After Sarbanes-Oxley came into effect, it made it exceptionally more difficult for startups to go public. The additional expense of going public was prohibitive for all but some of the very, very biggest success stories. Clearly, in the late '90s it was too easy to go public, but Sarbanes-Oxley went too far in the other direction. There are some efforts underway today to carve out some reasonable exceptions for successful, growing startups that will allow them to go public without taking on the full expense of SOX compliance, but the other thing that happened was that the industry just routed around the limitations, often setting up private secondary markets/exchanges for pre-IPO shares. In many ways, this is a worse situation from a public policy situation, because it limits these markets to just those well-connected enough to access them, rather than to the wider public.

Of course, I've also wondered how these were legal, as they often appeared to be offering up shares outside of the basic rules of equity offerings under the SEC. It appears that the SEC has finally noticed this as well:

Securities regulators took enforcement action against an online trading platform and two private funds offering Facebook shares on Wednesday, the first action in a year-long probe into the lightly regulated world of private company-share trading.

The Securities and Exchange Commission charged SharesPost, which matches buyers and sellers of private shares, and its CEO Greg Brogger with failing to register as a broker-dealer before offering the securities.

The SEC also brought charges against two private funds and their managers for allegedly misleading investors about hidden fees in Facebook stock offerings.

Of course, this is all going after the symptoms of the larger problem, rather than dealing with the actual problem, created by excessive SOX rules. Allow for a more reasonable setup for successful companies to actually access the public markets, and there's no more demand for these private offerings.

Yeah, well there's a title I never thought I'd write. It seems that Mike D of the Beastie Boys, along with his wife, filmmaker Tamra Davis, and John Silva (of Silva Artist Management, one of the more forward-thinking artist management groups out there, representing a ton of big name acts), have helped to get the SEC to require telcos (mainly AT&T) to include a resolution among shareholder votes over whether or not those shareholders want the company to support wireless net neutrality concepts. Remember, the telcos have been willing to bend (a tiny bit) on wireline neutrality rules, so long as wireless rules have been exempt. So, letting shareholders vote on a resolution concerning wireless neutrality certainly could become a pretty big deal.

I've said in the past that I'm very, very wary of any net neutrality regulations from the government -- because we've all seen how that works, where the telcos take control of the process, and the end result is quite the opposite of what supporters intended. Regulatory capture can be a big deal. But... I am a big supporter in the importance of the concept of net neutrality and the principles of an end-to-end network. If it can be forced on these companies by shareholder proxy that may be the most compelling solution so far. In the past, the SEC has said this issue was not a big enough issue, and could be omitted from shareholder votes as "ordinary business matters." But, now the SEC has come around to realize that net neutrality is, in fact, a big issue, thanks in part to the letter from a group representing Mike D and the others mentioned above. The SEC responded in a pretty straightforward manner:

In view of the sustained public debate over the last several years concerning net neutrality and the Internet and the increasing recognition that the issue raises significant policy considerations, we do not believe that AT&T may omit the proposal from its proxy materials in reliance on rule 14a-8(i)(7).

Of course, who knows if enough shareholders will vote for such a thing. I could easily see a rather confused Wall Street thinking (incorrectly) that breaking the end-to-end principle would be good for business, even if it erodes network usefulness and value.

Way back in February of 2010, we talked about some ad execs who had set up a website, BuyaBeerCompany.com, asking people to help crowdfund the $300 million it was expected it would take to buy Pabst Brewing, Kickstarter-style (i.e., make pledges, with different "rewards" based on pledge amount, and pledges only due if the total amount raised). While there was some press about this publicity stunt at the time, I believe I was the only one who pointed out that this whole thing almost certainly ran afoul of SEC guidelines on selling securities -- even if it was a stunt. Apparently, the SEC agreed. It only took 16 months, but Davis Freeberg alerts us to the news that the SEC went after the ad execs, and they've now "settled."

From the description from the SEC, it sounds like no money changed hands here. It's just that these guys agreed to "cease" making such offerings. I'm assuming that the SEC spotted this independently of me bringing it up, but if I brought it to their attention, sorry guys. I can definitely see the reasoning behind the SEC getting involved here, as there's certainly a reasonable risk of fraud on some random website offering people an opportunity to buy a company. However, the internet has certainly opened up new ways to raise money -- such as via crowdfunding. While most crowdfunding offerings don't involve an "ownership" stake, and thus no equity that the SEC might be concerned about, it does make you wonder if the tight regulation from the SEC over such matters might squeeze out some interesting, and entirely legitimate opportunities.

We're all familiar with stock market pump and dump scams that have been around forever, and often show up via spam, but what happens when someone famous gets in on the game. Apparently, rapper 50 Cent started pumping the stock symbol of a penny stock for a company that is distributing a new pair of headphones that he's associated with. The stock then surged, increasing the company's value by $50 million. Oddly, when I look at the Twitter account of 50 Cent, I no longer see the Twitter messages in question, which makes me wonder if he realized he might get in trouble for those tweets. Of course, there's nothing wrong with giving stock advice but if he didn't disclose his own association with the company, he could run into serious legal problems from both the SEC and the FTC, who have been looking to crack down on "sponsored" tweets that don't properly disclose a relationship.

