June 26, 2018

Brown Opening Statement at Hearing on Proposals to Increase Access to Capital

WASHINGTON, D.C. — U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – released the following opening statement at today’s hearing titled ‘Legislative Proposals to Increase Access to Capital’.

Sen. Brown’s remarks, as prepared for delivery, follow:


Thank you, Mr. Chairman, and welcome to our witnesses.

I want to thank Senator Crapo for holding today’s hearing and providing Members of this Committee the opportunity to discuss legislation they have worked on this Congress. 

Unfortunately, some of the bills we will discuss today, and at Thursday’s hearing, undermine investor protections and transparency and potentially create risks to financial stability. 

The ink is barely dry on S. 2155, the bill that rolls back many of the banking system protections developed following the financial crisis.  And, while Congress was working on that bill, the banking regulators began several efforts to weaken post-crisis safeguards.  Now this Committee wants to work on bills that will undercut investor protections and market practices that have served to promote transparency. 

Several of today’s bills have their roots in the JOBS Act and look to make changes that will supposedly increase capital formation or boost the number of IPOS back to levels from the 1990s.  I am concerned that more time has been spent thinking about a JOBS Act 2.0 or 3.0 and finding laws that should be scaled back instead of trying to understand if the original JOBS Act actually created any jobs. 

I am sure we will hear about how each of today’s bills is vital to help small companies grow and allow investors to participate in that growth.  What we should also talk about is how the Congress and the SEC can do more on investor protection and market stability. 

We don’t spend enough time working to increase the public’s trust in markets, but those efforts would benefit small companies and the jobs they create.

Earlier this year we heard from the SEC and the CFTC that keeping up with virtual currencies and related fraud was a tall order.  But, we know that low-tech fraud still exists.

Just yesterday, The Wall Street Journal reported that securities firms with high numbers of brokers with disciplinary records are selling tens of billions of dollars in private placements, specifically targeting seniors.  We will hear more on Thursday about customers who are defrauded by their brokers, but the Journal’s findings indicate a serious problem facing savers—the allure of deals that are too good to be true.

The SEC’s recent settlement with Theranos shows how even sophisticated investors can have wool pulled over their eyes for years.  While the SEC continues to pursue fraud cases, the fact is enforcement cases and related penalties are down dramatically.  Last week, I sent SEC Chair Clayton a letter expressing my frustration with the recent trends in enforcement.  Yesterday’s article shows that risks to investors are increasing.

The potential risks and negative consequences arising from today’s bills are easily predictable.  For example, a number of studies have shown that companies exempted from accounting requirements and auditor oversight of internal controls have higher rates of accounting restatements.  It doesn’t take a lot of imagination as to how that happens. 

And maybe if we focused on passing laws that enhance investor confidence instead of undermining it, this would end up helping businesses too.  After all, the more confident investors are, the easier it is for companies to raise money.

I’ve said before that protecting investors and strengthening the integrity of the markets is necessary for successful capital formation.  And yet, we continue to consider bills that unwind many important safeguards.  Slowly but surely, we will find that adding more exemptions and carve outs has not had its desired result of more IPOs, but it has had its predictable result of denying investors key protections and eroding trust in the markets.

I look forward to hearing from our witnesses.  Thank you, Chairman Crapo.