saudi Arabian stock exchange that 

we sell technology to. It has intelligence tick sizes. We don’t have 

it here. We petitioned the SEC to consider it. We have not ever gotten a response. So we think it is an intelligent idea, and we are 

glad it was in that bill. 

Mr. HULTGREN. Thank you all. 

I yield back. 

Chairman HUIZENGA. The gentleman’s time has expired. 

With that, the Chair recognizes Mr. Lynch for 5 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman. Mr. Chairman, I would 

ask unanimous consent to enter into the record a statement written by Mike Rothman, who is the president of the North American 

Securities Administrators Association, Inc. And also, a communication to the committee from the Council of Institutional Investors. 

Chairman HUIZENGA. Without objection, it is so ordered. 

Mr. LYNCH. I thank the chairman. 

I want to thank all of the witnesses here today for your help. It’s 

very important, and Mr. Knight, I want to thank Nasdaq for its 

help on the tick size experiment, and I am eager to hear what the 

data might show. 

19 

Mr. Green, last Congress, we had the chairman’s Financial 

CHOICE Act, which seeks to expand some of the exemptions that 

we included in the JOBS Act. It also increases the penalties that 

the SEC might levy against some bad actors. But in an important 

way, it imposed significant requirements on the Commission prior 

to bringing an enforcement action. 

For example, the bill would require the Commission to conduct 

a cost-benefit analysis of whether the penalty would negatively affect shareholders of the company of which we believe their officers 

and employees may have broken the law. 

In addition, the Financial CHOICE Act would permit defendants 

to choose their own venue, which I have a problem with. It actually 

creates an ombudsman to separately defend these bad actors before 

the Commission. And there are several other opportunities in the 

bill to slow down the enforcement process. 

So how would provisions like these, that make it more difficult 

for the SEC to hold wrongdoers accountable, harm the integrity of 

our markets and a company’s ability to raise capital? 

And does this framework that is being suggested here in the Financial CHOICE Act create a moral hazard where it is so hard to 

hold the bad actors accountable, people say why not? 

Mr. GREEN. Congressman, I 100 percent agree that it creates a 

very serious moral hazard. I think that there is a lot more that 

needs to be done to improve the SEC’s enforcement ability and its 

scope, but it is not going the direction of tying their hands and 

making it harder for them to bring cases. 

I think there has been 20 to 30 years of accumulated Supreme 

Court and other precedents that make it hard for them to go after 

anybody other than the immediate speaker, and a bunch of other 

cases make it hard for private attorneys general to bring cases. 

And all those things that you are talking about, being able to 

choose your forum, doing cost-benefit analysis, not actually holding 

the shareholders accountable for the decisions that their board and 

their executives make with their money, those are all completely 

the wrong direction. 

And I also highlight one more part of the CHOICE Act that gives 

me great concern is getting rid of the bad actor automatic disqualifications. 

Mr. LYNCH. Right. 

Mr. GREEN. These are forward-looking prophylactic things that 

improve investor confidence in our markets. And I think we have 

to come back to that, that the strength of our markets is investor 

confidence. 

Mr. LYNCH. But you would be hard-pressed to find an example 

of the SEC actually enforcing the bad-actor provision. In case after 

case after case after case, they don’t enforce that, even when we 

have a successful enforcement action. 

I have this issue with Sheila Bair and other folks there who gave 

rise to this too-big-to-jail accusation and a lot of criticism at the 

SEC. 

Let me ask you as well, while we are on this, the CHOICE Act 

would also allow emerging growth companies to be exempt from 

Section 404(b). I know a lot of people hate this, but it does introduce some accountability where the CFO has to sign off on the inVerDate Nov 24 2008 18:33 Jan 24, 2018 Jkt 027250 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 K:\DOCS\27250.TXT TERI
20 

ternal controls audit. And I would like to have your thoughts on 

that. 

Mr. GREEN. I think the evidence from the data is that the EGCs 

that don’t have to do this have much weaker internal controls and 

are lower performing and there is greater investor risk. So I think 

expanding that is the absolutely wrong way to go. 

I think holding people accountable—and that is the point of capitalism. Your money is on the line. You are the board. You are the 

CEO. You ought to sign on the dotted line and take responsibility. 

Mr. Knight, if there were one recommendation that you would 

like to make this committee aware of in order to increase the number of companies going public and creating the jobs—and I appreciate the work that Nasdaq has done on this—what would that one 

suggestion be? 

Mr. KNIGHT. Part of the difficulty in answering that is the problem is death by a thousand cuts. 

Mr. LYNCH. Yes, okay. 

Mr. KNIGHT. It is not one issue. 

Mr. LYNCH. All right. 

Mr. KNIGHT. Two is, I will get back to the 404(b) issues if I could 

respond to that also? 

Mr. LYNCH. Sure. 

Mr. KNIGHT. Our experience has been that companies going public are not taking advantage of that. Why? Because there is a private ordering that is going along here. Institutions do not like you 

not doing 404(b). 

Mr. LYNCH. Yes. 

Mr. KNIGHT. So even though Congress may not require it, Fidelity may not invest unless you do it. 

Mr. LYNCH. Yes. That is a good point. 

Mr. KNIGHT. So you have to keep that factor in mind also. 

Mr. LYNCH. Yes, so it is positive peer pressure, as opposed to— 

Mr. KNIGHT. It is the investing community. 

Chairman HUIZENGA. The gentleman’s time has expired. 

Mr. LYNCH. I’m sorry. 

Mr. KNIGHT. It imposes a discipline. 

Mr. LYNCH. I thank you for your indulgence, Mr. Chairman. I 

yield back. 

Chairman HUIZENGA. The Chair now recognizes the gentleman 

from Arkansas, Mr. Hill, for 5 minutes. 

Mr. HILL. I thank the chairman. I appreciate you holding this 

hearing to assess what progress we have made under the JOBS 

Act, clearly one of the most important and successful fiscal economic policy acts passed during the Obama days. 

