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Securities Regulation

Commissioner Peirce Speaks on SEC’s “Secret Law”

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I would like to begin with the standard disclaimer plus an additional one that ties with the theme of this speech. The views I represent are my own and not necessarily those of the Commission or my fellow Commissioners. The supplemental disclaimer is that the views of the staff are not necessarily those of the Commission either.

My cousin recently reminded me of a well-known children’s book, The Secret Garden by Frances Hodgson Burnett. The book tells the story of a troubled, young girl who finds herself living with her widowed uncle and troubled cousin on an estate in the

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SEC’s Roisman on Encouraging Smaller Entrants to U.S. Capital Markets

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Good afternoon. Thank you to everyone who hurried back from lunch to hear me speak. The pressure is on for me to make it worth your while. I never imagined that I would be standing at this podium, but I am excited to be here. I recognize that many of you are here today to get insight into what we are focusing on at the Commission. I would like to take this opportunity to let you know what you can expect to hear from me in the coming year.

I will note here that my views and remarks are my

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SEC Chair Clayton Offers “MD&A” for the Agency

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Disclosure and the concepts of materiality, comparability, flexibility, efficiency and responsibility have been, and continue to be, the bedrock principles that make our public capital markets the most fair and efficient markets in the world. Today, I will take a page from our disclosure rulebook and give you a look at the Securities and Exchange Commission (“SEC”) through the “eyes of management,” similar to what public companies do in the “Management’s Discussion and Analysis,” or “MD&A” section of their SEC filings. In other words, I am going to be eating some of our own cooking.

First, some “cautionary” language:

  • the

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SEC Offers Framework for “Investment Contract” Analysis of Digital Assets

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If you are considering[1] an Initial Coin Offering, sometimes referred to as an “ICO,” or otherwise engaging in the offer, sale, or distribution of a digital asset,[2] you need to consider whether the U.S. federal securities laws apply.  A threshold issue is whether the digital asset is a “security” under those laws.[3]  The term “security” includes an “investment contract,” as well as other instruments such as stocks, bonds, and transferable shares.  A digital asset should be analyzed to determine whether it has the characteristics of any product that meets the definition of “security” under the federal securities

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SEC Chairman Clayton Talks Market Growth and Development

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Welcome to the SEC’s 29th Annual International Institute for Securities Market Growth and Development.[1]

Thank you for being our guests over the next two weeks.

It is our honor to host 186 delegates from 69 countries this year. I know that many of you traveled long distances to be with us today, and I am appreciative of your dedication and your desire to engage in a dialogue with your international counterparts.

During your time at the Institute, you will hear from the SEC’s experts on a wide variety of subject matters, and you will also receive presentations from

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Prof. Coffee Testifies on Insider Trading Legislation Before the House Financial Services Subcommittee on Investor Protection

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I am very happy and honored to be back before this committee. I have been asked to comment on several proposed bills, all of which I basically support, but I will focus my limited time today primarily on Congressman Himes’ Discussion Draft of an “Insider Trading Prohibition Act.” I want to commend Congressman Himes for having supervised the drafting of a very careful, balanced and sophisticated bill that should serve as a model for a long overdue effort to codify the law of insider trading. To date, the law of insider trading has been solely the product of judicial law-making, … Read more

Gibson Dunn on SEC Simplification of Disclosure Requirements

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On March 20, 2019, the Securities and Exchange Commission (the “SEC”) voted to adopt amendments (available here) to modernize and simplify disclosure requirements for public companies, investment advisers, and investment companies (the “Final Rules”).[1]  The amendments, which, among other things, will change the content of Management’s Discussion and Analysis (“MD&A”) and change the process for redacting confidential information in certain exhibits, are “intended to improve the readability and navigability of disclosure documents and discourage repetition and disclosure of immaterial information.”  The Final Rules are largely consistent with the proposed amendments outlined in the SEC’s October 11, 2017 proposing … Read more

SEC Chairman Delivers Remarks to the Commission’s Investor Advisory Committee

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Thank you, Anne (Sheehan). Good morning everyone. It’s good to see everyone again, particularly as the last time we all met in person was in December of last year. I was glad to be able to participate with Commissioner Roisman on a call with members of the Committee last month, where among other things we talked about human capital disclosures and proxy plumbing. My prepared remarks for that call—as well as Commissioner Roisman’s—are available on our website.

Turning to the agenda for today, I look forward to the discussion on the stock exchange regulatory structure, which is an important

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SEC Commissioner Jackson Discusses FAST Act Adopting Release

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I want to begin by conveying my thanks to the staff in the Division of Corporation Finance for their hard work in developing today’s adopting release. I am especially grateful to Charles Kwon and Dan Greenspan, as well as Director Bill Hinman, for the time you spent with me and my office throughout this process.

Following up on a detailed report our staff sent to Congress under the Fixing America’s Surface Transportation (FAST) Act,[1] the Securities and Exchange Commission today adopts a final rule on information investors receive about the increasingly complex companies in our markets.[2] The rule … Read more

Insider Trading and Executive Overreach

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The recent controversy over President Donald Trump’s use of his emergency authority to fund a wall on the U.S. southern border has awakened many Americans to the problem of executive overreach. Yet, what few may appreciate is that executive overreach can cause trouble in contexts far beyond immigration or border security. For example, consider U.S. securities regulation. Executive overreach was a major factor in creating confusion in the current U.S. laws against insider trading, and some reformers propose using new executive actions to correct the problem.

