Turmoil – And A Scary Amount Of Cluelessness – At The Sec

Senior members of the SEC seem to be hell-bent on a mission to totally demolish the regulatory framework that has been evolving since the Great Depression:

As we noted in our last issue, Chairman Paul Atkins is laboring under the incredibly ill-informed idea that the failure of the number of publicly-traded companies to grow is due to too much regulation. What sensible entrepreneur, we ask again, would ever pass up a multi-million dollar IPO payday because he’d have to hire a few more lawyers and accountants? Totally absurd! All he needs to do is a tiny bit of math to see that as fast as companies go public, which they continue to do at a rapid rate, more than half go broke in five years or less - while the successful ones get snapped up by bigger companies in a trice - exactly as the founders had been hoping for all along.

Next came one of the Deputy heads of Corp-Fin - who opined out of nowhere and based on nothing - on whether institutional investors had a fiduciary duty to vote their shares. “Sometimes” he says, they may not need to vote. What times may these be, we’d ask. The only time we’ve ever seen professional investors (and sometimes corporate insiders too) intentionally failing to vote, is if they’re trying to prevent a quorum, in the hope that the positions they favor, which are losing in the runup to the meeting, might be able to squeak out a victory. 

If an investor can’t make up his or her mind on how to vote, they can - and should - simply check the ABSTAIN box. (This is what the SEC invented it for, back in the late 1960s or so.) Very important for a wannabe proxy voting regulator to know, the Abstain box sends a clear message of its own - both to management and to a shareholder proponent if there is one: Neither side has made a convincing case for its position. Sometimes, although there is no way to tell and no need to know, rather than being pro or con, the voter simply has no interest whatsoever in the issue at all as it has been presented.

Most recently comes the January 26th remarks of Commissioner Mark Uyeda, at the 53rd Annual Securities Regulation Institute, headed “Enhancing the Public Company Disclosure Framework” This guy doesn’t even seem to know English, where “enhancing” means to “intensify, increase, or further improve the quality, value, or extent of” something. But no, Uyeda is hell-bent on shortening, cutting and gutting the SEC Rulebook.

“Simplifications could also be made to Item 201 for disclosures of the number of security holders and performance graphs.” Hello, we say…What is so burdensome, or so wrong with reporting how many security holders there are? Actually, every company should want to know the answer here - and it sure gives the average investor a decent idea of how many like-minded investors there are. But current SEC regs require only a count of registered holders - which is a virtually meaningless number these days. The best and wisest companies break down and give the real numbers, which should become a requirement. 

Then, Uyeda goes on to the dumbest and most clueless statement yet: “Perhaps we could delete the five-year graph of the issuer’s total cumulative return compared to a broad index and a line-of-business or peer group index under subparagraph (e). Given the wide availability of evaluative tools on the internet and mobile devices, do investors continue to need such disclosure?” YES they DO, Uyeda: This is the first thing individual investors should look at when deciding whether - and HOW to vote their Proxies. If you really want to simplify - and “enhance” the disclosure framework - and motivate investors to cast their votes - require that it be placed prominently - and way upfront in the Proxy Statement - and ideally, right before the Management Letter, which forces the drafters to address any issues here.

Lastly, Uyeda notes that “Smaller public companies make significant contributions to the financial markets and the economy more broadly. For context, 50% of all registered equity offerings during the 12-month period ended June 30, 2025 were done by smaller public companies. Some of these investments may provide higher growth opportunities for investors. As such, we should take care to see that our regulations are not disproportionately burdensome on small businesses.” YES, Uyeda - but NOT at the expense of Investor Protection.

Here are some FACTS to chew on from the BLS:

• The failure rate for new startups is currently 90%. (This counts small businesses as well as IPOs)
• 10% of new businesses don’t survive the first year. (Ditto)
• First-time startup founders have a success rate of 18%.
• Investors predict similar [success and] failure rates for AI startups
• 34% of small businesses that fail lack the proper product-market fit.
• 22% of startups that fail don’t have a sound marketing strategy.
• Approximately 30% of startups with venture backing end up failing.
• Around 75% of all fintech startups crash within two decades.
• Startups in the technology industry have the highest failure rate in the United States.