I would like to start out—we have talked a lot about the costs 

of being a public company and the challenges of being public because of those costs and the immense size of the market cap one 

has to have to really kind of justify going public and the frustrations of that. 

And some of that is 404-related, for example, in hardcore accounting costs, but I want to talk a minute and get people’s views 

on the proxy process, and sort of the challenges of being a public 

enterprise, 14a-8 for example, on proxy access. 

21 

I will start with you, Mr. Quaadman. You referenced this in your 

testimony. It was meant to be a way for shareholders and management to communicate. That is why the Commission organized it 

and to have a two-way dialogue, if you will. 

But it has really, in my view as a former business guy, sort of 

been taken over by various eccentric, occasionally volatile activisttype topics and can be very distracting to corporate management, 

not just on annual meeting day— 

Mr. QUAADMAN. Right. 

Mr. HILL. —but as a general matter. Maybe driving up the cost 

involved in being public, but maybe driving down the desire to be 

public because it just is a distraction from the core business. 

You talked a little bit about a policy that the incoming Commission might consider withdrawing: Staff Legal Bulletin 14H CF. 

Would you comment a little bit more on that topic? 

Mr. QUAADMAN. Sure, and I will actually give you, I guess, both 

sides of the coin there. One is 92 percent of CEOs in the IPO Task 

Force said that the reporting regime is very burdensome, and it 

doesn’t allow for them to provide information in a constructive way 

to investors. 

Stanford University did a study 2 years ago where they surveyed 

institutional investors with $17 trillion in assets. What those institutional investors came back with and said is: ‘‘The proxy is too 

long; it doesn’t provide information; and only a third of the information is relevant.’’ 

Furthermore, when we were putting together a disclosure effectiveness report a couple of years ago—and this is anecdotal—we 

came up with everybody sort of thought that about half of the 

proxy was repetitive for legal reasons, for liability reasons. 

And somebody actually went back and ran some numbers 

through EDGAR and it came out to be about a third. So all that 

sort of encapsulates that that information, or those information delivery devices, are not providing decision-useful information to investors, and unfortunately, the SEC as well. 

And this is why, also with what you had raised there, the SEC 

has not been acting as the arbiter that they should be, where they 

are being the umpire here. 

So as an example, with the Whole Foods decision, Mary Jo White 

issued it on a Friday night and effectively abdicated the SEC’s role 

to be able to act as the arbiter for what proposals should be going 

forward and not either. So the system is broken and neither side 

sees it working. 

Mr. HILL. Thanks, Mr. Quaadman. I want to switch gears just 

with the time remaining, and one of the issues I have been most 

interested in is, can we make progress on crowdfunding? 

I introduced a bill that exempts crowdfunding from the burdens 

of Subchapter S filing for the IRS code as a way to encourage people to use the Subchapter S technique. 

I’ll start with you, Mr. Knight. What problems have you identified with the SEC’s final crowdfunding rule? And then we probably 

have time for one other person. If you would respond to that? What 

can we do to make it better? 

Mr. KNIGHT. Obviously, because there has not been the public response that people expected, it needs to be revisited. And I just 

22 

think from the outset, the SEC’s view of it was that they were not 

for this. And they made it, shall I say, needlessly complicated and 

did not approach it except as this was something where the public 

is going to get harmed, and we need to narrow it as much as possible. 

Mr. HILL. Thanks for that. 

In my time remaining, Mr. Chairman, I just would say to Mr. 

Hahn, I think you referenced IPRs under the patent law in your 

short-selling testimony. 

I think, potentially, there is abusive use of IPRs. And I hope that 

Mr. Clayton, once he gets his team in place at the SEC, will look 

at this. I have heard about specific concerns in the district about 

that issue. So I appreciate you raising that. 

And with that, I will yield back, Mr. Chairman. 

Chairman HUIZENGA. The gentleman’s time has expired. 

And just for information, votes have just have been called. 

So what I would like to do is go to Mr. Scott for his 5 minutes, 

and then we will need to break. And hopefully, everybody can stick 

around, if that is all right? 

We anticipate walking off the Floor at about 3:50. And so I would 

ask everybody to get back here as soon as they possibly can, as a 

courtesy to our guests, our witnesses. 

So with that, I recognize Mr. Scott for 5 minutes. 

Mr. SCOTT. Thank you, Mr. Chairman, for squeezing me in before 

the bell. I appreciate that. 

Let me ask each of you, if you could change one thing about the 

JOBS Act, what would it be? And as you are pondering that, do 

you think the JOBS Act went too far in loosening security regulations? And if so, why? 

I understand that some of you certainly want to make it easier 

for businesses to raise capital or for entrepreneurs to start that 

new company, and so do I. But this is just me speculating, that is 

why I want to find out. Do you think we went too far with these 

regulations? What do we need to do with that? 

Mr. Green, maybe you can start? 

Mr. GREEN. If I could squeeze two in, it would be Title II, general 

solicitation with the exception of the crowdfunding aspects of it, 

and also Title V, if I remember correctly, the one that took it from 

500 to 200 shareholders, because I actually think that works 

against our desire to have a more robust public market by making 

it much easier for companies to stay big and private for much 

longer. 

Mr. SCOTT. Okay. 

Mr. Hahn? What would you change? 

Mr. HAHN. I think targeted bipartisan acts like the Fostering Innovation Act, is a one-size-fits-all regulation that—I appreciate 

some of these large companies, but I am a very small biotech. So 

a lot of the regulations that large companies have to adhere to, I 

don’t think that same one-size-fits-all is appropriate for a company 

of my size. 

Mr. SCOTT. All right. 

Mr. Knight, what about you? 

23 

Mr. KNIGHT. I think extending the confidential filing and testingthe-waters provisions to all companies would be a positive development. And I don’t think the JOBS Act went too far. 

