KeynoteAddressattheSECRockCenteronCorporate

GovernanceSiliconValleyInitiative
ChairMaryJoWhiteMarch31,2016
Introduction
ThankyouJina[Choi]forthatkindintroductionandforyourleadershipoftheSanFranciscoRegional
Office.ItisalwaysgoodtobebackatStanford,[1]anditisanhonortospeakattheSECsandRock
CentersSiliconValleyInitiative.Thisisanimportanteventthatbringstogetherregulators,academics,
lawyersandentrepreneurstodiscusstheissuesimpactingthestartup,venturecapitalandprivate
equityworldsrootedhereinthiscuttingedgecenteroftechnologicalinnovation.Itisessentialthatthe
CommissionfullyengagewithSiliconValley,andparticipantsinthisimportantmarketacrossthecountry,
sothatwecanbetterunderstandtheuniquefeaturesofitsinvestorsandfinancings.ThisValleySEC
dialogue,whichIhopebecomesapermanentfixture,canonlymaketheCommissionamoreeffective
regulatorandbetterabletoprotectallinvestors.
WeallknowthesignificantimpactthattechnologyinnovationcomingfromSiliconValleycontinuesto
haveonourlives.Weseetheeffecteverywherecompaniesthattracetheirstarttobasements,shared
officespacesandclassroomsarechanginghowwegetaroundourcities,howweanalyzebigdata,how
wefindplacestostaywhenwetravel,howwecommunicatewitheachother,andevenhowweput
satellitesinspace.
Astechnologyhasevolved,sotoohavethefinancialmarketsthatsupportit.Newmodelsforhowthese
companiesarefundedandhowinvestorsunlocktheirvaluearechangingthelandscapeofprivatestart
upfinancingandtheIPOmarket.SECrulemakingshavealsoopenednewwaystoraisestartupcapital
withgeneralsolicitationallowedinprivateofferings,[2]securitiesbasedcrowdfundingcampaignscoming
soon,[3]andanupdatedandexpandedRegA(knownasRegulationA+). [4]Newapproachesto
secondarymarketliquidityhavesprouted.Newtypesofinvestorshaveenteredthemix,including
mutualfunds.Allofthesefactorsarecontributingtothedecisionmadebymoreandmorecompaniesto
stayprivatelonger.
IthoughtIwouldspendmytimewithyoutonightdiscussingsomeoftheopportunities,challenges,and
risksintheserapidlychangingmarkets.AveryimportantpartoftheSECsmissionistofacilitatecapital
formation,soitisimportantthatourrulesandregulatoryactionscreateanenvironmentthatfosters
innovationandgrowth.Butentrepreneursandissuersinthesenewmarketsshouldalsorecognizethat
protectinginvestorsisatthecoreoftheSECsmissionanditshouldbesomethingthattheytooholdat
thecoreofwhattheydo.Beingaprivatecompanyobviouslydoesnotmeanthatyoucandisregardthe
interestsofinvestors.Indeed,beingaprivatecompanycomeswithseriousobligationstoinvestorsand
themarkets.Whetherthesourceoftheobligationisthefederalsecuritieslawsorthefiduciarydutythat

isowedtoshareholders,theresultingcandorandfairdealingshouldbefundamentallythesame.And
beyondanyspecificregulatoryrequirements,someoftheprinciplesthatcharacterizepubliccompanies
transparencywithinvestors,controlsonfinancialreporting,strongcorporategovernancehave
applicabilityandrelevancetoprivatecompanies,especiallythosepreIPOcompaniesthataspiretogo
public,andshouldnotbeoverlookedoravoided,whetherornotmandatedbyfederallaworanSEC
regulation.
Forthenewandevolvingmarketstobesuccessful,allinvestorsneedconfidencethattheyarebeing
treatedfairlyandthatthefullrangeofrisksaretransparentlydisclosed.Wemustworktogetherto
ensurethatthisconfidenceiswellplaced,sothatinvestorsfeelcomfortableprovidingthecapital
essentialforbusinessdevelopmentandgrowth.Onlythencanwereapthefullrewardsofthecreativity,
genius,andinnovationforwhichthisValleyisfamous.
TheChallengesofPreIPOFinancing
AccuracyofCompanyInformation
LetmefirstfocusontheaccuracyofdisclosuresmadebypreIPOcompanies.Itisundisputedthat
ventureinvestingisnotforthefaintofheart.ThereiscertainlynothingnovelinthisValleyaboutpre
revenuestartupsattractingmillionsofdollars,alsooftenmuchless,fromangels,traditionalVCfirms,
andmorerecently,privateequityfirms,alllookingtoaddtotheirportfoliosthatmoonshot,onceina
fundinvestmentopportunity.Theinvestorsaresophisticatedandgenerallyunderstandwellthe
parametersoftheprivatesecuritiesmarketstheyareawarethatmostoftheirinvestmentswillfail.