A recent op-ed by an SEC commissioner and a former U.S. attorney calls for … Read more

SEC’s Corporate Finance Director Discusses Disclosing Risks

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Today, I would like to discuss [1] how the U.S. securities disclosure requirements, which are largely principles-based, apply in areas where the disclosure topics may be complex, associated with uncertain risks and rapidly evolving. Sounds like Brexit might fit that description, and I don’t think I could come to London this week without spending some time discussing it. I realize that you all may be worn out on the subject, and the U.S. regulatory perspective on this topic may seem of secondary or tertiary interest to those of you living through these events. However, I would note that over half

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Prosecuting Securities Fraud Under Section 17(a)(2)

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Traditionally, securities fraud has been civilly enforced under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and criminally prosecuted under Section 32 of the Exchange Act. Recently, however, the SEC has increasingly asserted claims under Section 17(a)(2) of the Securities Act for conduct that sounds in securities fraud. Moreover, because violations of Section 17 are criminalized under Section 24 of the Securities Act, an increasing number of securities fraud prosecutions may be pursued under Section 17(a)(2). Yet, unlike the elements of securities fraud under Rule 10b-5, many of the elements of Section 17(a)(2) violations remain unsettled, and … Read more

SEC Commissioner Discusses the Proxy Process

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Today, I will talk about the proxy process. But, before I segue into any substance, this is a good time for me to provide my first standard disclaimer: My views and remarks are my own, and do not necessarily represent those of the SEC or other Commissioners.

Last year, Chairman Jay Clayton announced that the Commission would review the existing SEC rules that govern the proxy system.[1] The staff held a roundtable that raised many issues in this area and invited public comment prior to and following the event.[2] Recently, the Chairman asked me to take the … Read more

Short Selling and the New Market Manipulation

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Stock market manipulation has been around since shortly after stock markets were invented. Everyone is familiar with the methodology in the standard “pump and dump” scheme: False rumors are circulated, the stock is bid up by the manipulators, supply might be constrained, and, once the public’s appetite is aroused, the stock is dumped by the manipulators.

But the internet has changed all that. No need exists today for the boiler shop or its battery of phones or even carefully assembled lists of suckers. All that one needs today is to put one’s message (written under a pseudonym) on a blog … Read more

The Effect of SEC Comment Letters on M&A Outcomes

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Recent research on the effectiveness of the SEC’s filing review and comment letter process has focused almost exclusively on reviews of Forms 10-K and other periodic filings. Reviews of filings involving transactions such as mergers and acquisitions (M&A) have received little attention, even though (1) they are a top priority of the SEC and the executives and officers of the filing companies and (2) the SEC scrutinizes every transactional filing of this nature, in contrast to periodic filings, which are reviewed selectively. In our paper, SEC Comment Letters and M&A Outcomes, we examine the impact of one transaction-specific type … Read more

Equity Market Structure 2019: Looking Back and Moving Forward

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Chairman Clayton

Thank you, Dean Rapaccioli, for your kind introduction and for the invitation to Director Redfearn and me to speak about equity market structure.[1]

I’m delighted that my good friend Craig Phillips was able to take time to be here and lay the groundwork for our speech. Groundwork is the right word; and it extends well beyond today. Secretary Mnuchin, Craig and Craig’s team, with their four “core principles” reports on the state of our financial markets and suggested reforms,[2] produced the most thoughtful, citizen-focused pieces of work I’ve seen in the financial sector. The reports thoroughly

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SEC Commissioner Speaks to Council of Institutional Investors

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Thank you, Mary [Francis], for that kind introduction and for the opportunity to be here today. Before I begin, I will give my standard disclaimer. The comments I make today represent my own views and not necessarily those of the Commission or my fellow Commissioners.

I consider it a great honor to have some time with you here this morning.  You represent such an important group of participants in our markets with an aggregate of approximately $4 trillion dollars in member assets under management invested in the markets.[1] You bring remarkable sophistication and great wisdom to the job of

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Poison Pills and the 20 Percent Rule—a Dangerous Cocktail?

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Amidst the clamorous and wide-ranging debate over poison pills, few commentators have addressed whether these corporate defenses are consistent with NYSE’s and NASDAQ’s well-known prohibitions against large issuances absent shareholder approval (the “20 Percent Rule”). While poison pills are often assumed to qualify under the 20 Percent Rule’s public offering exception, current NASDAQ interpretative guidance regarding this exception casts doubt on that assumption. Thus, the triggering of a poison pill places a listed company at risk of noncompliance with the 20 Percent Rule and possible delisting. Because the U.S. Court of Appeals for the Second Circuit has recognized that a … Read more

Skadden Discusses BlackRock Win in One of Largest Mutual Fund Cases Ever

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Following an eight-day bench trial, Judge Freda L. Wolfson of the U.S. District Court for the District of New Jersey ruled in favor of certain subsidiaries of BlackRock, Inc. on $1.55 billion in claims brought under Section 36(b) of the Investment Company Act concerning two of BlackRock’s largest mutual funds.1 In re BlackRock Mut. Funds Adv. Fees Litig., No. 3:14-cv-01165-FLW-TJB. The court applied the Gartenberg standard, adopted by the U.S. Supreme Court in Jones v. Harris Associates L.P., 559 U.S. 335 (2010), and determined that the shareholder plaintiffs failed to demonstrate at trial that the fee charged … Read more

Shareholder Litigation Risk and Corporate Cash Policy

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Shareholder litigation is an important way for shareholders to affect corporate governance. Legal protection of shareholders can mitigate agency problems that arise from the separation of ownership and control. In particular, litigation enables shareholders to deter and find remedies for management self-dealing and moral hazard problems. However, shareholder litigation has its own limitations. It can impose substantial costs on firms, such as attorney fees and cash settlements. It can also undermine managers’ careers and discourage them from pursuing risky but potentially value-increasing projects, reduce investment efficiency, and lead to higher external financing costs and a loss of corporate reputation. The … Read more