Facebook ran into this problem. It stayed private for so long, and raised money from so many investors, that it pierced the 500-investor maximum rule...or at least got very close to hitting it. As a result, it encouraged aggregation, i.e. existing investors were encouraged to buy out smaller investors. At over 500 investors, a company is required by the SEC to, more or less, behave—and file—like it's a publicly traded company subject to all of the regulatory pains that go with it. Endless filings. Armies of lawyers and compliance officer stuff. Blech. Having over $10 million in assets is another hurdle companies jump to, and then require the filing garroting, with all efforts having to be fully filed within 120 days of the end of that company's fiscal year. Ouch.

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Finance: What is Reg G?5 Views

00:00

Finance a la shmoop what is reg G? wasn't he one of the Archies friends and

00:09

maybe that was Reggie..... okay so reg G or Regulation G is all

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about disclosure largely as it relates to relationships that banks holding [Dollar notes appear]

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companies and savings and loans have with NGOs or nongovernmental

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organizations or institutions well the key driver of reg G revolves [Man picks up folder of reg G]

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around the opacity of bank filings as they relate to risk and exposure in

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volatile times the obvious backdrop here was the mortgage crisis of 08/09

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with a goal of having that you know never happen again part of the issue was

00:42

that a number of the banking terms were so complex that there wasn't a [Stack of banking term documents appear]

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pre-existing GAAP or generally accepted accounting principle measure for a way to even

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talk about things so complex as banking derivatives risk what does that mean?

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well Bank A is hedging its mortgage exposure because it believes that

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housing starts are a good proxy for the health of the economy so they get an

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investment bank to create a liquid index against which they can be short or long

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with leverage and with derivatives believing that these hedges will in fact [Hedges attach to frankenstein monster]

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give them life under dire situations like that mortgage crisis well in fact

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many of these hedges became so complex and relied on non-GAAP terms like EBITDA

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which is not a GAAP term where clever accountants can more or less make up [Accountaint appears at yummy fudge inc]

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whatever they want the numbers to be such that Regulation G now put the

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burden of clear disclosure on the affecting bank or institution and that's

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a big deal because even the experts even the top top experts when the banking

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crisis you know hit the fan well even they couldn't explain the derivatives [Banking expert throws paper away]

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behind the theoretical hedges the banks were using and while this country almost

01:50

went bankrupt in the process all right so the basic idea is that if there was

01:53

ever a problem the judge about to put management in jail didn't need a PhD in [Certificate of accounting PhD torn up]

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accounting to figure out or be able to trace the logic of whatever filings were

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made and whatever derivative and hedging and all the other crapola that the banks

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did to hide that they were trying to find clever accounting ways to make

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money rather than the old-fashioned way of just selling

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good mortgages to honest people who actually pay off the debts they promise

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to pay so when you think reg G think gee whiz I actually understand what the hell [Reggie discussing Reg G]

02:23

these banks are talking about

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Reg A is an exemption for the sale of securities. We wonder if it has any sweet steel drums in the background.

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A liquid market is a market featuring high trading volumes, i.e. investors actually want to put their cash to work.

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What are pink sheets? And can we bleach them to make them white again?

Finance: What is Reg T?
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Find other enlightening terms in Shmoop Finance Genius Bar(f)