Whilethecommonrefrainisthat9outof10startupsfail,[5]anequallyinterestingstatisticfromone
postmortemanalysisisthat70percentoffailedstartupsdiewithin20monthsaftertheirlastfinancing,
havingraisedanaverageof$11million.[6]Inotherwords,notonlyaretheseinvestmentshighlyrisky,
theyfailquicklytoo.
Fromasecuritieslawperspective,thetheorybehindtheprivatemarketsisthatsophisticatedinvestors
donotneedtheprotectionsofferedbytherobustmandatorydisclosureprovisionsofthe1933Securities
Act.[7]So,ifthoseparticipantschoosewitheyeswideopentoinvestinprivatecompaniesat
valuationsthatmaybeetherealoroverinflated,wholoseswhenthetruthbehindinflatedvaluationsis
revealed?Ithinkwealldo.NotjusttheVCandprivateequityfunds,butalsosmallerretailinvestors
andthenextStanfordstudentwhosegreatideaneedsfunding,butinvestorsareunwillingtotakeabet
onherbecausetheywereburnedlasttime.TobetterunderstandwhatImean,weneedtolookmore
closelyathowthesedealsaredoneandstructured,aswellasthedownstreameffectsonothermarket
participants.
AcurrentfeatureofthepreIPOfinancingmarketthatputsthesequestionsinsharp(andlocal)reliefis
onethathasgatheredconsiderableattentionrecentlyunicorns.Ofcourse,thisaudienceknowsthatI
amspeakingnotofthecreaturesoffantasy,butofprivatestartupfirmswithvaluationsthatexceed$1

billion.Byonecount,therearenearly150unicornsworldwide,manybasedhereinSiliconValley.[8]
And,theydonotappeartobeanendangeredspecies.Onesurveyshowsthattherewere52unicorn
financingsinthelastthreequartersof2015comparedto37suchfinancingsoverthe12monthsthat
endedinMarch2015.[9]
Beyondthehypeandtheheadlines,ourcollectivechallengeistolookpasttheeyepoppingvaluations
andcarefullyexaminetheimplicationsofthistrendforinvestors,includingemployeesofthese
companies,whoaretypicallypaid,inpart,instockandoptions.TheseareareasofconcernfortheSEC
and,Ihope,animportantfocusforentrepreneurs,theiradvisers,aswellasinvestors.
AttheSEC,thequestionsweareaskingdonotfundamentallydifferfromthequestionsweaskaboutall
transactions.Theyincludewhethertheinformationsuppliedtoinvestorsisaccurateandcompletethat
is,whetheritaccuratelyreflectstheperformanceandprospectsofthecompany.Makingsurethatisso
becomesmorecompellingwhenthetransactionsaresmallerandtheinvestorsaremoreretail.And,for
thoseinvolvedinadvising,investingandnurturingunicorns,thereisanimportantrelatedquestionhow
do$1billionvaluationsaffectalloftherelevantinvestorsboththoseinvestingintheunicornround,
andthosethatcamebeforeandafter,whetherinprivateorpublictransactions.
Itisaxiomaticthatallprivateandpublicsecuritiestransactions,nomatterthesophisticationofthe
parties,mustbefreefromfraud.ExchangeActSection10(b)andRule10b5applytoallcompanies
andwemustbevigorousinferretingoutandpunishingwrongdoerswherevertheyoperate.Inthe
unicorncontext,thereisaworrythatthetailmaywagthehorn,sotospeak,onvaluationdisclosures.
Theconcerniswhethertheprestigeassociatedwithreachingaskyhighvaluationfastdrivescompanies
totrytoappearmorevaluablethantheyactuallyare.[10]
Nearlyallventurevaluationsarehighlysubjective.But,onemustwonderwhetherthepublicityand
pressuretoachievetheunicornbenchmarkisanalogoustothatfeltbypubliccompaniestomeet
projectionstheymaketothemarketwiththeattendantriskoffinancialreportingproblems.[11]And,yes
thatremainsaproblem.Wecontinuetoseeinstancesofpubliccompaniesandtheirseniorexecutives
manipulatingtheiraccountingtomeetvariousexpectationsandprojections.[12]
AsIwilldiscuss,theriskofdistortionandinaccuracyisamplifiedbecausestartupcompanies,even
quitematureones,oftenhavefarlessrobustinternalcontrolsandgovernanceproceduresthanmost
publiccompanies.Vigilancebyprivatecompaniesabouttheaccuracyoftheirfinancialresultsandother
disclosuresisthusespeciallycritical.