Mr. SCOTT. Good. That is what I wanted to hear. 

Mr. Quaadman? 

Mr. QUAADMAN. Mr. Scott, I agree with Mr. Knight that the 

JOBS Act could have removed more obstacles, but I think, more 

importantly, Title I was self-effectuating. The other titles in the 

JOBS Act were not, and that allowed a hostile SEC to either draw 

out the implementation of the JOBS Act, or in fact, blunt its effectiveness. 

Mr. SCOTT. Mr. Keating? 

Mr. KEATING. I certainly don’t think that it went too far. I think 

I mentioned raising the amount that a company can seek in a 12- 

month period would be a good thing. 

And one quick comment. I am on board with all of the comments 

that we have talked about in terms of the problems of going public 

versus staying private. 

But when you look at Title III in particular, and what we are 

talking about with crowdfunding, we are talking about the decision 

really of, should I partake in entrepreneurship? Should I start up 

and build a business or not? That is a very fundamental question, 

and I appreciate that it was addressed in the JOBS Act. 

Mr. SCOTT. Good. 

Mr. Green, quickly? I have another point. 

Mr. GREEN. I will just supplement by saying that one of the 

things that the JOBS Act doesn’t do, is it doesn’t do things other 

than deregulation. I think that deregulation has very limited, and 

frankly, a lot of negative implications, a very limited impacts on increasing access to capital. 

We did a report of cap that looked at minority- and womenowned businesses and the challenges for them in terms of access 

to capital. And it is really the wealth gap. The average middle-class 

family saw their wealth decline by 49 percent between 2001 and 

2010. And it has only recovered a little bit. We need to do other 

programs to boost that. 

Mr. SCOTT. Right. Let me ask you this, because if you follow this 

committee, you know that I have been very concerned about jobs, 

unemployment, all of that. And while I have this brain trust before 

me, how do we put more emphasis on this other feature of our 

economy that is moving so fast, that has an impact on the joblessness rate? 

What I am talking about is this rapid expansion of technology. 

Technology is being driven so fast that it is eliminating jobs. And 

I don’t think we are all grabbing this as quickly as we could. 

There are jobs now that we once had, we no longer have because 

of automation. I always use the example out there, the elevator guy 

or other examples. What do you think of it? Are we doing enough 

to call attention to that? 

Mr. GREEN. One of the things that we noted was that there is 

a misalignment between the interests of the corporations and the 

public interest. And we just took the issue of workforce training, 

which is so essential to grappling with that. 

24 

And we found that if we increased the disclosure of workforce 

training and made it more like R&D, you would actually 

incentivize companies to invest in their workforce to be able to respond to these new, emerging technologies and changes. 

And it is those types of expanded disclosures that are so important to making the economy work for everyone long-term. 

Mr. SCOTT. It is so true in manufacturing now. We have the robots doing jobs that we used to do. It is thousands and thousands. 

Thank you, Mr. Chairman. 

Mr. GREEN. Yes. 

Chairman HUIZENGA. The gentleman’s time has expired. 

All right, with that, we will just remind everybody, we are going 

to go and vote and then get back here as soon as we possibly can 

after votes. And with that, the subcommittee is in recess. 

[recess] 

Chairman HUIZENGA. The subcommittee will reconvene, and I 

appreciate the patience of our witnesses. Thank you very much for 

that. 

And with that, the Chair will recognize Mr. Emmer for 5 minutes. 

Mr. EMMER. Thank you. Thanks to the chairman and the ranking member for having this hearing and examining the JOBS Act 

and how successful it has been, and things that still need to happen. I want to thank the panel for being here. And, like the chairman, thanks for your patience. 

This place just never stops moving. Thank you for waiting. Very 

quickly, I come from the great State of Minnesota, where we still 

are home to 17 Fortune 500 companies, and agriculture and manufacturing drive our State’s private economy. 

But in Minnesota, like in other States in the union, I suspect, it 

is imperative that we are constantly starting new businesses, because today’s big business was yesterday’s startup. The Kauffman 

Index is a publication that comes out and ranks States based on 

new startups. 

In 2014, in Minnesota again, a State with some very serious economic activity, we ranked number 44 on the Kauffman Index in 

terms of new business startups in this country. In 2015, we 

dropped to number 47. 

In the most recent rating, we really haven’t moved much. We are 

still in that mid to low 40s range for new business startups. And 

this is a State that is full of innovators and a highly educated 

workforce. We have many things going for us. 

So what is the problem? We look around and we see that it is 

access to capital. It is access to capital that is so necessary to start 

up these new businesses. 

That is why in the short time that I have, I have a couple of 

questions related to accessing capital and what maybe we could do 

to hopefully enhance what the JOBS Act started. 

Mr. Quaadman, in your testimony today, you talk about the need 

to fix the current rules regarding crowdfunding. And to make them 

‘‘workable for businesses and their investors.’’ You, I believe mention, at least in your written testimony, Representative McHenry’s 

legislation, as well as a bill that I offered in the last Congress, 

25 

called the Micro Offering Safe Harbor Act. It is two steps that 

would be in the right direction. 

Can you please explain in more detail on the record today how 

these bills would help to provide early stage companies access to 

the capital they so dearly need? 

Mr. QUAADMAN. Yes. Thank you, Congressman, for that question. 

In fact, the head of the Minnesota State Chamber is a former colleague of mine at the Chamber. He and I have spoken, so I understand the issues there. 

One of the things that we have found consistently, and we have 

gone around the country doing different events with State and local 

chambers, is that there has been a disconnect between Main Street 

businesses and their traditional forms of financing. So they have 

been cut off from community banks for a variety of different reasons and other forms of financing. 

And this is a point I was making with my answer to Ranking 

Member Maloney before is, what the JOBS Act does and I think 

what you are trying to do with your bill, and I think what Mr. 

