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SEC Rules for Venture Capital?

Treasury Secretary Tim Geithner says that large venture capital firms present significant "systemic risk" to the economy and so should be forced into the SEC's registration regime and all the muck that comes with it--including massive civil litigation risk.

But as James Freeman points out in today's Journal, VC couldn't possibly pose any "threat to financial stability"--the entire industry amounts to about $30 billion per year, nearly all of that in equity from wealthy investors, with a small amount in secured debt.

The real danger is not that VC investment could lead to financial meltdown, but that tight regulation and legal risk (imagine if early-stage startups faced 10b-5-style liability) would choke off the supply of capital to high-tech entrepreneurs.

A cynic might wonder whether that is the intended result. If VC collapses, the case for "strategic" government investments in young sectors--that is, industrial policy--looks all the more attractive.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.