TheChallengesofNewModelsofCapitalFormation
Whilewehaveoureyeonunicorns,becauseoftheiroutsizedimpactonourmarketsandinvestors,our
primaryfocusisobviouslymuchbroader.OnekeyandcurrentareaoffocusforusattheSECisonthe
threenewmethodsthathaverecentlybeencreatedbyourrulesforcapitalraisingundertheJOBSAct
Rule506(c)ofRegulationD(permittinggeneralsolicitation),RegulationA+andRegulation

Crowdfunding.Inonewayoranother,allthreearedesignedtofosternewwaysforsmallercompanies
toaccessthecapitalmarkets,andwemustensurethattheinvestorprotectionsincludedaspartofthese
newstructuresworkasintendedtofostercapitalformationinatransparent,safeandefficientway.
Incontrasttotheinstitutionalinvestorsthathavetypicallybeeninvolvedinthecapitalraisingthathas
createdunicorns,thesecapitalformationtoolscanbeusedto,andincertaincasesareexpectedto,
raisemoneyfromretailinvestors.So,itshouldcomeasnosurprisethatwearecloselylookingatnot
onlyhowwellthesetoolsareworkingforcompaniesseekingtoraisecapital,butalsohowwelltheyare
protectinginvestors.
Asanintegralpartoftheimplementationofeachoneofthesenewtools,Ihavedrawnontheexpertise
ofthestaffacrosstheagencyandengagedtheminaprogramthatactivelymonitorsthevolumeofsuch
transactions,developingindustrypractices,howtheimplementingrulesareworking,andanyinstances
offraudorotherruleviolations.Ihavediscussedbeforewhatthesestaffinitiativeshavefoundfor
generalsolicitationandRegulationA+.[13]Tonight,Iwilljusttouchonsomeofourthinkingonthethird
offeringtooloftheJOBSActcrowdfundingwhichweadoptedlastfallandbecomeseffectiveinMay.
CrowdfundingPortalsastheNewGatekeepers
Crowdfundingisanevolvingmethodofraisingcapitalthathasbeenusedtoraisefundsthroughthe
Internetforalmostanyprojectthatcangarnersufficientinterest.Beforeourregulation,individualswho
contributedmoneytosuchventureswereessentiallyjustcontributingtotheprojecttheywere
rewardedwithafirstofitskindproduct,amemento,or,insomecases,justthesatisfactionthatcomes
frombeingpartofaworthyventure.Buttheywerenotinvestorstheycouldnotshareinthefinancial
returnsoftheenterprise.
RegulationCrowdfundingwillallowretailinvestorstoacquiresmallequitystakesinnewcompanies.[14]
Significantexcitementsurroundstheuseofsecuritiesbasedcrowdfunding,whichwehopewillfuelthe
developmentofavibrantmarket.Itisimportant,however,forthisexcitementnottobeshortsightedby
failingtokeeptheinterestsofinvestorsparamount,whichcouldquicklydeliveraverydamagingblowto
thesuccessofcrowdfunding.
Ourregulatoryregimeisdesignedtostreamlinecapitalformationwhilestillprovidingrobustinvestor
protection.Importantly,therulerequirescrowdfundingtobeconductedbyaregisteredbrokerora
fundingportal,anewtypeofSECregistrantwithanimportantroleasanintermediarybetweenthose
seekingcapitalandinvestors.EntrepreneurshereinSiliconValleyhavedevelopedmanyofthese
fundingportals.
Thefundingportalswereestablishedwiththeprimarypurposetoserveasaclassicgatekeeperanditis
vitalthattheystronglyfunctionassuch.AswithgeneralsolicitationandRegulationA+,inadditiontothe
strongregulatoryprotectionsbuiltintotherule,wewillcloselymonitorthefundingportalsthrough
rigorousinspectionsandexaminationsaswellasclosecoordinationwithFINRA.[15]Andtorepeat,we

arecountingonbrokersandfundingportalstobebulwarksofinvestorprotectioninthisspace,andwe
willholdthemtothatresponsibility.