McHenry is trying to do to make crowdfunding more efficient, is 

let’s create different options that allow those Main Street businesses to access different alternative means of funding. And let’s 

create some new ones, and let’s see what works and what doesn’t. 

I think also to Mr. Himes’ point, we have also asked the SEC as 

they are putting rules together in each of these, that they do a 

post-implementation study, both to check on how investor protection is working and also how the economics is working. 

So I think your bill is very important. I think we need to restore 

that access to funding to actually get the entrepreneurial machine 

going again. 

Mr. EMMER. And thank you for adding that on the SEC, because 

that was going to be one of my questions. What can the SEC do 

better? Why don’t I move on with the short time I have left? 

Mr. Keating, in your written testimony, you indicate that despite 

significant and positive changes created by the JOBS Act, there is 

still need for improvement. 

And again, back to this crowdfunding, could you please describe 

some specific changes that you would suggest in the crowdfunding 

regulations? What should be implemented to maximize the ability 

of companies to raise capital through that process? 

Mr. KEATING. Sure, and quickly, as a background to that, first 

off, on our Small Business Policy Index, Minnesota ranks very 

poorly. So there are a whole host of issues, I think, in the State 

in terms of taxes and regulations that need to be dealt with. 

But when you look at the financing issue, community banking, 

earlier somebody mentioned that community banks were using the 

JOBS Act. That is encouraging because community banks, small 

banks, suffered the greatest declines since 2007. 

So the large banks essentially remain steady, the number of 

them. The small banks is where we sort of collapse. A Federal Reserve report said that also there was an unprecedented decline in 

new bank entries. So we don’t have that replacement going on, new 

banks coming into the marketplace. 

Mr. EMMER. Right. 

26 

Mr. KEATING. So these are all critical issues that actually have 

to be dealt with on that side, but then in terms of the JOBS Act, 

as I said, raising the level that companies can go out and raise in 

Title III funding, for example, would be good. 

Raising the limits that investors can put into these companies 

would be positive. And then, in written testimony, we listed a 

whole host of areas where just those costs, the tremendous—the 

costs are still significant to go through this process. 

I think it was David Burton at the Heritage Foundation who did 

a study not too long ago talking about, when you look at the total 

cost of crowdfunding, it is a significant percentage of what you 

raise. And obviously the smaller you are, the greater those costs 

are. 

So anything in terms of lightening those requirements, those regulatory burdens would go a long way to help. 

Mr. EMMER. Thank you very much. 

I see my time has expired, Mr. Chairman. 

Chairman HUIZENGA. With that, the Chair will recognize Mr. 

Hollingsworth for 5 minutes. 

Mr. HOLLINGSWORTH. Hi, good afternoon. Thanks so much for 

being here. I really appreciate all the testimony this afternoon and 

bearing the indulgence of a brief recess as well. 

My question is for Mr. Hahn. Tell me a little bit about some of 

the cures you are working? What are some of the ailments you are 

working on to cure in business? 

Mr. HAHN. I’m sorry, some of the— 

Mr. HOLLINGSWORTH. Ailments, some of the illnesses, some of the 

challenges that you are working on cures for? 

Mr. HAHN. Our lead asset is in a Phase III right now for vasoocclusive crisis for sickle cell disease. 

Mr. HOLLINGSWORTH. All right. 

Mr. HAHN. Our next compound that we have brought in the clinic is for acute myeloid leukemia. We also have a trial in multiple 

myeloma. 

Mr. HOLLINGSWORTH. Most of those are certainly words that I 

probably couldn’t even spell, frankly. So I am glad that you are 

working on them and not me. 

One of the big questions I continue to ask myself is, how do we 

get capital in the hands of people who know how to innovate and 

develop new products far beyond my meager comprehension? 

And I think one of the things that I introduced, along with Representative Sinema across the aisle, is the Fostering Innovation Act 

that you had mentioned earlier today and how we enable and empower you to be able to devote more of your resources to science, 

as you say, and not compliance. 

And so I continue to be a big champion for that innovation. Tell 

me a little bit about what the costs of complying with a 404(b) 

audit might be, both internally and as well as the check you might 

have to write to an accounting firm to verify that? 

Mr. HAHN. First, thank you for sponsoring that Fostering Innovation Act. To comply with 404(b), we are looking at upwards of 

$350,000. So our external auditors have given me a number of 

$150,000 to $200,000. 

27 

Right now, we do have an outside firm that is auditing our inter- nal controls. Those costs would increase up to $100,000 and up to 

about $100,000 in internal costs, whether it is personnel or other 

internal-related costs. 

When you first think about a $350,000 to $400,000 number, it is 

hard to believe at first. But if you take a step back and look, the 

last year our external audit fees, the last year we were private, we 

paid just under $50,000. In 2016, we paid $567,000 alone just to 

our external auditors. 

And that goes back to an earlier comment about the cost of just being public for us is about $1.8 million to $2 million between the 

lawyers, insurance, auditors, and reporting requirements. 

Mr. HOLLINGSWORTH. Right. And to the best of your understanding with regard to the Fostering Innovation Act, there is 

nothing in here that says, you absolutely cannot engage in a 404(b) 

if you, as a company, deem that it was necessary to do so. 

That you wanted to lower your cost of raising equity and follow 

ons, et cetera, or investors pressured you to do so. You can still go 

through a 404(b), but it would be a business decision, not a regulator decision. Right? 

Mr. HAHN. Correct. It is optional, and as with growing companies, it is what makes sense. 

Mr. HOLLINGSWORTH. Right. 

Mr. HAHN. Our 1231 financial statements, 95 percent of the assets on our balance sheet were cash. 

Mr. HOLLINGSWORTH. Right. 

Mr. HAHN. So it doesn’t make sense to me to talk to investors. 

They want all of the money they invest to go towards the science, 

toward the clinical trials to get these therapies to market. And to sit there and tell them, $350,000 just to make sure our 

bank reconciliations and the cash confirmations, just to go an extra 

layer there, the cost-benefit ratio just doesn’t make sense. Same 

thing, we do 125 checks a month, and the CEO and I are still the 

only check signers in the company. 

