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On Schapiro’s last day, “There is no emergency” — but is the stalemate over private market rule changes creating one?

December 14, 2012

On this her last day on the job, beleaguered SEC Chairman Mary Schapiro must be counting the minutes until the kickoff of her permanent vacation.  Schapiro will leave behind what a recent headline described as a “public – and very ugly – feud” over the Commission’s controversially protracted handling of a key JOBS Act provision.  (That provision, which we blogged about last week, would ease a number of regulatory restrictions on the massive private placement market, most saliently a blanket prohibition on general solicitation and advertising.)   SEC Proposed Rule 33-9354 has been in limbo for months, with no end in sight as Schapiro prepares to step down.

The controversy has featured mud-slinging, testy exchanges between colleagues (an email from Commissioner Daniel Gallagher to Schapiro reportedly had a subject line of “I am furious”), and even leaked emails.  A couple of recent Wall Street Journal articles (here and here), piggybacking on a November 30 letter sent from Congressman Patrick McHenry to Schapiro, provide salacious detail on the ugliness — albeit from a perspective not exactly sympathetic to the lame duck Chairwoman.  Sample quote from the WSJ:  “So Ms. Schapiro blocked a rule to make it easier for companies to raise capital in a depressed economy because she worried that some liberal critics might hiss on her way out.”  For his part, RacetotheBottom blogger J. Robert Brown Jr. characterized that editorial as “unnecessarily ad hominem, an [sic] tabloid like approach to news.”Form D comparison

Of those so-called “liberal critics,” Barbara Roper, Director of Investor Protection for the Consumer Federation of America, has emerged at the center of the storm.  She is mentioned by name in Schapiro’s emails, and is a main focus of the “tabloid like” editorial Brown mentions.  Responding to that WSJ piece in a Letter to the Editor, Roper frames her stance as one of common-sense caution:  “What we are trying to do is to get the agency to follow basic, legally required rule-making procedures and to incorporate reasonable investor protections as it lifts the ban. This balanced approach to rule-making has been advocated by members of Congress, investor groups, current and former securities regulators, leading securities law scholars, institutional investors and the bipartisan, broadly representative SEC Investor Advisory Committee.”  She contrasts this “balanced approach” with what she sees as an irrational, sky-is-falling attitude on the part of her detractors.  “There is no emergency,” she writes.  “The private-offering market is thriving despite the existing marketing restrictions.”

Does the data back up Roper’s claim that there is no emergency?  Certainly, there is data to support the contention that the private market has generally been doing well since the nadir of the recession a couple of years ago.  Over $900 billion was raised by Form D offerings in 2010, and last year that figure exceeded $1 trillion.  But what about more recent figures?  More to the point, how has the stalemate over the implementation of Rule 33-9354 itself affected the market?  That seems like a reasonable question to ask, given that it seems plausible to speculate that some issuers might be sitting on their offerings in anticipation of the impending easing of restrictions.  So what does the data say?

Using the Knowledge Mosaic Form D Exempt Offerings search page, we ran comparisons between this year and last.  (Note: We removed from our data set one anomalous and seemingly bogus offering in the unprecedented amount of $900 billion, which greatly skews the data.  For context, the second largest offering ever made on Form D since the data became electronically accessible in 2008 was about 1/8 that amount.)

First, we looked at the total amount offered on Form D between the beginning of the year and April 5, the day (this year) that the JOBS Act became law.  Presumably, any deleterious effects on the market would be evident only after this date.  In that time period in 2012, just over $165 billion in Form D offerings had been registered.   That represents an impressive 65% increase over the same period in the previous year.   So what happened after April 5?  In the five months that follow that date, the upward surge flattens out.  The market in fact takes a small step back from the previous year, showing a 3% decrease from April 5 to December 5.

Second, we tried July 4 as our demarcation — the date of the original deadline suggested by Congress for the implementation of the provision.  The overall pattern is the same.  Before July 4, the market shows a gain of 45% from 2011 to 2012.  After July 4, it shows a loss of 21%.

In absolute terms, that 21% translates to a difference of $41 billion.

The chart above offers a bird’s-eye view of the data we collected.  If you’re interested in seeing the complete raw data, you can contact me at

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