[arduanika]

Listing on a public exchange is not a requirement, but it is generally a boon to the public interest. The theory is that if we close the gap in regulatory burden between public companies and large private companies, then maybe we'll see more IPOs like back in the 90's, before Sarbanes-Oxley and other new laws.

Now, with an admin that's disposed to deregulation, the usual approach to closing that gap is to loosen requirements on public companies. You don't see a lot of people advocating for closing the other half of the gap, where we increase the reporting requirements on private companies. Stricter requirements there seem justified if you look with a bit of realism at how many consumer-facing funds are holding little pieces of unicorns. A lot of people have a stake in SpaceX or Stripe, one way or another. I'd like to see at least a few proposals that make it less comfortable to stay private for so long.

[Karrot_Kream]

FWIW even if we weren't in this admin, I think it would be a harder sell to increase reporting requirements on private companies. The whole point of private capital and private companies is that LPs (edit: liquidity providers) are required to have some form of accreditation to prove that they aren't dumb money and that they have the capital to weather large drawdowns.

The problem of growing private capital markets and liquidity has been an issue for ~20 years now.

[arduanika]

Yeah. It's not obvious how to do it. I just wish that policy people would do some thinking in this direction.

(Nit: I believe that in venture contexts, LP = "limited partners". A "liquidity provider" usually means the same thing as a market maker, at which point you're talking about the secondary / listed / public markets.)

[Karrot_Kream]

(re Nit: depending on your terminology, liquidity provider can be many things and in modern markets one can argue that the concept of a "market maker" isn't a practical reality if how liquidity flows, but that's also why I wrote the edit to clarify which LP I was talking about)

[arduanika]

(Oh, I see now what you meant. Cool.)

[doom2]

> The theory is that if we close the gap in regulatory burden between public companies and large private companies, then maybe we'll see more IPOs like back in the 90's, before Sarbanes-Oxley and other new laws.

And maybe more Enrons?

[arduanika]

Yes, maybe. The optimal number of scandals is sadly not zero, and any given piece of legislation tends to overreact, fighting the last battle without seeing all the potential second-order consequences. Even the most carefully-crafted laws are worth giving another look, periodically.

Note that FTX, for example, was privately held. If it had been born in the nineties, the norm would be for it to go public, and have at least a modicum of disclosure; staying private would have been weird, a red flag. Instead, "our generation's Enron" had no public markets oversight whatsoever, SOX or otherwise.

So yeah, it's necessary to find a balance. You are choosing between a little regulation on a lot of companies, or a lot of regulation on a smaller and smaller chunk of the economy each year.

[cucumber3732842]

> fighting the last battle without seeing all the potential second-order consequences. Even the most carefully-crafted laws are worth giving another look, periodically.

Dare I say the special interests that ghost write the bulk of the text of any given legislation are specifically banking on those second and Nth order consequences.

[riffraff]

But Enron's bankruptcy affected people who could invest on the public market while FTX affected more directly "qualified investors" didn't it?

It seems the private/public split along the lines of "public companies should be more scrutinized" worked as intended.

[paganel]

Not directly related to FTX, but to the public vs. private discourse, if I'm not mistaken there are now a lot of pension funds and related financial institutions which have redirected a big part of their funds towards privately-owned unicorns/big companies through indirect means, and if those privately-owned unicorns/big companies were to do some shady things those pension funds would be much less in the know compared to if they'd invested their money in public companies.

One could make the valid point that those pension funds shouldn't have been (indirectly) invested in those privately-owned unicorns to begin with, but doing that would have most probably come with opportunity costs for those pension funds (as for some reason or another private big companies have been seen as bringing in more money for each dollar spent compared to big public companies, at least when it comes to the last 8-10 years).

As the OP implies, there needs to be some sort of balance between public and private companies, each of them need to be, in effect, more like the other in the eyes of the State/taxman, State-run regulators and the like.

[arduanika]

Not quite, but only because the FTX case was weird. Many individuals from around the world were users. They didn't sign up to be investors, or even to be depositors in a banking sense, and so not all of them were qualified/accredited investors. However, SBF unilaterally and secretly treated them like investors, borrowing from them to finance various schemes. So no, FTX's fallout was not limited in that way.

The people and venture funds that officially owned FTX were a narrower group, and I assume they were all qualified investors. But the thing about our disclosure regime is that protecting the official owners of the company is only one goal, the one that serves as the pretext. Informally, various regs on public companies are designed to bring sunlight more generally, and to prevent a wider array of crimes and shenanigans than just defrauding the company's owners. Public companies also have rules and norms around governance which, had FTX been been subject to them, would have made a difference.

> It seems the private/public split along the lines of "public companies should be more scrutinized" worked as intended.

Only if the intention was also, "...and public companies should be an ever-shrinking share of the economy". There are a number of reasons why one might not have intended that. Ordinary investors miss out on early growth, and the good side-effect of general sunshine and governance norms only covers a sliver of the economy, missing many of the most dynamic firms that could use some scrutiny.