SecondaryMarketTrading
Anothersetofissuesthatwearefocusedonintheprivatemarketsistheeffectofvaluationson
secondarymarketparticipants.InthelastwaveoftechnologyfocusedIPOs,asecondarymarketwas
created,beforetheIPOs,byearlystageemployeesthatenabledthemtoselltheirstocktooutside
investors.Thatmarketunfortunatelyhadsomeproblemsfromunregisteredbrokerdealeractivityto
conflictsofinterestandundisclosedcompensation,tofraudulentoffersofpooledinvestmentvehicles
thatpurportedtoholdpreIPOstock.[16]Theseissuesstemmed,inpart,fromthefactthatsecondary
marketinvestorsdidnothaveaccesstoaccurateinformationconcerningthevalueofthecompaniesin
whichtheywereinvesting,directlyorindirectly.[17]
Careshouldbetakentoavoidtheseissuesinthenewsecondarymarketthatisemerging,structured
largelyaroundderivativecontractsandothernovelwaystocapturetheeconomicinterestinapreIPO
companywithoutactuallytransactinginitsstock.[18]Dependingonthestructureofthesederivative
deals,errorsormisconceptionsinvaluationcouldbeamplifiedwhetherthroughleverageorsimply
contractsbuiltonfaultyvaluations.[19]
Thesesecondarymarketsalsoraiseotherissues.Aprimaryconcerniswhethertheyhave,orwillhave,
sufficientliquiditytoallowinvestorstotradeoutoftheirpositionsandthattheyaretransparentasto
whatthatliquidityactuallyis.Recognizingthatmanyparticipantsinthesecondarymarketmaybebuy
andholdinvestorsseekingexposuretolateroundpreIPOssotheycanprofitfromaneventualIPOor
acquisition,westillmustscrutinizetheseemergingplatformstoensuretheyprovideafunctioningmarket
thatoperateswithintheparametersdisclosedtoinvestors.Wemustalsolookcarefullyattheroleof
gatekeeperssuchasthefinancialadviserswhorecommendtheseinvestmentstotheirclients,andthe
potentialregistrationregimesthatmightapplytotheoperatorsofthesemarketplaces.[20]Again,weare
countingontheadviserstomakethosemarketsworkfairlyforinvestors,ensuringthattheyarewell
informedofthesignificantriskstheyaretaking.
TheChallengesofFinancialControlsandCorporateGovernance
AnotherareainwhichpreIPOcompanies,includingunicorns,presentrisksforinvestorscenterson
financialcontrolsandcorporategovernance.Asmanycompaniesarechoosingtostayprivatelonger,
SiliconValleyhasbecomehometomanyprivatecompanieswithvaluationsthatexceedmanylisted
onesthatinanothertimewouldbepubliclytraded.[21]So,thisisanissueforyou.
TheoriesaboutthecurrentslowdowninIPOsandwhyunicornsarestayingprivatelonger,whilean
importanttopic,arebeyondthescopeofmyremarkstonight.Whateverthecause,thereareseveral
governanceimplicationsforthelongerpreIPOlifecycle.TheIPOprocessisnotjustaboutraising
capital.Apubliccompanycommitstoshedlightonitsoperationsandstrengthenitscontrolsand

governanceinwaysnotrequiredofprivatecompanies.Thesecuritieslawsandrelevantlisting
standards,forexample,requireacompanytoformanauditcommitteeitmustestablishdisclosure
controlsandproceduresandcreateinternalcontrolsoverfinancialreportingtheCEOandCFOmust
certifytotheadequacyofthosecontrolsandthecompanymustbeauditedbyaPCAOBregisteredfirm.
Thisframeworkservesimportantinvestorandmarketprotectionfunctions,includingfacilitatingaboards
attentiontofulfillingitsfiduciarydutytoshareholders.Particularlyasacompanygrowsinoperations,
revenue,andscale,withoutadequatepreparationandcleareyedattentiontotheinterestsofinvestors,
includingemployees,directorsunschooledintheseareasmayfindthemselvesoverlookingcritical
aspectsoftheirdutyandcompanieswillfailtohavethecontrolsnecessarytoassureaccuratefinancial
statements.Whileinternalcontrolsoverfinancialreporting,andtheregulationsandcertifications
applicabletothem,donotapplytoprivatecompanies,allcompaniesshouldconsiderenhanced
structuresandcontrolsforconductingtheiroperations,especiallyinanticipationofgoingpublic.
Rapidlygrowingenterprisespresentsignificantrisksiftheappropriatecontrolstructureisnotinplace.
Timeandagain,wehaveseencompaniesgopublicandgrowatapacethatexceedstheircontrol
structure.Forexample,justlastmonth,theCommissionbroughtchargesagainstacompanyanda
formerexecutiveforinflatingfinancialresultstomeetprojectionsthatitwoulddoublerevenuesinitsfirst
yearasapubliccompany.[22]Because,inpart,ofinsufficientinternalcontrols,theexecutivewasable
todirecthissubordinatestoobtainfalsesalesandshippingdocumentsandintentionallyshipthewrong
producttobooksales.
Asthelatestbatchofstartupsmature,generaterevenue,achievesignificantvaluations,butstay
private,itisimportanttoassesswhethertheyarelikewisematuringtheirgovernancestructuresand
internalcontrolenvironmentstomatchtheirsizeandmarketimpact.Entrepreneursandtheiradvisers,
venturecapitalandprivateequityinvestors,andthosewhosevoicesareheardandlistenedtointhis
marketallhaveaninterestinthisissueandshouldbeaskingofstartups:Isyourboardexpandingfrom
foundersandventureseatstoincludeoutsiderswithlarger,andideallypublic,companyexperience?
