ORAL TESTIMONY OF GREG HALPERN,
CEO OF CIRCLE GROUP INTERNET, INC., TO THE
SUBCOMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE COMMITTEE ON FINANCIAL SERVICES
OF THE U.S. HOUSE OF REPRESENTATIVES
June 26, 2001

Madam Chairwoman:

Thank you for inviting me to this hearing. I’m Greg Halpern, founder and CEO of Circle Group Internet, a funding and consulting firm from Mundelein, Illinois. I represent 21 million small business professionals who create half of the jobs in America. They aren’t here because today is a workday. If you run a small business, every day is a workday.

My written testimony addresses today’s issues in detail. To summarize, small businesses like ours produce more than half of America’s private gross domestic product. By 2005 we will create 60 percent of the new jobs in this country. These are figures provided by the United States government. This is not rhetoric. It’s reality.

Small businesses struggle to succeed despite often unreasonable or misguided regulations, taxes and little representation. We face regulations that make the raising of capital difficult, if not impossible.

Today’s hearings are concerned with the Securities and Exchange Commission. The Great Depression created a need for the S.E.C., and it has served its purpose. Nearly a century later, however, the S.E.C. has failed to keep pace as markets and the global economy have evolved. I’m not here to propose increased limitations of the S.E.C.’s power. Let’s help the S.E.C. continue its mission and at the same time assist small business.

Today, the process to register with the SEC is so time consuming, expensive and subjective that many small businesses either drop out during registration or forego the effort altogether. The S.E.C. regularly fails to comply with the Act of Congress known as the National Securities Markets Improvement Act of 1996 concerning “competition, efficiency and capital formation” in the S.E.C.’s rulemaking activities.

Indeed, more than 250 companies retired from the S.E.C.’s registration process in 2000. The opportunities missed by just these companies represented billions of dollars that could have gone toward jobs, the economy and tax dollars to the treasury. Was the next Home Depot, Dell or Yahoo among them? We’ll never know.

Small businesses register their securities under Regulation SB. The SB stands for small business, and is supposed to be a much simpler and friendlier way enter capital markets based on objective criteria. But in reality, SB often predisposes the S.E.C. against the very companies it is supposed to serve.

The S.E.C., often mistakenly loses sight of its simple objective mission of ensuring full disclosure and sending companies off to market. Instead, many companies are drained needlessly of money, time and resources answering endless rounds of questions and waiting for the slow process to resolve itself.

Another issue that affects many small businesses is the Investment Act of 1940, which requires public companies to hold no more than 40 percent of their value in the securities of other companies. This hurts firms like ours, because as we fund other emerging companies, and their securities increase in value, we find ourselves out of compliance. In essence, we become victims of our own success.

But at the end of the day, this is not about the 40 Act or Regulation SB; it is quite simply the larger issue of the S.E.C.’s role in capital formation.

The S.E.C. was told in the last century to support capital formation, and it needs to learn how to work with small business in this new century. Small businesses need relief now. The processes are in place. The S.E.C. just needs to let them work.

Additionally, I propose the creation of a department in the S.E.C. to be known as the Small Business Advocacy and Liaison Office. This office should serve small business ventures that require special assistance in reaching the capital markets. It would fall under the Division of Corporation Finance and represent the 19th office in the commission.

The office would advise small businesses how to meet the regulations and requirements of the S.E.C. It would monitor processing of applications and provide quick and reasonable responses.

The office would establish a schedule to better prepare businesses for their S.E.C. experience. The office should respond with clear and concise information regarding any difficulties or irregularities with its constituent applicant companies.

And finally, the Small Business Advocacy and Liaison Office would provide an annual review of the S.E.C.’s rules and regulations related to all small business entities. The office should make recommendations to Congress for changes in those rules and regulations that may unfairly encumber small businesses.

I thank you Madam Chairwoman and the rest of the Subcommittee for the opportunity to take a day off and come to Washington and discuss the concerns of 21 million of my fellow small business professionals. I know there is a genuine willingness on your part to help, and together we can solve these problems and get on with the task of building our businesses and the nation as well.