It's amazing how badly politicians who know a little bit can screw things up. Apparently, Chris Dodd's financial reform bill contains a somewhat horrifying clause that would seriously harm the ability of startups to raise angel financing. Startups raising angel money are about as far from what caused the financial crisis as anything I can think of, and yet, the financial reform bill contains some ridiculous provisions:

Under existing law, startup companies can raise money easily and quickly from "accredited investors" -- individuals with substantial wealth or income. There is no need for the companies or the investors to gain approval from any state or regulatory official.

All of this would change if Section 926 of the Dodd bill is included in any final reform legislation. That section would require, for the first time, companies seeking angel investment to make a filing with the Securities and Exchange Commission, which would have 120 days to review it. This would both raise the cost of seeking angels and delay the ability of companies to benefit from their funding.

The negative impact of the SEC filing requirement would be aggravated by the proposed doubling of the net worth or income thresholds required for investors to be "accredited."

As someone who has raised a fair bit of money from accredited angels in the past, this proposal would be quite troubling. The idea that a company would need to wait four months before it can get the money it needs would kill a lot of startups. There is no evidence that the angel funding process has been problematic in any way. In fact, some might argue that it's one part of the financial system that works incredibly well. So why are politicians mucking with it?

Well, this is amusing. Remember how the AP is trying to limit how others can report on or make use of AP news? Right. Hold that thought. Now remember how the Southeastern Conference (SEC) is trying to restrict how both the fans and reporters can report on games? Well, you know what's coming next. Stephen points out that the AP is now protesting the SEC's policies. Apparently, the AP is only a fan of such reporting restrictions when it impacts others rather than themselves. The full letter (pdf) sent to the SEC by the AP and some other reporting groups takes issue with many of the restrictions, and apparently doesn't notice the irony in the fact that the AP is trying to restrict others in much the same way.

Throughout 2002 and 2003 there was a ton of speculation concerning when Google would "finally" go public. Everyone knew the company was making a lot of money and growing fast, but it wasn't clear how big the company was nor how successful. The company's top execs insisted that they did not want to go public and tried to avoid any discussion of it. However, in early 2004, the company tripped a specific level that required them to start reporting their earnings publicly. If you have over 500 shareholders, even as a private company, you are required to file earnings reports, just as if you were a public company -- and at that point, Google execs realized there was no additional benefit in remaining private. So that single event pushed Google to finally IPO, and some were beginning to wonder if the same might push Facebook into an oncoming IPO.

It looks like that won't be happening.

Facebook's lawyers requested and received a special exemption from the SEC, allowing the company to not report its earnings publicly, even if it goes over 500 shareholders (which is likely to happen relatively soon). The exemption will remain in place until the company decides to go public or is acquired. You have to think that some folks at Google are kicking themselves for not trying to do the same thing. Either way, it's pretty clear that Facebook doesn't have the financial numbers that Google had at the time it went public, either -- so forcing Facebook to go public at this time probably would have made a lot less sense than it did for Google, who had fantastic earnings.

Eric Goldman has submitted comments to the SEC explaining how its recent guidelines concerning the liability for companies based on links on their websites most likely violates the safe harbor provisions in Section 230 of the CDA. Section 230, as we've discussed over and over again, provides a clear safe harbor to protect third parties from liability for the actions of others. While we personally think it should just be common sense that third parties shouldn't be liable for the actions of others, it's been clear for way too long that common sense isn't really all that common.

In this case, the SEC indicated that some companies may be liable for content on third party sites that they link to, if the link gives the impression that the company has approved or endorsed the info. As Goldman points out, this appears to be in violation of the safe harbors, as no one should be liable for content they have no control over -- even if they indicate they might endorse that content.

It's somewhat amazing that this case is still going on, but AOL's sneaky ad deals to boost its own revenue are still the target of lawsuits. Back in 2006, we noted that federal prosecutors had decided that it wasn't worth prosecuting the executives involved. However, it appears that the SEC feels differently. It's now sued eight former AOL execs for taking part in the scam -- though, four of them have already settled. If you don't recall, AOL had this nice little trick where it would "swap" ads with other sites, where no money changed hands, but both sides would record revenue. That let them boost revenue (up to a billion dollars for AOL) without any actual revenue coming in. It's a nice little trick... and it's also illegal. Though, it all took place in the 2000/2001 timeframe, so it's not clear why it took the SEC seven years to do something about it.

A few weeks ago, we discussed why the idea of a P2P venture capital firm didn't make much sense. Having lots of people invest is the same thing as going public -- and doing that requires complying with all sorts of SEC regulations. Simply opening up shop and asking lots of people to invest is bound to cause problems. Apparently, that's not stopping some folks. Wired has an article about how the founder of Powerset (the massively hyped up search engine startup that hasn't even launched yet) has moved on to try to start a new venture capital firm that would take small investments from many people and use those funds to invest in "greentech" investments. This is a little different than the P2P VC firm that we talked about, and actually seems to resemble something from the dot com bubble: a company called meVC, that allowed the public to invest money, which was then invested in startups. Of course, the folks at meVC at least realized that soliciting funds from the public meant going public itself first, so as not to run afoul of SEC regulations. Even then, things didn't work out so well. From the sound of things, it's not clear that the guy behind this new effort even realizes that, as described, the fund itself is probably very much in violation of SEC rules, but I'm sure the SEC will be kind enough to inform him pretty quickly if he moves forward with those plans.