Doyouhavetherightregulatoryandfinancialexpertiseonyourboardstoappropriatelymakedecisions
onbehalfofallinvestors?Doyouhavetherelevantexpertiseintheparticularindustryinwhichyour
companyfunctionstobringtobeardifferentviewpointsandspotcriticalissues?Isyourcompany,in
short,beingrunandgovernedforthebenefitofallofyourinvestorsarequirementwhetherthe
companyispublicorprivateanditistheresponsibilityofallmarketparticipantsandtheiradvisersto
ensurethatthisoverarchingobligationisbeingfulfilled.
TheChallengesofFintech
DevelopmentsofsignificanceintheSECsandSiliconValleysspaceextendwellbeyondthoseIhave
discussed.Timedoesnotpermitmetocoverthemall,butIwouldberemissifIendedmyremarks
withoutmentioningfintechdevelopments.Innovationsindigitalfinance,manyofwhichoriginatedin
SiliconValley,havethepotentialtotransformhowourmarketsoperateinvirtuallyeveryrespectfrom

streamlinedmarketoperationstomoreaffordablewaystoraisecapitalandadviseclients.These
innovationscompelustothinkcarefullyabouthowbesttoprotectinvestorssotheyandwecanhave
confidenceinthisgrowingandchanginglandscape.[23]Inmyclosingminutes,Iwilljustverybriefly
touchonthreedigitalfinancedevelopmentsthatareimpactingthesecuritiesindustryblockchain,
automatedinvestmentadvice,andmarketplacelending.
BlockchainandDistributedLedgers
Blockchaintechnologyhasthepotentialtomodernize,simplify,orevenpotentiallyreplace,current
tradingandclearingandsettlementoperations.Asyouknow,blockchainordistributedledgerisa
databasecomprisedofunchangeabletransactiondatainpackagescalledblockseachblockinthe
chainisarecordoftransactionsandcontainsinformationabouttheprevioustransactions.Weare
closelymonitoringtheproliferationofthistechnologyandalreadyaddressingitincertaincontexts.For
example,CorporationFinancestaffrecentlyreviewedtheregistrationstatementofacompanyseeking
toofferandselldigitalsecurities,eliminatingtheneedforintermediariesandallowingsettlementona
nearlyinstantaneousbasis.[24]
Onekeyregulatoryissueiswhetherblockchainapplicationsrequireregistrationunderexisting
Commissionregulatoryregimes,suchasthosefortransferagentsorclearingagencies.Weareactively
exploringtheseissuesandtheirimplications.OurAdvancedNoticeofProposedRulemakingand
ConceptReleaseontransferagentregulationsissuedlastDecember,forexample,askedforpublic
commentontheuseofblockchaintechnologybytransferagentsandhowsuchsystemsfitwithinfederal
securitiesregulations.[25]Theinsightfromthecommentprocesswillhelpusevaluatehowtobest
regulatethesenewinnovations,andweencouragecommentfromallconstituents.
RoboAdvisors
Anotherexpandingtechnologicaldevelopmentthathasourcloseattentionisautomatedinvestment
platforms.Thesesocalledroboadvisorsofferdiscretionaryassetmanagementservicesbasedon
algorithmsandprovideminimal,ifany,interactionbetweenadvisorypersonnelandinvestors.Many
offerorappeartoofferrelativelylowcostinvestmentadvice,oftenwithlowaccountminimums,which
hasthepositivepotentialtogiveretailinvestorsbroader,andmoreaffordable,accesstoourmarkets.
Likeallregisteredinvestmentadvisers,roboadvisorsmanagingover$100millioninassetsorotherwise
registeredwiththeCommissionaresubjecttotheInvestmentAdvisersActof1940.So,inthisarea,the
keyquestionsarefocusedonwhetherandhowafirmmeetsitsAdvisersActobligations,aswellasits
fiduciaryduties,whenitprovidesonlyorprimarilyautomatedadvice.
Providingfinancialadvisoryserviceselectronicallyisdifferentthanthetraditionaladvisermodel,butin
manyrespectsourassessmentofroboadvisorsisnodifferentthanforahumanbasedinvestment
adviser.Justlikeaconversationwitharealpersonaboutaclientsfinancialgoals,risktolerances,and
sophisticationmaybemoreorlessrobust,sotoothereisvariationinthecontentandflexibilityof

informationgatheredbyroboadvisorsbeforeadviceisgiven.Aspartofourefforttomonitoremerging
automatedinvestmentmodels,stafffromourNationalExamProgramareexaminingroboadvisors.
Throughtheseinspections,wedeepenourknowledgeoftherangeofservicesprovided,aswellasthe
challengesassociatedwithdifferentautomatedmodels.Itisalsoanonthegroundopportunityto
proactivelyconveytheneedfortheseentitiestooperatewithintheregulatoryframeworkoftheAdvisers
Act.
