Fascinating hearing Thursday at the SEC, a discussion of whether easing private capital formation as a matter of regulatory law had the consequence of unfairly excluding the “retail customer” from access to great investment deals.

Trends: drop in IPOs, 2018 private capital raises were twice IPO proceeds; Jobs Act changed registration requirements under the ’34 Act allowing large widely held companies to remain private just about forever, with no public information available; retail customers cannot participate in private capital raises unless they are both “accredited” (a modest definition of wealth) and connected enough to get private deal access.

At the hearing, the sub-text was: is it wise, or unfair, to exclude the retail investor from the deals where most of the US growth capital is being invested?

The hearing reveals the pendulum of thinking on this issue. For some time, it was thought that retail investors were too poor or too dumb to invest in innovative companies, so the regulations excluded them and liberalized the rules allowing rich sophisticated investors or robust funds or strategics to make those investments with minimum regulation and disclosure (even barring State regulators from over-riding the Federal policy). Guess what: it worked. Retail investors were boxed out and “smart money” flowed to private deals.

This offended one’s sense of democracy–why do only the rich get in on the great deals (ignoring the statistics that indicate that very many private deals are really bad investments for those without great financial resiliance)? Not surprisingly, AOC was asking questions at this hearing.

Many speakers thus urged opening the rules to permit retail investors access into private deals. But this is of course contrary to a fundamental historical SEC mission, which was to not allow retail investors to invest in high risk without there being protections and robust disclosure. If new regulations open private capital deals to retail investors, will that in turn drive the SEC to insist on protections, full disclosure, the panoply of inhibitors to capital formation that gave birth to private capital to begin with?

Stay tuned and look for deja vu all over again….