Mr. HOLLINGSWORTH. Right. 

Mr. HAHN. So we still have good controls around the cash disbursements. 

Mr. HOLLINGSWORTH. Right. And certainly, biotech is a risky 

space. It is challenging to develop these new drugs, these new medical devices, et cetera, and so it is certainly risky and some of those 

companies do fail. Either the products didn’t work or they were unable to get the products that they thought they would when they 

first raised capital. 

But that doesn’t mean that we shouldn’t lower the regulatory 

burden for the many companies that are trying to succeed and 

bring drugs to the market. And so I certainly appreciate you being 

here, and I appreciate your testimony on behalf of the Fostering Innovation Act. 

And with that, I yield back. 

Chairman HUIZENGA. Okay. The gentleman yields back. 

The Chair now recognizes the gentleman from New Jersey, Mr. 

MacArthur, for 5 minutes. 

Mr. MACARTHUR. Thank you, Mr. Chairman. This is kind of like 

coming back from a rain delay in a ballgame. You have to get back 

28 

into the swing of it. I am reminding myself of a few things that 

we were talking about before the recess. And I just want to explore 

them. 

Mr. Quaadman, you represent a host of different kinds of companies, different sizes, very different capital structures. And just 

briefly, because I only have a few moments, would you just remind 

us what are the reasons for and the benefits of companies using a 

public market capital structure? 

Mr. QUAADMAN. Yes. The traditional form of businesses was to 

go public. That was always the goal. And the reason for that is that 

you can acquire or traditionally you could have acquired an amount 

of capital that you normally could not have. So if you are a rapidly 

expanding business, that allowed you to access those capital markets. 

What has shifted in the last 20 years—I think there are two 

shifts—one is there is more of a desire to remain private, partially 

because of some of the rules that the SEC imposes on you. And a 

fear, particularly amongst founders, of losing control. 

The second is that there has been a fundamental shift in mindset 

as well. I spoke before, a few years ago, to the top 100 entrepreneurs under 30, and I asked them the question, ‘‘Do you want 

to go public, remain private or be acquired?’’ And it broke out, a 

third, a third, and a third. 

If I had asked that question about 10, 15 years ago, it would 

have been 95 wanted to go public. 

Mr. MACARTHUR. Yes. And I think that has been my experience, 

too. I was a lifelong businessman. And as I was thinking about 

your four reasons why you think companies aren’t going public, 

they were sort of environmentally structural issues. The way the 

markets work, and I jotted them down. 

You mentioned structural and managerial issues at the SEC, financial hurdles, the regulatory environment, the disclosure regime. 

It got me thinking about, I hit a tipping point in my business right 

around that number you mentioned, $100 million in revenue, and 

I was growing rapidly, needed to grow more rapidly, needed capital. And I had to assess how to get it. 

Mr. QUAADMAN. Yes. 

Mr. MACARTHUR. And I wanted to go public. Actually, I was one 

of those 15 years ago, 90 percenters who thought that would be an 

interesting way to evolve the company. 

I chose to go in a different direction, private equity. I know why 

I did. I will keep that to myself for a moment. But I am curious 

why you think—and Mr. Knight feel free to weigh in, too—why do 

you think companies are choosing, beyond the things you have already mentioned, to avoid the public markets? 

Mr. QUAADMAN. Let me give you one very small example, but 

then you start to multiply this out, as I think one of the issues I 

was talking about internally, the disclosure regime, pay ratio. 

Right? 

So Congress decides companies now have to publish a pay ratio 

between what the median average worker’s compensation is worldwide versus the CEO. So some people look at that, well, that is sort 

of an innocuous thing or whatever. 

29 

Courts have recently started holding though, that disclosures like 

that are really intended to embarrass companies, and they violate 

the First Amendment. 

But now look at what is also happening. You now have jurisdictions that are passing a pay ratio tax, in Portland, Oregon. You 

have others that are looking at it. And you sort of look at the progression of the Soda Tax. This is where it is going. 

So when you start to multiply that out by hundreds, people look 

at that those burdens are no longer necessary. You don’t want to 

go through those in order to have to be public, and that is why Michael Dell decided to go private. 

Mr. MACARTHUR. So it sounds like you are really saying that becoming public seems to create an opportunity for the same size 

company it was before, same quality, same business, serving the 

same customers with the same employees, being public now means 

it is an opportunity to have other people exercising a good deal of 

control and influence and— 

Mr. QUAADMAN. Control and influence and an injection of political agendas which have nothing to do with running the business. 

Mr. MACARTHUR. Mr. Knight, just briefly, do you think we have 

evolved into a place where failure and bad management seems to 

have been criminalized? 

Mr. KNIGHT. I don’t think I would say criminalized. But I think 

the markets don’t seem welcoming to entrepreneurs, the public 

markets. And they have alternatives in the private markets. 

But look at a company like Tesla, Elon Musk. He is investing for 

the long term. He wants to take us to Mars. You cannot do that— 

Mr. MACARTHUR. In a quarter. 

Mr. KNIGHT. —in a few months or in a quarter. So the markets 

aren’t designed today to accommodate that kind of vision. The private markets do have funding available, but the public markets 

won’t always have it, and they are not for everyone. The private 

markets aren’t suited, for instance, to many things in the 

healthcare area. 

Mr. MACARTHUR. My time has expired, but that, by the way, is 

probably the leading reason for me. I didn’t want to live under a 

quarterly microscope. I had plans that were going to take some 

years to evolve, and they did evolve. 

But I thank you all for your testimony today. 

Chairman HUIZENGA. The gentleman’s time has expired. With 

the permission of our witnesses here, we are going to do a quick 

second round. 

And I recognize Ranking Member Maloney for 5 minutes. 

Mrs. MALONEY. Thank you. 