MarketplaceLending
Athirdareawearecloselymonitoringisthecontinuedgrowthofinvestmentsmadeviaonline
marketplacelendingplatforms.Thisactivitybroadlyreferstousinginvestmentcapitalanddatadriven
onlineplatformstolendeitherdirectlyorindirectlytosmallbusinessandconsumers.[26]
Asathresholdmatter,theSECevaluatestheseplatformsthroughthelensofthefederalsecuritieslaws
thatis,aretheyofferingsecuritiesand,iftheyare,aretheofferingsregisteredormadeusingan
exemption.Wearealsoconcernedabouttheadequacyoftheinformationreceivedbyinvestorsin
registeredofferings.Weexpectthatinvestorswillreceivedisclosuresabouttheloansunderlyingtheir
investments,includinginformationabouttheborrowersaswellastheplatformsproprietaryriskand
lendingmodels,thatwillenablethemtomakeinformedinvestmentdecisionsbothatthetimeof
investmentandonanongoingbasis.Asinvestorsareattractedbypotentiallyhigheryieldingbutriskier
marketplaceloansasaninvestmentstrategy,informationabouttheborrowersabilitytorepaytheloan
underlyingtheinvestmentiscritical.Innovationinfinanceiswelcome,butitmustbebuiltuponthe
disclosureofmaterialinformation,whichisthebedrockofthefederalsecuritieslaws.
Marketplacelendinghasimpactsbeyondinvestorsandthesecuritiesindustrytherearealsomany
consumerandbankingconsiderations.Thatiswhyweareengagedwithourfellowfinancialand
consumerprotectionregulators,includingtheDepartmentofTreasury,theFederalReserve,theCFPB,
OCC,FTC,andFDIC,todevelopabroaderunderstandingoftheonlinemarketplacelendingindustry,
andregulatoryinitiativesthatwouldenhanceinvestor,consumerandborrowerprotections.
Conclusion
TherearemanyothertopicsofmutualinterestthatIwouldliketodiscussthatourtimetogetherdoes
notallow.ButIhopethatIhaveconveyedtonighthowcloselytheSECismonitoringandrespondingto
developmentsintheprivatemarkets,aswellastherelevantfintechphenomena.We,ofcourse,
recognizethattheregulatoryscaffoldingaroundventurecompanyadvisersandprivateissuersis
considerablyscanterthanthatwhichframesregisteredinvestmentadvisersandpubliccompanies.And
itonlyincreasesthechallengefortheSECthatcompaniesareincreasinglychoosingprivatestatusfor
longer,nodoubt,inpart,becausetheybelieveitisthebestenvironmenttofosterthecreativity,rapid
cyclingofsuccessandfailures,andyes,disruptionthatistheoxygenoftechnologicalinnovation.
Wehaveakeeninterestinensuringthatalloftheapplicablerulesandregulationsarefollowedandthat

thepressuresthatshapethesemarketsdonotleadtofraudandharmtoinvestors.Andwewillprovide
theappropriateregulatoryoversighttoprotectinvestorssothattheycanhaveconfidenceincontinuing
tosupportthemarveloustechnologiesforwhichthisValleyisfamous.Youandyourclientsshareinthat
responsibilityandindeedareclosertotheactioninmanywaysandthusinapositiontouseastrong
investorprotectionlensofyourownasyougoaboutraisingmoney.AndIchallengeyoutomeetyour
responsibilitiestoinvestorswiththesamevigoryousearchforthenextnewunicorn.
AttheSEC,wewanttheexcitinginnovationsoftheValleyandtheexpandedwaysoffundingthemto
succeed.Workingtogether,weuptheoddsofbothsuccessforentrepreneursandissuersandthe
strongprotectionofinvestorsthatisultimatelyessentialtothesuccessofyourventures.
ThankyouforinvitingmetospeaktoyoutotonightandenjoywhatIknowwillbealivelyandirreverent
panel.
[1]ChairMaryJoWhite,AFewThingsDirectorsShouldKnowAbouttheSEC,remarksattheTwentieth
AnnualStanfordDirectorsCollege(Jun.23,2014),availableat
https://www.sec.gov/News/Speech/Detail/Speech/1370542148863.
[2]SeeEliminatingtheProhibitionAgainstGeneralSolicitationandGeneralAdvertisinginRule506and
Rule144AOfferings,ReleaseNo.339415(Jul.10,2013),availableat
http://www.sec.gov/rules/final/2013/339415.pdf.
[3]SeeCrowdfunding,ReleaseNo.339974(Oct.30,2015),availableat
http://www.sec.gov/rules/final/2015/339974.pdf.
[4]SeeAmendmentsforSmallandAdditionalIssuesExemptionsundertheSecuritiesAct(Regulation
A),ReleaseNo.339741(Mar.25,2015),availableathttp://www.sec.gov/rules/final/2015/339741.pdf.
