Date: 2016-09-08
Speaker: CAROLYN B. MALONEY (democrat)
Chamber: H
State: New York

Mr. Chair. I yield myself such time as I may consume. I am going to oppose this bill because I think it rolls back too many investor protections. But I understand and appreciate the chairmans goals here. We all support the goal of increasing capital formation. We just disagree on the best way to accomplish it. My view is that the best way to stimulate investment is to treat investors well and protect them. and that means strong investor protections. I firmly believe that markets run more. and better. on confidence than on capital. Unfortunately. this bill goes in the wrong direction. It strips away protections that investors want in order to feel comfortable investing in startups and small companies. I have particular concerns with title I of this bill. which would allow very small and thinly traded companies to sell securities using the faster shelf registration process. This raises serious market manipulation concerns. Let me explain why. Shelf registration allows companies to register securities in advance and then sell them later on short notice. without getting SEC approval. Traditionally. shelf registration has been limited to larger. wellknown companies. like GE or Apple. that are already widely followed by the markets. in other words. companies that investors are already very familiar with. In 2007. the SEC decided to expand the number of companies who are eligible to use shelf registration. In doing so. however. the SEC was very careful to balance this against the need to maintain strong investor protection. The SEC was comfortable allowing certain very small companies to have a limited ability to use shelf registration to offer securities. but only on the condition that the company have at least one class of securities listed on the exchange. This was because the exchanges have their own standards that companies must meet in order to get their securities listed on the exchange. These listing standards provide investors with sufficient assurance that the company is legitimate. has a reasonably wide investor base. and will have enough trading interest to assure a reasonable amount of liquidity in the stock. Without the comfort provided by the exchanges initial screening procedures for these companies. however. I am not sure we should be comfortable allowing these very small companies to use shelf registration. But that is what this bill would do. It would allow very small companies that trade in overthecounter markets to sell securities using shelf registration. Allowing a small company. whose stock is very thinly traded to quickly sell a large amount of securities under the shelf registration raises real concerns about potential market manipulation. A company could easily bid up the price of its stock and then immediately dump a large amount of new stock to investors at the artificially inflated prices. As Columbia Professor John Coffee noted in his testimony before the Financial Services Committee on this proposal last Congress: "Letting a small company with a modest $50 million public float use shelf registration to attempt to sell $150 million in securities invites potential disaster and investor confusion." Mr. Chair. I include in the RECORD his entire. very critical testimony of the dangers of this legislation.