SEC Wants More Transparency From Private Companies

The Securities and Exchange Commission (SEC) is working on a plan that would force large private companies to become more transparent.

As The Wall Street Journal reported Monday (Jan. 10), this effort by the commission is field by a concern among regulators about a lack of oversight into the fundraising that’s led to the rise of these companies. Many companies have sought funding from private capital markers in recent years, getting money from wealthy investors and institutions without having to go public.

The SEC’s plan would require more private companies to regularly disclose information about their finances and operations, sources told the Journal. The agency is also considering tougher qualifications for investors seeking to access private markets, and increasing the amount of information some private companies have to file with the SEC.

“When they’re big firms, they can have a huge impact on thousands of people’s lives with absolutely no visibility for investors, employees and their unions, regulators, or the public,” said Democratic SEC Commissioner Allison Lee. “I’m not interested in forcing medium- and small-sized companies into the reporting regime.”

While these efforts are still at an early stage, the Journal notes it is likely to see strong pushback from Silicon Valley and other sectors who have enjoyed robust private market funding. Much of the information public companies are required to report — earnings, risks, business outlook, management pay — is typically strongly guarded by their private counterparts.

Read more: Gensler Seeks SPAC Investor Protection Recommendations From SEC Staff

Last month, SEC Chairman Gary Gensler asked his staff for recommendations on how to make sure investors in special purpose acquisition companies (SPACs) receive the same protections as investors in a regular listing.

The chairman said he wanted guidance on how to solidify disclosure requirements from SPACs, saying there was “an “inconsistent and differential disclosure” among several parties in the deals. In some cases, retail investors don’t get the right information about the dilution of shares.

Gensler said there is also an issue with SPAC sponsors “priming the market” with insufficient statements before the mergers, with investors in some cases making decisions based on “incomplete information” or hype.