[5]Seee.g.,ErinGriffith,Whystartupsfail,accordingtotheirfounders,Fortune(Sep.25,2014),
availableathttp://fortune.com/2014/09/25/whystartupsfailaccordingtotheirfounders/NeilPatel,
90%ofStartupsFail:HeresWhatYouNeedToKnowAboutThe10%,Forbes(Jan.16,2015),
availableathttp://www.forbes.com/sites/neilpatel/2015/01/16/90ofstartupswillfailhereswhatyou
needtoknowaboutthe10/#2c27f8af55e1.
[6]TheR.I.P.ReportStartupDeathTrends.CBInsights(Jan.18,2014),availableat
https://www.cbinsights.com/blog/startupdeathdata/.
[7]SeeRegulationDRevisionsExemptionforCertainEmployeeBenefitPlans,ReleaseNo.336683
(Jan.16,1987)[52FR3015]andReportontheReviewoftheDefinitionofAccreditedInvestor,p.2
(Dec.18,2015),availableathttp://www.sec.gov/corpfin/reportspubs/specialstudies/reviewdefinitionof
accreditedinvestor12182015.pdf.

[8]ScottAustin,ChrisCanipeandSarahSlobin,TheBillionDollarStartupClub,WallStreetJournal,
availableathttp://graphics.wsj.com/billiondollarclub/.
[9]SeeBarryJ.Kramer,KhangTranandNicoleHarper,TheTermsBehindUnicornValuations,Fenwick
&WestLLP(Dec.31,2015),availableathttps://www.fenwick.com/publications/pages/thetermsbehind
theunicornvaluationsasofdecember312015.aspx.
[10]SeeNickBilton,IsSiliconValleyinAnotherBubbleandWhatCouldBurstIt?,VanityFair(Sep.1,
2015)(WhenheaskedtheC.E.O.whyhehadvaluedhiscompanyat$1billion,hewastold,Weneed
tobeworthabilliondollarstobeabletorecruitnewengineers.Sowedecidedthatwasourvaluation.),
availableathttp://www.vanityfair.com/news/2015/08/issiliconvalleyinanotherbubble.
[11]Seee.g.,TheUnicornList,Fortune(rankedlistofunicorns),availableat
http://fortune.com/unicorns/UnicornLeaderboard,TechCrunch(rankedlistofcurrent,formerand
emergingunicorns),availableathttp://techcrunch.com/unicornleaderboard/.
[12]Seee.g.,PressRelease20167,SECCharges11BankOfficersandDirectorsWithFraud(Jan.13,
2016),availableathttps://www.sec.gov/news/pressrelease/20167.htmlPressRelease2015215,SEC
ChargesTrinityCapitalCorporationandFormerBankExecutivesWithAccountingFraud(Sept.28,
2015),availableathttp://www.sec.gov/news/pressrelease/2015215.htmlPressRelease2015180,SEC
ChargesBankrateandFormerExecutivesWithAccountingFraud(Sep.8,2015),availableat
https://www.sec.gov/news/pressrelease/2015180.htmlPressRelease2015111,SECChargesCSC
andFormerExecutivesWithAccountingFraud(June5,2015),availableat
https://www.sec.gov/news/pressrelease/2015111.htmlPressRelease201586,SECAnnouncesFraud
ChargesAgainstITTEducationalServices(May12,2015),availableat
https://www.sec.gov/news/pressrelease/201586.htmlPressRelease201524,SECChargesChicago
AreaAlternativeEnergyCompanyforAccountingandDisclosureViolations(Feb.5,2015),availableat
http://www.sec.gov/news/pressrelease/201524.htmlPressRelease201469,SECChargesCVSWith
MisleadingInvestorsandCommittingAccountingViolations(Apr.8,2014),availableat
https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541437806PressReleaseNo.
20144,SECChargesDiamondFoodsandTwoFormerExecutivesFollowingAccountingSchemeto
BoostEarningsGrowth(Jan.9,2014),availableat
https://www.sec.gov/News/PressRelease/Detail/PressRelease/1370540598296.
[13]ChairMaryJoWhite,BuildingaDynamicFrameworkforOfferingReform,KeynoteAddressatthe
FortySeventhAnnualSecuritiesRegulationInstitute(Oct.28,2015),availableat
https://www.sec.gov/news/speech/buildingdynamicframeworkforofferingreform.html.
[14]SeeCrowdfunding,ReleaseNo.339974(Oct.30,2015),available
athttp://www.sec.gov/rules/final/2015/339974.pdf.
