Want to invest in start-up companies with
huge growth potential? The SEC forbids it unless you are an
"accredited investor" [1], i.e. already wealthy. In the interest
of helping the little guy, the government relegates them to
poverty instead. I suppose it's like welfare in that regard.
Some people were making a profit anyway, so then comes
Sarbanes-Oxley. Compliance costs for just one section of it are
$2.3M/year for an average company [2]. You wonder where the IPOs
have gone? If you are a reasonably robust new company making
$100M in revenue, with profit of maybe $20M, that's a 10% cut in
your profit. No wonder small companies no longer go public
(Dvorak making a similar point[3]). Think of the irony of this:
SOX was supposed to make accounting more transparent but it made
it less so as companies stay private. It has the additional
consequence of making it harder to find and retain engineering
talent thus making those companies less likely to exist in the
first place.
They aren't done yet. Facebook just recently raised another $2B
in capital [4]. Because of press speculation, Goldman-Sachs is
not legally able to offer this investment to Americans [4] (unless
they own offshore companies). Goldman-Sachs did at least skim a
nice cut off the top for the extra effort of evading the broken
U.S. legal system for offshore clients [5]. Again, the irony: in
the interest of protecting Americans, Americans can't invest. Do
you feel richer?
[Disclaimer: I am absolutely not making any claim about the value
of Facebook stock, nor recommending any buy or sell.]
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[1]
http://en.wikipedia.org/wiki/Accredited_investor
[2]
http://online.wsj.com/article/SB10001424052748704431804574539921864252380.html
[3]
http://www.pcmag.com/article2/0,2817,2339232,00.asp
[4]
http://dealbook.nytimes.com/2011/01/17/goldman-limits-facebook-investment-to-foreign-clients/?src=twt&twt=nytimesbusiness
Goldman Sachs Press Release: "Goldman Sachs originally intended to
conduct a private placement in the U.S. and offshore to investors
interested in Facebook. The transaction generated intense media
attention following
the publication of an article on the evening of January 2, 2011,
shortly after the launch of the transaction. In light of this
intense media coverage, Goldman Sachs has decided to proceed only
with the offer to investors outside the U.S. Goldman Sachs
concluded
that the level of media attention might not be consistent with the
proper completion of a U.S. private placement under U.S. law. The
decision not to proceed in the U.S. was based on the sole judgment
of Goldman Sachs and was not required or requested by any
other party.