First of all, I would like to thank you, Mr. Quaadman, for the 

Chamber supporting my legislation on just disclosing the number 

of women who are on boards. Recently, a statue appeared in the 

middle of the night, in the middle of Wall Street, with a little girl 

demanding the same thing. And it just took off on social media 

with great thunder. 

I would like to ask you and Mr. Knight and Mr. Green, and anyone who would like to comment, first of all, do you think the definition of accredited investor needs to be revisited? 

30 

In 1982, an accredited investor was required to have $1 million 

in assets or $200,000 in annual income. Now it is over 30 years 

later and it is still the same definition. Should we update that and 

change that? 

And secondly, a common theme that we have seen in this committee’s capital markets bills is promoting capital formation by 

eliminating or weakening investor protections. But it is important 

to remember that investors are the ones who contribute, and if 

they don’t think it is fair they are not going to invest or they are 

going to require a higher return. 

The Council of Institutional Investors is very strongly in support 

of the principle of one share, one vote, for public companies. They 

see this as particularly important. Yet as we saw earlier this 

month, Snap Inc., went public with shares with zero voting rights. 

And could you discuss the problems with permitting lower standards for investors among public companies, particularly from a U.S. 

competitiveness perspective? And if anybody would like to comment 

on Basel III and whether you think that is fair to American companies and American banks? 

Anyway, just a few ideas if you have any comments on them, I 

would like to hear them from anybody on the panel. 

But I would start with the Chamber, Mr. Quaadman, in the district I represent. 

Mr. QUAADMAN. Thank you, Ranking Member Maloney, and I 

also enjoyed working with you in a previous life on the 9/11 Health 

bill, as well. 

Mrs. MALONEY. Thank you. 

Mr. QUAADMAN. Let me take those three things, as well. So one 

is with the accredited investors, I think we need to look at the definition of accredited investors and who can be an accredited investor. 

And I think Mr. Schweikert, during his time here, did a lot of 

thinking on that, and I think looking at the expertise of an individual is necessary to do that. 

And if we take a look at where the courts have held what the 

investment decision-making process is, both in the TSE case, and 

basic in their progeny, I think that is something for us to look at. 

With Basel III, Basel III creates different restrictions on our 

banks in that banks are no longer acting like banks. So as an example, under Basel III rules it is a disincentive for a bank to take 

business deposits. 

That is exactly why banking in the Western world started since 

the Renaissance. What was the second question? 

Mrs. MALONEY. The whole thing about Snap, Inc.— 

Mr. QUAADMAN. Yes, what— 

Mrs. MALONEY. —that it went public with zero— 

Mr. QUAADMAN. —but what I would say there is we have to remember that corporate governance ultimately is an outgrowth of 

State corporate law. And that has allowed for a diversity of different structures and different businesses and the like. 

And investors can pick and choose exactly where they want to invest. So if they don’t like that class share or whatever that Snap 

has, they don’t have to invest in that company. So I think we are 

31 

trying to drive towards a one-size-fits-all system, and that is exactly where I think the public company model is breaking down. 

And if we allow for a diverse system that allows for investors to 

make choices, let them make those choices, and we will also have 

market-based solutions. 

Mrs. MALONEY. Okay. Would anyone else like to comment on any 

of those things? 

Mr. KNIGHT. I would agree with Tom, but highlight also that the 

flexibility in the capital structure that we allow in the United 

States, I think is perfectly suited for our culture and society and 

laws and one of our strengths, which is the ability to attract entrepreneurs to our shores, to grow entrepreneurs in the United States. 

People, again like Elon Musk or Steve Jobs, and people want to 

invest in these entrepreneurs. So creating a capital structure where 

you have the choice to invest in those entrepreneurs, I think is 

uniquely American and something we ought to preserve. We are 

not forcing anyone to invest in these companies. 

Mr. GREEN. If I could add a few thoughts? I am very concerned 

about the trend away from one share, one vote. I think there is a 

growing problem in this country of concentration of economic 

power. 

We see it in insufficient antitrust enforcement. We see it in more 

concentration. It is the number one reason we are losing public 

companies is we don’t have sufficient competition. 

And I actually see this problem of corporate governance in terms 

of moving away from basic shareholder accountability. That is capitalism as being a major risk to the vibrancy of our capital markets 

and fundamentally to the way our capitalist system works, which 

is empowering shareholders and investors to make good decisions 

about where to allocate capital over the long run. 

If I could just very briefly add two more thoughts? I would like 

to commend the SEC for very recently putting out proposed new 

Guide 3, disclosure guidance for bank holding companies. This is 

a very important update and Acting Chair Piwowar and Commissioner Stein have made good progress on that. 

And so that is somewhat responsive to the question about Basel 

III. I think we need to complement our capital rules with much 

greater disclosure so that investors have an understanding of what 

our big banks are doing. 

Are they investing in the real economy, in the businesses that 

need it? Or are they engaged in trading and other activities that, 

although somewhat important, are not their core function? 

Mrs. MALONEY. Okay. Thank you. 

Chairman HUIZENGA. The gentlelady’s time has expired. 

I will take my 5 minutes, and I am actually curious, Mr. Knight, 

if you could comment on what Mr. Green just talked about. I too 

am concerned about a concentration of wealth in vis-a-vis that people are not having the opportunity to catch the upside of growth. 

And I think that was what your Chart 1 was exactly trying to 

address. It would seem to me, though, that continuing to add more 

additional regulation, chasing people away from an IPO is actually 

maybe compounding what Mr. Green was just talking about? But 

I will have you comment, too. 

32 

Mr. KNIGHT. Early stage, high-growth companies, ideally retail 

investors, can participate in the growth phase of those companies. 

My mother paid for my law school education by investing in a local 

company. That type of story doesn’t happen very often today. 

If you put your savings in a savings account, you will get 1 percent or 2 percent. That could be— 

Chairman HUIZENGA. I would like to know where you are going 

to get 1 percent or 2 percent? 

