Just for Fun: Urgent Recommendation to the Securities & Exchange Commission (SEC): Enhanced Specificity for Use of Proceeds Disclosures

MEMORANDUM

FOR: The Honorable Chair, U.S. Securities and Exchange Commission

Director, Division of Corporation Finance

Director, Division of Enforcement

FROM: David Gross

DATE: April 4, 2025

SUBJECT: Urgent Recommendation: Enhanced Specificity for Use of Proceeds Disclosures

1. Purpose: This memorandum recommends immediate action (rulemaking or interpretive guidance) to prohibit public companies from using vague terms like “other general corporate purposes” as the primary descriptor for the intended use of capital raised via registered direct offerings, private placements, or shelf registrations.

2. Problem Statement & Background: Current Regulation S-K allows non-specific “general corporate purposes” disclosures. This flexibility is being exploited, contributing to significant retail investor harm. We’ve observed a troubling pattern, particularly acute during the Biden administration, where companies, especially in FDA-regulated sectors like biotech (e.g., Lucira Health, Cue Health) and other industries (e.g., Applied UV, Virgin Orbit, Rockley Photonics, Pacific Coast Oil Trust), raise substantial funds citing vague purposes shortly before collapsing into bankruptcy. This frequently results in devastating losses for individual investors (often $50,000+), while employees lose jobs.

The capital raised often vanishes without achieving stated operational goals, raising serious questions about disclosure adequacy. This pattern suggests funds may be significantly misdirected from productive use.

3. Systemic Concerns: Investor protection is further undermined by perceived systemic issues. Concerns include:

* Accountability hurdles involving service of process challenges, potentially shielding decision- makers.

* Insufficient scrutiny by US Trustees in bankruptcy regarding potential pre-filing mismanagement.

* Abuse of anonymity provisions in states like Delaware and Nevada, obscuring fund flows.

* A disturbing disparity where insiders (executives/board members) appear to profit while investors and workers suffer total losses.

4. Proposed Action: The Commission must mandate greater specificity. Require companies to provide a detailed breakdown of intended fund uses in offering documents, allocating amounts or ranges to distinct categories (e.g., R&D, clinical trials, specific capital expenditures, sales/marketing, debt repayment, defined working capital needs). While a small contingency allocation may be acceptable, vague blanket statements must be disallowed as the primary descriptor.

5. Rationale & Conclusion: This change is vital for investor protection, market integrity, and accountability. Vague disclosures facilitate capital raises under potentially misleading pretenses, contributing to market failures where insiders benefit at the expense of retail investors and employees. Mandating specific use-of-proceeds disclosures is a critical step to restore transparency and confidence. We urge swift Commission action.