Radley Balko talks about the latest fad in government abuse, Wildcatting. The theory at the SEC is that if one business has an accounting problem, then everyone in that industry should be investigated.

Radley talks about the direct costs born by the businesses, but there is a much more dangerous side effect. SEC regulations and investigations will eventually cause businesses to stop trading themselves on the open market. Instead of doing the Initial Public Offering companies will remain privately held and beyond the reach of most of the onerous SEC regulations, like Sarbanes-Oxley.

Having worked at both pre-IPO and post-IPO companies, the pre-IPO companies are the ones where the innovation happens. I’m firmly convinced that SEC quarterly reports are one of the reasons American businesses focus so much on short-term gain at the expense of long-term vision and growth.

Companies go public to provide an exit strategy for founders and investors. Put enough barriers in the way and other exit strategies will be found.

Instead of protecting the public from investment scams, the SEC will simply prevent most people from being able to invest at all.