Mr. KNIGHT. Yes, if you are lucky. 

Chairman HUIZENGA. Quantitative easing has taken care of that. 

Mr. KNIGHT. But funding education today, how are people going 

to do it? One way to do it, of course, is by investing in early stage 

companies. These companies, the rules, the market structure are 

not attractive for them, and they have other choices. Without sacrificing investor protection, I think you can make these markets 

more attractive. 

Chairman HUIZENGA. Yes, Mr. Green, briefly? 

Mr. GREEN. If I could suggest just though that some of the innovations in the JOBS Act, like Title III crowdfunding, like Title II 

crowdfunding, if there are ways to make it at the very small levels 

available, those are exciting things that we should see if they are 

working out and provide greater opportunities. 

But I think we also have to be very much aware that a lot of 

small companies fail. And given the collapse in wealth in the middle-class in this country, we just need to be very aware of that. 

Chairman HUIZENGA. Sure, but that is the risk and reward of a 

free market. 

Mr. Keating? 

Mr. KEATING. Yes. I am not worried about wealth concentration. 

I am worried about wealth creation. And I want to see widespread 

wealth creation, and that is why I was so excited when the JOBS 

Act passed because that is another avenue for entrepreneurship to 

flourish. 

When entrepreneurship flourishes, entrepreneurs create wealth. 

They create jobs. They invest in technologies. We heard about technology earlier today. Technology improves productivity. Higher productivity means higher incomes. That is the wonders of the free 

market. 

And if we get our regulatory structure right and our tax structure right, we can unleash some great things in this country, I 

think, once again. 

Chairman HUIZENGA. Right. 

Mr. Hahn, I have a quick question for you. To the extent that 

XBRL tagging may be of some use to small companies, do the benefits for companies outweigh the cost at this point, and particularly 

for smaller public companies with fewer resources? 

Mr. HAHN. We support the Small Company Disclosure Simplification Act targeting the XBRL. We spend upwards of $75,000 a year 

for the XBRL that, again, the cost-benefit ratio right now for our 

size company, it is just not a benefit for us. 

Chairman HUIZENGA. Okay. And I believe that is, was Mr. Hurt’s 

bill from last Congress and is part of the CHOICE Act at as we 

are looking at it. And then I guess I will close with this in my remaining— 

33 

Mrs. MALONEY. Then may I make a last question on XBRL? 

Chairman HUIZENGA. I will yield to the gentlelady. 

Mrs. MALONEY. Okay. 

I just want to share, the former Secretary of the Treasury, Jack 

Lew—the financial crisis started in America, yet we rebounded 

faster than the rest of the world. 

And the reason he gave—I would probably give the usual, that 

our private sector is so innovative—was the amount of new things 

that not only the private sector did but government did. 

We just kept trying one thing after another. And if it worked, we 

kept it. If it didn’t, we dropped it. And he attributed that to why 

we came back so fast. But on XBRL, it became a debate amongst 

some of us on this committee that it may not be as beneficial to 

small companies as to large companies. 

But I personally think it is extremely beneficial to small companies. And my question is, does this make sense? Investors to have 

to do the research to figure out where to invest, they will go to the 

big companies because it is out there, it is tested. 

But if you had an easy way that they could access information, 

which is what XBRL would give you, they would be able to make 

a comparison between companies with innovation, ideas, which Mr. 

Knight, you just mentioned the one area we lead the world in from 

the beginning of our country is entrepreneurship. 

That is the one thing that we do brilliantly and so much better 

than practically all the other countries combined. But it seems to 

me, as a small investor, to be able to compare the data that is accurate, assuming it is accurate, then you could see a trend or an idea 

or an innovation or a management team that was standing out. 

And it seems like it would help small companies, because oftentimes investors don’t have the time to read through the big investor portfolios, much less the small investor portfolios. 

My friend, Mr. Hurt—whom I have missed because he retired— 

and I had many conversations because I would argue with him that 

in my opinion as a small investor, the XBRL to smaller companies 

would increase the flow of money going to smaller companies. 

And I represent a large investment community. And they tell me 

that they would love that data. These angel investors are constantly looking for the next new ideas. And I would like to ask that 

question because this is an issue before the committee that the 

chairman pointed out. So would anybody like to comment? 

Chairman HUIZENGA. Yes, and yes, reclaiming my time. 

Mr. QUAADMAN. Sure. 

Chairman HUIZENGA. Go ahead, Mr. Quaadman. 

Mr. QUAADMAN. Sure. 

Chairman HUIZENGA. And I think the point of my question was 

though, the cost. If it is costing $75,000 a year to a small company, 

I understand how an angel investor would love to have standardized information at no cost to them. It is the cost to that business 

owner. 

So maybe, Mr. Hahn, I will have you just answer that, and then 

we will go to Mr. Quaadman. 

Mr. HAHN. I think from our company, from GlycoMimetics, a 

biotech company, more emphasis is put on the actual science, the 

actual technology, more of the scientific publications. We have ASH 

34 

in December, EHA in June. And I think most of our investors dig 

into the scientific aspects of it. 

The angel investors aren’t really the ones that we see or have 

conversations with. The amount of capital we need to raise on any 

given round, we are talking $20 million, $30 million, $40 million, 

$50 million. It is the large institutional investors who have the 

M.D.’s and the Ph.D.’s on staff, who dig in to understand the 

science. 

So, I understand from being able to see the data, but in all of 

our investor meetings, it is always about the science and what does 

the data show, what are the risks around the data, not necessarily 

the overall details in all the filings. 

Chairman HUIZENGA. And we are a bit over time. 

A bit, but Mr. Quaadman, if you could maybe really quickly address sort of this disproportionate burden that may be hitting small 

businesses? 

