The Securities and Exchange Commission - Essay Example

The International Monetary Fund approximated “more than $1 trillion on toxic assets and from bad loans” were lost by big western banks “from January 2007 to September 2009” (Reuters 1). The individual losses and exposures were undisclosed by these institutions in order “to prevent ‘runs’ on their banks or trading against their positions by their competitors in the markets” which can further escalate their losses (Dobbs & Minyard 1). Hence, what the banks and other companies/institutions did was to refrain from lending money “among themselves or to other businesses” since they were uncertain as to their trading partners’ financial health and considered that “the risk of loss was too high,” opting to preserve their cash to compensate for any probable future losses (Dobbs & Minyard 1).

The “sources of liquidity” was said to have desiccated for a number of companies with capital markets failing to perform properly (Dobbs & Minyard 1). This resulted to breakdown and bankruptcies of influential companies or “land-rich/cash-poor situation” for energy companies (Dobbs & Minyard 1). The global economy then was said to be in recession as “the financial markets seized” (Dobbs & Minyard 1). . SEC 1). The federal statutes and rules require companies to have “full disclosure and transparency” whenever it “sells stocks or bonds to the public” (Johnson 993), or to supply “a detailed public disclosure document” to both “investors and regulators” (Securities Act of 1933 §§ 5, 10, 15 U.S.C.

§§ 77e, 77j (2006); 17 C.F.R. pt. 230 (2011), whenever private businesses make public offerings (Johnson 993). The Securities and Exchange Commission (SEC) reviews “these disclosure documents,” which in the case of Groupon, the SEC they required the latter to revise its disclosures in order to improve their accuracy (U.S. SEC, Letter from Larry Spirgel 1-14). This requirement however is not applicable to private placements wherein “a company sells an investment outside of the normal public securities markets” (Securities Act of 1933 § 4(2), 15 U.S.C. § 77d(2); 17 C.F.R. § 230.506 (2011)), which often times evade examination by federal and state regulatory bodies (Johnson 151).

Because these placements are private, they are concealed (Johnson 993) and the issuers tend to divulge “far less information to investors” than that required for public offerings (SEC v. Ralston Purina Co., 346 U.S. 119, 125-26 (1953) and SEC rule 506 under 17 C.F.R. § 230.506). Issuers also divulge this information “only to qualified investors” (17 C.F.R. § 230.506 and 17 C.F.R. § 230.501(a) (2011)). “Regulators and even academics have little or no access to the private placement disclosures” (Johnson 993).

Private placements are also said not to be liquid, “difficult to price,” and bear significant risks (Johnson