[15]TheSECrecentlyapprovedtheFINRArulesprovidingforfundingportalrequirementsand

oversight.SeeNoticeofAmendmentNo.1andOrderGrantingAcceleratedApprovaltoaProposed
RuleChange,asmodifiedbyAmendmentNo.1,toAdopttheFundingPortalRulesandRelatedForms
andRule4518,ReleaseNo.3476970(Jan.22,2016),availableat
https://www.sec.gov/rules/sro/finra/2016/3476970.pdf.Althoughtheportalscannotbeginoperatinguntil
May,theyalreadyareapplyingtoregisterwiththeCommissionandbecomemembersofFINRA.
[16]Seee.g.,PressRelease201543,SECHaltsPonziLikeSchemebyPurportedVentureCapitalFund
ManagerinBuffalo(Feb.27,2015),availableathttps://www.sec.gov/news/pressrelease/201543.html
PressRelease201492,SECChargesCaliforniaBasedStockPromoterWithDefraudingInvestors
SeekingPreIPOFacebookandTwitterShares(Dec.23,2014),availableat
https://www.sec.gov/news/pressrelease/2014292.htmlPressRelease201344,SECChargesFinancier
withStealingInvestorFundsinPurportedOfferingsofPreIPOFacebookShares(Mar.19,2013),
availableathttps://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171513392Litigation
ReleaseNo.22343,SECv.AllenE.WeintraubandAWMSAcquisition,Inc.,d/b/aSterlingGlobal
Holdings,CaseNo.1121549CIVHuck/Bandstra(S.D.Fl.)(Apr.24,2012),availableat
https://www.sec.gov/litigation/litreleases/2012/lr22343.htmPressRelease201243,SECAnnounces
ChargesfromInvestigationofSecondarymarketTradingofPrivateCompanyShares(Mar.14,2012),
availableathttps://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171487740.
[17]SeeSusanPullianandTelisDemos,HowWallStreetMiddlemenHelpSiliconValleyEmployees
CashOut,WallStreetJournal(Mar.27,2015),availableathttp://www.wsj.com/articles/howwallstreet
middlemenhelpsiliconvalleyemployeescashinearly1427474284.
[18]SeeEquidateLaunchesASecondaryMarketForEarlyStartupEmployeesToSellShares,
TechCrunch(Jan.30,2014),availableathttp://techcrunch.com/2014/01/30/equidate/.
[19]PressRelease201657,SECHaltsFraudbyManagerofInvestmentsinPreIPOCompanies(Mar.
25,2016),availableathttps://www.sec.gov/news/pressrelease/201657.html.
[20]SeePressRelease2015123,SECAnnouncesEnforcementActionforIllegalOfferingofSecurity
BasedSwaps(Jun.17,2015),availableathttps://www.sec.gov/news/pressrelease/2015123.html.
[21]Bysomeestimates,Ubersvaluationisworthmorethan80%ofthecompaniesintheS&P500.See
JulieVerhage,UberisNowValuedHigherThan80%oftheCompaniesintheS&P500,Bloomberg
(Dec.3,2015),availableathttp://www.bloomberg.com/news/articles/20151203/uberslatestfunding
roundgivesitalargervaluationthan80percentofthesp500.SeealsoTelisDemos,TechStartups
FaceFreshPressureonValuations,WallStreetJournal(Jan.3,2016)(reportingthatonlyseventech
startupsvaluedatmorethan$1billionprivatelywentpublicin2015,whereasbyonecount,thereare
morethan140privatestartupsvaluedat$1billionormore),availableat
http://www.wsj.com/articles/techstartupsfacefreshpressureonvaluations1451817991.
[22]PressRelease201632,SECChargesBiopesticideCompanyandFormerExecutiveWith

AccountingFraud(Feb.17,2016),availableathttps://www.sec.gov/news/pressrelease/201632.html.
[23]SeeFintechfundinghitsalltimehighin2015,despitepullbackinQ4,KPMGandCBInsights
(March9,2016)(observingthatventurecapitalbackedfundingforfintechfinancereachedanalltime
highin2015),availableathttps://home.kpmg.com/xx/en/home/media/pressreleases/2016/03/kpmg
andcbinsights.html.
[24]SeeOverstock.com,Inc.FormS3RegistrationStatement,FileNo.333203607,effectiveon
December9,2015,availableat
http://www.sec.gov/Archives/edgar/data/1130713/999999999515003225/xslEFFECTX01/primary_doc.x
ml.
[25]SeeTransferAgentRegulations,ReleaseNo.3476743(Dec.22,2015),availableat
https://www.sec.gov/rules/concept/2015/3476743.pdf.
[26]SeeDepartmentofTreasury,PublicInputonExpandingAccesstoCreditthroughOnline
MarketplaceLending,80F.R.42866(Jul.20,2015),availableat
https://www.treasury.gov/connect/blog/Documents/RFI%20Online%20Marketplace%20Lending.pdf.
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Modified:March31,2016