Mr. QUAADMAN. Yes. So just a short-term and a medium-range 

answer. I agree with Mr. Hahn. One is there is a Columbia University study showing that less than 10 percent of investors use 

XBRL. So in that way, it is not an effective delivery device for investors to get information. 

The second is a little longer-term answer, and this actually goes 

to Mr. Scott’s point about technological changes. Companies are 

looking at a blockchain for settling. If you have companies connected through a blockchain on a common electronic ledger, XBRL 

is out of date. 

That has a real-time component for corporate disclosures and financial reporting. That is what the SEC should be looking at. So 

I think technology is outstripping this question actually. 

Chairman HUIZENGA. Okay. And my time is well over. 

But with that, I will recognize the gentleman from Ohio, Mr. Davidson, for 5 minutes. 

Mr. DAVIDSON. Mr. Chairman, thank you very much, and thank 

you all very much for your testimony and the time that you spent 

here before the subcommittee. It is an honor to just participate in 

this dialogue. 

One of the questions that I had is, with the propagation of exchanges that are out there, how is that affecting small capital, 

whether it is venture-backed or private companies looking to become public companies? I won’t ask anything further to kind of 

lead the angle, but I’m just curious how you see that affecting 

small capital? 

Mr. KNIGHT. If I could, the purpose of the statutes that created 

public stock exchanges is to create price discovery. With clear price 

discovery, you attract liquidity. When you fragment that price discovery across 11 stock exchanges and 40 dark pools, that might 

work for Google, for Apple in trading. 

There is enough liquidity there that the price discovery process 

goes forward. But for a company that has a market cap of less than 

$50 million, it means the price discovery process breaks down and 

makes it more difficult for large institutions to invest and makes 

the public company model less attractive. 

And that is why we have said that market structure has a cost 

associated with it. The SEC’s approach, although thoughtful, has 

35 

not kept up with the needs of the marketplace. And they take a 

one-size-fits-all approach. 

We think there needs to be more flexibility, and that was an idea 

that wasn’t also part of the venture market legislation that was introduced last year that we support. 

Mr. DAVIDSON. Thanks. Does that speak for everyone, the same 

kind of observations? 

Mr. GREEN. To be honest, I would have to think about it some 

more. 

Mr. DAVIDSON. Okay. Yes, that is my main question. I think all 

the others have really been asked pretty extensively. 

But I think one of the other key takeaways that I have on, not 

so much public companies, but maybe you could give some thought 

to it is, there is a large space between bank debt and mezz financing. And do you see anything out there that bridges that gap? 

Do the market rules basically crowd that out? Are there regulations that you see as helpful to creating some gap between the cost 

of capital in the bank debt world? And then you have a, I don’t 

know, 9 percent plus spread between bank debt financing and mezz 

financing for most markets, which is a pretty big spread? 

Mr. QUAADMAN. Yes, if I can answer it, and this relates back to 

my answer also with Ranking Member Maloney on Basel III. A lot 

of the Basel III capital rules are making banks recede from giving 

business loans. 

So therefore we are seeing alternative means of financing grow 

up or sort of become attractive. This is what I was mentioning before, the legislation regarding business development corporations. 

Making them a more active participant is something that can help 

fill that space. 

So I think unless the capital rules start to change and the risk 

weights start to change under Basel III, we are going to have to 

look at these other alternatives means of financing to help bridge 

that gap. 

Mr. DAVIDSON. All right, thanks. 

I yield back. 

Chairman HUIZENGA. Actually, will the gentleman yield to— 

Mr. DAVIDSON. Yes, sir. 

Chairman HUIZENGA. The ranking member has a question. 

Mrs. MALONEY. Yes. I am incredibly interested in Basel III and 

I will ask the chairman if he would have a hearing on it. 

I hear from some banks that they feel like it is imposed on them 

but it is not imposed on other banks around the world. In other 

words, we have very tough regulation. I think that is one of the 

reasons people like to invest in our markets. They trust them more. 

But on the other hand, they feel like they are held to a higher 

standard with capital requirements that put them at a disadvantage. But I am fascinated with the fact that Basel III is discouraging two of the main functions that the banking systems was created for: taking deposits; and making business loans. 

And now I understand for the first time why some of my constituents, who are extremely profitable, can’t get business loans. So 

this is really bad. If we want to talk about getting capital out for 

entrepreneurs and businesses, it is figuring out why in the world 

would Basel III discourage business loans? 

36 

It makes no sense. That was the main reason for banks to get 

out and help start financing homes and financing businesses. So 

could you comment on that? I am shocked at this. 

Mr. QUAADMAN. What Basel III does is it—it is looked at in two 

different ways. Remember, it is supposed to be an international 

standard. However, European banking regulators look at it as a 

ceiling. American banking regulators look at it as a floor. So traditionally, American banking regulators make it very tough. 

The other thing it does is it creates an incredibly complex and 

intricate set of risk weights that investors don’t understand what 

they are looking at. 

And then what that does is it creates perverse sets of incentives 

and disincentives for activities for banks to undertake. And frankly, you get to a point where some banks, some of the larger banks 

have global presence and can work around those rules and adjust 

their activities accordingly. 

But when you start to get into the regional banks, including the 

Dodd-Frank systemic risk thresholds, they suddenly have to start 

to recede from activities where they are in fact the primary liquidity provider for regions in the country. So that is what has caused 

this disconnection between financing and Main Street businesses. 

Mrs. MALONEY. What I don’t understand is if you are a regional 

bank and a community bank, why are you being held to international banking standards, because they are not involved in international banking? 

Mr. QUAADMAN. That is a question we have asked as well. 

Chairman HUIZENGA. Yes. And one we will continue to ask. I appreciate our witnesses being here today. I feel we had a great hearing. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

And with that, again, thank you gentlemen for your time and 

your patience as we had to break. And our hearing is adjourned. 

[Whereupon, at 4:34 p.m., the hearing was adjourned.] 

(37) 

A P P E N D I X 

March 22, 2017 

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