Crown image Columbia Law School

SEC Chair Talks Culture at the SEC and Financial Institutions

Thank you Bill [Dudley] for that kind introduction and for inviting me to speak today.[1] I’m planning to speak for fifteen or so minutes and to open the floor to questions.

I want to extend my congratulations to Bill Dudley on a very successful term. You are now a member of the long line of former leaders and perpetual culture carriers at the New York Fed. The respect for the New York Fed, among national and international regulators and, importantly, market participants of all stripes, is remarkable, but clearly well deserved. Congratulations are also in order for John Williams,

Read more

Financial Misreporting: Hiding in the Shadows or in Plain Sight?

It’s widely assumed that executives are less likely to inflate earnings at  high profile companies under a good deal of regulatory oversight. And yet it’s also widely known that managers in high profile companies have an incentive to overstate their company’s performance because of pressure from investors to meet or beat Wall Street estimates every quarter.

How should policymakers looking to curb accounting fraud reconcile these countervailing forces?

When it comes to embellishing corporate earnings, managers weigh the costs and benefits: mainly the probability and consequences of getting caught in an accounting scandal against the potential for a higher stock … Read more

SEC’s Jackson Calls for Curbing Executives’ Ability to Cash Out on Buybacks

Thank you so much, Neera [Tanden], for that very kind introduction. I’ve long admired all that you and everyone here at the Center for American Progress do to promote a progressive economic agenda. And I share your commitment to making sure our markets are safe and efficient—and fair for all Americans. So it’s a real honor to be with you here today.[1]

I also want to thank my friend Andy Green, who in addition to being Managing Director of Economic Policy here at CAP, has been a critical source of wisdom for me since my swearing in at the

Read more

SEC Chief Accountant Talks Financial Reporting and Innovation

Thank you, Robert [Hodgkinson] for the kind introduction. Thank you, also, to the Institute of Chartered Accountants in England and Wales (“ICAEW”) for sponsoring this event. I am delighted to be in London and with you this afternoon. London continues to be recognized as one of the world’s leading international financial centers, along with New York and other highly globally connected cities. Whether in London or New York or my childhood town of Chambersburg, Pennsylvania, people in every walk of life are affected by financial reporting, the cornerstone on which our process of capital allocation is built.

An effective capital … Read more

Financial Enforcement Actions and the Role of Whistleblowers

In our recent paper, we investigate the association between employee whistleblowers and outcomes of financial misrepresentation enforcement actions by the Securities and Exchange Commission (SEC) and Department of Justice (DOJ).  We examine SEC and DOJ enforcement actions for financial misrepresentation since the passage of the Sarbanes-Oxley Act of 2002 and study whether whistleblower involvement in regulatory enforcement is related to more severe (1) financial penalties levied against misrepresentation firms, (2) monetary penalties assessed against executives associated with the misconduct, or (3) prison sentences of employee respondents. We also explore the relation between whistleblowers and penalties imposed on third‐party respondents (e.g., … Read more

Post-Earnings Announcement Drift and Corporate Insider Trading

Post-earnings announcement drift (PEAD) is a well-documented and puzzlingly persistent market anomaly. Companies that report earnings higher than expected typically experience an upward drift in their stock prices while those that report earnings below what was anticipated see a downward drift.

In a recent paper, we offer a new explanation for this anomaly based on the trading behavior of corporate executives and directors in the days after an earnings announcement. We distinguish between contrarian and confirmatory corporate insider trades after the earnings announcement. Contrarian trades occur in the opposite direction to the response of share prices after a surprise in … Read more

Latham & Watkins Discusses New SEC Guidance on Cybersecurity

With so much boardroom attention on cybersecurity, directors continue to focus on the Securities and Exchange Commission (SEC) guidance issued earlier this year and its implications. The guidance adds specific expectations for disclosure controls and incident response procedures, and reiterates prior guidance on disclosure of material cybersecurity risks and incidents.

Here are five steps for companies to consider in response to the SEC guidance.

