Lawmakers Urge SEC to Overhaul IPOs

After Facebook's IPO mess, lawmakers get the ball rolling to possibly change the process.

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Looks like some good might come from Facebook's messy initial public offering.

A bipartisan group of lawmakers sent a letter to the Securities and Exchange Commission Chairman Mary Schapiro urging for a makeover of the IPO process'changes that would decrease the likelihood of smaller investors being unfairly punished, according to the Wall Street Journal.

The letter, written by Rep. Darrell Issa of the House Oversight and Government Reform Committee, read:

The Facebook IPO taught us that, at minimum, the IPO process suffers substantial flaws. In fact, it appears the entire IPO regulatory framework, based on an outdated Securities Act of 1933, fails to provide a market-based solution to IPO-pricing.

Issa also pointed out that, under the current system, underwriters can determine the price of an IPO, despite possible conflicts of interest.

His solution? Issa suggested amending the Securities Act of 1933 and stated that the United State's capital markets will grow weaker if "we continue to protect, over-regulate and coddle our financial institutions."

He called Google's IPO "fairer" and encouraged utilizing a "Dutch Auction" method to set IPO prices based on market demand.

Issa asked for a response with the requested information to be delivered no later than July 3.

Caitlin Berens writes about business innovation and entrepreneurs. Before Inc., she worked at Billboard, SELF, and Better Homes and Gardens. She attended Drake University, and lives in Brooklyn, New York. @CaitlinBerens