The pumpkins and garish Halloween decorations are out on my front lawn. With the Halloween season upon us, my mind has become stuck on movie monsters and been mixed with compliance. This is the terrible result.
Victor Frankenstein builds a creature in his laboratory with a mixture of surgery, chemistry, and alchemy. His creation horrifies Dr. Frankenstein and he disavows the experiment. The abandoned monster wanders through the wilderness searching for kindness and acceptance, unaware of his own identity.
I expect we will see this metaphor in the crowdfunding rules expected to be released today. The rules will likely be a mess of cobbled together parts. That’s because the Doctor designed the framework that way. In this case, the Doctor is Congress.
The SEC will be stuck wandering the wilderness being chased by pitchfork-wielding entrepreneurs who wanted a simple platform for getting equity funding from the masses. The problem was not of the monster’s creation, but of its master’s doing. Congress created an unworkable framework and the SEC is stuck with its design, trying to get its pieces to work together.
In many ways, the ills of the Securities and Exchange Commission can be blamed on its master. Congress limits its budget. The SEC is not self-funded like the Federal Reserve, the bank regulators, or FINRA. As Robert Kaiser points out in his book, Act of Congress:
“Of the 535 members of the House and Senate, those who have a sophisticated understanding of the financial markets and their regulation could probably fit on the twenty-five man roster of a Major League Baseball team.”
The SEC must heed the mandates of Congress and the cobbled together pieces of legislation that make up our securities laws.
The proposed rules were published shortly after the post was published. Although I have not read it, the release proposal is 585 pages long. The text of the regulations is 50 pages long and includes several additional pages of proposed forms. That makes it a big monster.
- SEC Proposed Regulation Crowdfunding (.pdf)
- Statement at an Open Meeting of the Commission to Consider a Proposal to Implement Title III (“Crowdfunding”) of the JOBS Act by Commissioner Daniel M. Gallagher
- Statement Regarding the Proposing Release on Crowdfunding by Commissioner Kara M. Stein
- Harnessing the Internet to Promote Access to Capital for Small Businesses, While Protecting the Interests of Investors by Commissioner Luis A. Aguilar
- Statement at Open Meeting Regarding Crowdfunding by Commissioner Michael S. Piwowar
- Remarks at Open Meeting by Chair Mary Jo White