1. Disclose the board’s role in managing cybersecurity risk

The SEC expects public company boards to sharpen their attention on the “increasingly important area” of cybersecurity risk, and expects to see evidence of that in companies’ … Read more

Sense and Nonsense About Securities Litigation

In a forthcoming article, I contend that Professor James Spindler has it wrong in his recent critique[1] of scholarly opposition to securities fraud class actions (SFCAs).  Spindler argues that the opposition is based on two mistaken ideas: (1) that compensation for securities fraud is impossible because recovery against the issuer means that defrauded buyers effectively pay themselves (the circularity critique) and (2) that most investors are diversified and thus suffer no real harm from securities fraud since buy-side losses wash out from sell-side gains on average and over time (the diversification critique).

Spindler purports to refute both of these … Read more

The Irrepressible Myth That SEC Overregulation Has Chilled IPOs

The following is an abbreviated version of Professor Coffee’s May 23 testimony before the House Financial Services Committee’s Subcommittee on Capital Markets, Securities, and Investments.  The deleted portions of his testimony relate to the specific content of proposed bills to extend and supplement the JOBS Act.

Chairman Huizenga, Ranking Member Maloney, and Fellow Members of the Committee:

I. Introduction

I thank you for inviting me.  I have been asked to comment on 11 proposed bills, all of which seem to have a common source: a 2018 Report entitled, “Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public,” … Read more

Making a Market for Corporate Disclosure

Public-company information has great social value. However, it is widely thought that left to their own devices, firms will under-disclose information about their condition and prospects. This thinking is embodied in the mandatory-disclosure regime that sits at the foundation of modern securities law. But government-compelled disclosure in this area—including piecemeal additions to the disclosure regime based on the latest Washington fad—leaves much to be desired.

In our recent article, Making a Market for Corporate Disclosure, we argue that the under-disclosure concern could be addressed in a far broader way by constructing a well-regulated market for tiered access to corporate … Read more

Arnold & Porter Discusses Ninth Circuit Ruling on Section 14(e) of Exchange Act

On April 20, 2018, the Court of Appeals for the Ninth Circuit held in Varjabedian v. Emulex Corp. that a violation of Section 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(e) (Exchange Act), which governs tender offers, requires a showing of negligence, not scienter.[1]  In so holding, the Ninth Circuit departs from five other Circuit Courts—the Second, Third, Fifth, Sixth, and Eleventh Circuits—that have held that Section 14(e) claims require proof of scienter (the intent to defraud).


In February 2015, Emulex Corp. (Emulex) and Avago Technologies Wireless Manufacturing, Inc. (Avago) announced that they had … Read more

Gibson Dunn Discusses SIFMA Report on Helping More Companies Go and Stay Public

On April 27, 2018, the Securities Industry and Financial Markets Association (“SIFMA”), the leading industry group representing broker-dealers, banks and asset managers, along with other securities industry related groups, released a report called “Expanding the On-Ramp: Recommendations to Help More Companies Go and Stay Public” (the “Report”).[1]  In response to the decline in the number of IPOs and the number of public companies generally in the United States over the last twenty years, the Report provides recommendations aimed at reducing perceived impediments to becoming and remaining a public company.

As the Report notes, the United States is now home … Read more

Paul Weiss Discusses Roadmap of Non-GAAP Financial Measures for Audit Committees

On March 16, 2018, the Center for Audit Quality (the “CAQ”) published Non-GAAP Financial Measures: A Roadmap for Audit Committees[1] (the “Roadmap”) to provide guidance to audit committees on advancing their oversight and involvement with non-GAAP financial measures. The Roadmap summarizes the common themes on the presentation and use of non-GAAP financial measures that emerged from a series of roundtable discussions held by the CAQ in 2017 and attended by a variety of stakeholders, including audit committee members, management, investors, securities lawyers and public company auditors.  The CAQ hopes that the Roadmap will prove useful for audit committees and … Read more

An Unasserted Lesson of the SEC’s Yahoo Cyberbreach Enforcement Action

Much has been written about the Securities and Exchange Commission’s enforcement action involving Yahoo’s failure to adequately disclose a cyberbreach.[1]  I am writing about something that the SEC’s announcement and order did not address and therefore has not been written about.

