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New Capital Formation Initiatives: Hidden Danger for Investors

by Michael W. Stocker
Eyes On Wall Street |

While a raft of new "capital formation" proposals are currently enjoying broad bipartisan support in Congress, they are likely to deeply undermine key investor protections at a time when confidence in the integrity of the markets is more important than ever. One set of bills supporting a process called "crowdfunding" would permit high-risk start-up companies to troll for retail investors over the internet with little regulatory oversight -- a recipe for disaster. Another initiative, termed an " IPO on-ramp" would permit companies with revenues of up to a billion dollars a year to avoid basic disclosure and internal control requirements for up to five years after an IPO. While advocates suggest that these efforts to reduce investor protections will increase the number of IPOs, there has been little attention given to whether investors will be bearing a disproportionate share of the risks.