CEI Joins Groups in Telling SEC to Stay Away from Private Markets

It’s bad enough that Congress and the Securities and Exchange Commission (SEC) have made it so costly for smaller companies to go and stay public due to Sarbanes-Oxley and Dodd-Frank. Now the SEC is increasingly proposing regulation that exceeds congressional authority to reach private companies with costly rules.

As CEI scholars have written, it is doing so indirectly through the proposed climate disclosure rule that could indirectly curtail carbon emissions of private companies that don’t trade on stock exchanges. And new comments to the SEC from CEI and other policy groups call the SEC out on its proposed rule to shower mandates on private investment funds.

The comment letter—signed by 12 organizations, including CEI, Americans for Tax Reform, and FreedomWorks—begins with the premise that “as consumers face eroding purchasing power because of heightened inflation, investors and retirement savers need affordable alternative investment options that provide solid returns now more than ever.” The groups note that they favor further liberalizing the “accredited investor” rule so that non-wealthy Americans have more access to high-performing private funds that faces less stringent red tape from the SEC.

At the same time, as the funds are now restricted to wealthy investors or those who can prove their sophistication, the SEC should not be saddling these funds with new red tape, the letter argues:

The SEC should be focused on protecting retail investors, not investors that already possess vast resources and financial acumen to understand partnership agreements and conduct proper due diligence for potential investments.

The comment letter points out that investment by private funds—including private equity and venture capital funds—also expands employment in many industry sectors. It notes that “private equity-acquired failed bank branches were also less likely to close compared to other failed bank branch acquisitions.”

The letter concludes by warning:

If the SEC proceeds to a final rule with the same conclusions and analysis produced in the Proposal, it will violate the guidelines and procedures codified in the Administrative Procedure Act and be deemed arbitrary and capricious.