On April 24, 2018, the SEC announced a settlement with Altaba Inc., formerly Yahoo! Inc., under which Altaba agreed to pay $35 million and take certain remedial actions to resolve claims that Yahoo violated federal securities law by waiting until September 2016 to make disclosures about a 2014 data breach of its user database.[2]  The SEC’s announcement … Read more

Enforcement Co-Chief Offers Tips on Meeting with the SEC

I’m delighted to be here today among so many friends and colleagues, and I extend my thanks to the New York City Bar for hosting this important event. Because New York plays such a pivotal role in our financial system, members of the New York City Bar have long taken a leading role in many of the most significant securities and white collar matters. And the City Bar has been a key forum for education and dialogue about these important issues. I am honored to join today’s distinguished group of speakers, panelists, and attendees.

This afternoon, I would like to … Read more

Accusers as Adjudicators in Agency Enforcement Proceedings

Largely because of the U.S. Supreme Court’s 1975 decision in Withrow v. Larkin, the accepted view for decades has been that a federal administrative agency does not violate the Due Process Clause by combining the functions of investigating, charging, and then resolving allegations that a person violated the law.  Many federal agencies have this structure, such as the Securities and Exchange Commission and the Federal Trade Commission.

In 2016, the Supreme Court decided Williams v. Pennsylvania, a judicial disqualification case that, without addressing administrative agencies, nonetheless raises a substantial question about one aspect of the combination of functions … Read more

The Influence of Cross-Border Cooperation on Equity Market Liquidity

In a recent post on this blog, I described how IOSCO’s Multilateral Memorandum of Understanding (MMoU)—an arrangement intended to facilitate cooperation among regulators—improved cross-border enforcement of securities laws. In this post, I summarize a follow-up study showing that this enhanced enforcement significantly increased capital market liquidity by roughly 7 to 13 percent for domestic shares unaffiliated with foreign markets. The study also shows an even greater improvement for shares listed on markets outside an issuer’s home country. Cross-border enforcement is most important in these situations that involve multiple markets, regulators, and jurisdictions, and so it is not surprising that such … Read more

Legal Insider Trading in Europe Makes the Case for Enforcement

Evidence about the relative importance of private and public enforcement of securities laws for financial markets is inconclusive. The recently introduced Market Abuse Directive (MAD) (2003/6/EC) sets a European Union (EU) standard for regulation of insider dealing and market manipulation. Under Article 18 of the MAD, EU member states had to implement by October 12, 2004, local regulations that require the disclosure of corporate insider trading. The regulation represents a unique natural experiment that was introduced not in response to a specific case but as a mandate (exogenously) to EU countries (and Switzerland) simultaneously. This experiment allows us to examine … Read more

SEC Chair Clayton Talks Retail Investment Services and Forward-Looking Regulation

It is wonderful to be in Philadelphia.

It is wonderful to be at Temple University. It is very kind of Temple to host this event. I will speak for about 30 minutes and then take questions.[1]

Before I move to today’s topic — the relationship between Main Street investors and investment professionals — I ask for your indulgence because I want to elaborate on Pennsylvania, Philadelphia and Temple University.

Pennsylvania is my home state.[2] My brothers and I were fortunate to experience much of the best of Pennsylvania growing up.   Through the sixth grade, we lived in what … Read more

SEC Investment-Management Director Talks Conduct Standards and Liquidity Risk

I am going to touch on two areas of work that reflect our efforts to be a responsive regulator that seeks engagement from all as we develop regulatory policies: the standards of conduct for investment professionals and liquidity risk management.

Before I dive in, let me pause for the disclaimer. I am speaking today only for myself and not for the Commission, the Commissioners or the staff.[2]

Standards of Conduct for Investment Professionals

The Commission recently proposed for public comment a significant rulemaking package on the standards of conduct for investment professionals.[3] The proposals are intended to serve … Read more