By Pam Martens and Russ Martens: March 22, 2021 ~

At both the March 9 Senate Banking Committee and March 17 House Financial Services Committee hearings on the conflicts with Robinhood and Citadel in trading small investors’ shares in GameStop and other meme stocks, the same witness was called by the Republican side of the Committees. His name is Michael Piwowar.

In Piwowar’s opening statements to both Committees, he introduced himself as the Executive Director of the think tank, the Milken Institute, and a former Commissioner at the Securities and Exchange Commission. He apparently supplied this same information to the Chairs of both Committees because that is also how Senate Banking Chair Sherrod Brown and House Financial Services Chair Maxine Waters introduced Piwowar.

What was not disclosed for the public record at either hearing is the fact that Piwowar is also being paid as a Senior Advisor to a Wall Street trading firm called GTS. Wall Street On Parade verified that information with GTS. Piwowar has served as a Senior Advisor to GTS from March 2019 to the present, according to the company.

GTS is the majority owner of ClearList, which seeks to raise money for private companies. In January, the company received approval from the self-regulator, FINRA, to operate an alternative trading system (ATS) which the company said would pave the way “for ClearList to offer secondary trading in private company securities on its platform.”

And it just so happens that at both recent congressional hearings, Piwowar was pushing for the SEC to redefine its Accredited Investor definition to open the way for small investors to buy shares of private companies. This topic had nothing to do with the GameStop/Robinhood/Citadel issues around which the Committees had called the hearings, but Piwowar was determined to advance the topic.

In his written testimony to the House Financial Services Committee, Piwowar pushed this agenda as follows:

“The SEC’s accredited investor definition essentially divides the world of private company investors into two arbitrary categories of individuals — those persons who are accorded the privileged status of being an accredited investor and those who are not. In short, if you make $200,000 or more in annual income or have $1 million or more in net worth, then you are in the privileged class and could choose to invest in the full panoply of investments, whether public or private. If not, the SEC has decided that, for your protection, you are restricted access to invest in private companies…I challenge the SEC’s investor protection rationale for prohibiting non-accredited investors from investing in high-risk companies. ”

The rationale is actually found right at the bottom of a press release issued by ClearList. It reads as follows:

“ClearList warns that investments in private, unregistered securities involves a high level of risk and may not be suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk as well as the potential loss of your entire investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities, including on the ClearList Alternative Trading System. There is also no guarantee that any private placement will be publicly listed through a direct listing or Initial Public Offering. You should be aware that each investment also carries its own specific risks and that you should complete your own independent due diligence regarding the investment including obtaining additional information, opinions, financial projections, and legal or other investment advice.”

Piwowar is not the only person connected to GTS that is pushing to gut the SEC’s definition of Accredited Investor. In a November 1, 2019 opinion piece in Barron’s, Ari Rubenstein, the CEO of GTS and Chairman of ClearList, wrote the following:

“Due to federal securities laws passed in the 1930s, only institutions and wealthy individuals can invest in many of our country’s most exciting young companies. An individual must fall under the ‘accredited investor’ label to participate in most private-market securities offerings. This means having an annual income of at least $200,000 or a personal net worth of more than a million dollars.

“The Securities and Exchange Commission, which does a tremendous job policing our capital markets, has long believed that investors must be ‘financially sophisticated’ to participate in private offerings. While I fully agree that smaller investors should be protected from risky and opaque schemes, precluding them from investing in innovative companies at reasonable valuations perpetuates an undemocratic, two-tiered system.”

As Americans learned the hard way during the dot.com bust when hundreds of dodgy IPOs went belly up after Wall Street firms had pushed their initial public offerings (IPOs) to the public at the same time they were calling the companies “dogs” and “crap” in internal emails, there is already plenty of risk for the small investor in new stock issues.

During the dot.com mania, the Nasdaq reached a closing high of 5,048.62 on March 10, 2000. Nasdaq then proceeded to lose 78 percent of its value over the next 2-1/2 years. It reached a closing low of 1,114.11 on October 9, 2002.

One year into the crash, New York Times reporter Ron Chernow described the devastation like this on March 15, 2001:

“Let us be clear about the magnitude of the Nasdaq collapse. The tumble has been so steep and so bloody — close to $4 trillion in market value erased in one year — that it amounts to nearly four times the carnage recorded in the October 1987 crash.”

The Nasdaq was so discredited in the eyes of investors that it did not reset its March 2000 high until 15 years later. In fact, it remained 50 percent or more below that high until 2007.

The last thing America needs right now is more dodgy, improperly vetted companies further disfiguring the allocation of capital in this nation. What America needs are companies that have the ability to create good-paying jobs for its citizens and advance the competitive edge of America in global markets.

We’re not going to get there by allowing witnesses to testify before Congressional Committees without disclosing their raging conflicts of interest to the public.