Congress told Net would lessen SEC red tape
By Reuters
June 26, 2001, 12:15 p.m. PT

WASHINGTON--Federal securities regulators should embrace the Internet to speed up a capital-raising process that drives away exasperated small businesses that could have been the next Dell Computer, Home Depot or Yahoo, Congress was told on Tuesday.

Companies are required to file a registration statement with the Securities and Exchange Commission when they want to raise money by selling stock, debt or other securities to the public.

The statements can be as thick as the telephone book of a large city and are filled with what critics say is legal language that is hard for ordinary investors to understand, even after an SEC "plain English" drive a few years ago.

It can also take at least 30 days for the SEC to approve the registration statements. But companies, especially money-dependent small businesses, can miss out on a hot market if they have to wait for approval, witnesses told the House oversight and investigations subcommittee.

One possible solution is for the SEC to let companies post offerings on their Web sites incorporating some of the basic information found in the registration statements, said Joan Sweeney, chief operating officer at Allied Capital, a business development company based in Washington.

"The problem with the registration statement process is it's an outdated, meaningless communication," she told the panel.

As subcommittee Chairman Sue Kelly, a New York Republican, shook her head in apparent disbelief, Sweeney held up a copy of her company's thick prospectus and said, "Nobody reads this, it's impossible."

"You can use a company's Web site to do everything a registration statement does in a much more plain English, dynamic-disclosure means," added Sweeney, a former official in the SEC's enforcement division.

Greg Halpern, the chief executive at Circle Group Internet, a Mundelein, Ill.-based provider of funding and consulting services for emerging technology companies, said his company dropped out of the registration process, frustrated by the cost, time consumed and unreturned phone calls by SEC staff.

Hundreds of other companies representing $40 billion walked away from the registration process last year, he said, taking with them economic and job growth as well as more tax dollars.

"Was the next Home Depot, Dell or Yahoo among them?" Halpern asked. "We'll never know."

Small businesses account for 99.7 percent of the nation's employers and provide 75 percent of all new jobs in the United States, according to panel Chairman Kelly.

James Steinkirchner, co-chairman of the National Small Public Company Leadership Council in Washington, criticized the SEC for amending a few years ago a 1982 rule for public and private small businesses that had let them raise equity at low cost and minimal government oversight.

The SEC made the move to battle a rise in so-called pump-and-dump stock price manipulation schemes prevalent among small, thinly traded companies. But Steinkirchner said by trying to eliminate the fraud of a few, the SEC "threw the baby out with the bath water."

An SEC spokesman did not immediately return a call seeking comment. The commission and other market regulators were not represented before lawmakers but their positions may be made known at future hearings on the capital-formation process.

Story Copyright 2001 Reuters Limited. All rights reserved.

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