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Securities Regulation

Why the SEC’s Proposal for “Modernization of Beneficial Ownership Reporting” Is Flawed

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Last February, the Securities and Exchange Commission proposed to “modernize” the reporting of beneficial ownership of a company’s stock under section 13(d) of the 1934 Securities Exchange Act.  As I explained in a recent comment letter to the SEC, the proposal is flawed in several ways. First, it risks suppressing proxy contests, which are the principal, if not the sole, method for holding corporate managers accountable to shareholders. Second, to the degree the Commission is concerned about improper tipping of information related to activist engagements, that concern can and should be addressed by developing new rules specific to such tipping … Read more

The Lummis-Gillibrand Responsible Financial Innovation Act

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On June 10, 2022, U.S. senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced S. 4356, their Responsible Financial Innovation Act, to transfer most regulation of cryptoproducts to the Commodity Futures Trading Commission (CFTC}, essentially ousting the SEC, presumably perceived to be a more aggressive regulator, from oversight of cryptoproducts that were securities.

The senators’ timing could not have been worse. Between November 2021 and June 21, 2022, global crypto capitalization fell 69 percent, led by Bitcoin, the industry leader, which declined 70 percent, Coinbase, the leading crypto exchange, which fell 86 percent, and Tether, a supposedly safe form of … Read more

SEC Commissioner Peirce Criticizes Regulatory Flexibility Agenda

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Chair Gensler’s Regulatory Flexibility Agenda[1] for the Securities and Exchange Commission sets forth flawed goals and a flawed method for achieving them. The agenda, if enacted, risks setting off the regulatory version of a rip current—fast-moving currents flowing away from shore that can be fatal to swimmers. Just as certain wave and wind conditions can create dangerous rip currents,[2]the pace and character of the rulemakings on this agenda make for dangerous conditions in our capital markets.

I. The Agenda Devotes the Agency’s Limited Resources to Rulemaking Proposals Disconnected from Our Core Mission

The Agenda continues to shun

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Skadden Discusses Senate Bill to Create Regulatory Structure for Crypto and Other Digital Assets

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In recent years, innovation in the blockchain or “Web3” space has been impacted by uncertainty on the regulatory front. Undoubtedly, the greatest area of uncertainty has involved the Securities Exchange Commission (SEC) and its application of the so-called Howey test when determining whether a cryptocurrency or other digital asset is being offered as an investment contract for purposes of applying U.S. securities law. Despite repeated calls for regulatory clarity from industry members, lawmakers and even SEC commissioners, little progress has been made in achieving that clarity.

Industry members have therefore increasingly come to the conclusion that a long-term solution will … Read more

Bipartisan Group of Former SEC Officials and Securities Experts Confirms Longstanding SEC Authority on Climate Disclosure

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[Editor’s Note: This post is based on a comment letter submitted to the U.S. Securities and Exchange Commission on June 16, 2022. The full letter is available here. Also, please see the Note at the end of this post.]

The Working Group on Securities Disclosure Authority respectfully submits these comments on the Commission’s recent proposal related to mandated, standardized climate-related disclosures for investors. We write to make clear the view among experts in securities law that the Commission has statutory authority to promulgate disclosure rules in this area.

Our bipartisan Working Group is comprised of leading academics, … Read more

SEC Chair Gensler Issues Statement on Request for Comment on “Information Providers”

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Today [June 15], the Commission voted to issue a request for comment to help determine which “information providers,” such as index providers, model portfolio providers, and pricing services, might come under the Commission’s definition of an investment adviser. The role of these information providers in today’s markets raises important questions under the securities laws as to if they are providing investment advice rather than merely information. I am pleased to support this request because it will help inform our consideration of when—and under what facts and circumstances—these providers are giving “investment advice.”

In recent decades, the use of information providers

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Sullivan & Cromwell Discusses SEC Amendments Requiring Electronic Filing

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On June 2, 2022, the Securities and Exchange Commission (the “SEC”) adopted amendments[1] to Regulation  S-T, the Securities and Exchange Act of 1934 (the “Exchange Act”) and certain forms, including Forms 144, to mandate the electronic filing or submission of documents that are currently permitted to be filed in paper form, including “glossy” annual reports to security holders, Forms 144 in the case of public companies, Forms 6-K, notices of exempt solicitations and exempt preliminary roll-up communications and annual reports of employee stock purchase, savings and similar plans on Form 11-K. The rules also mandate the use of Inline … Read more

Davis Polk Discusses Reopening of Comment Period for SEC’s Dodd-Frank Clawback Rule

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On June 8, 2022, the Securities and Exchange Commission announced that it is again reopening the comment period for its proposed clawback rule, a rule that has been required to be promulgated since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. This new comment period is the SEC’s third request for comments on the clawback rule, with comments previously requested on proposals published in July 20151 and October 20212. As part of this reopening, which did not include a new version of the proposed rule, the SEC Staff released a … Read more

Debevoise Discusses Shareholder Climate Activism and 401(k) Plans

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In December 2021, As You Sow, a non-profit foundation promoting environmental and social corporate responsibility, filed shareholder proposals on behalf of Amazon.com and Comcast Corporation shareholders for action at each of their 2022 annual meetings. The Amazon proposal and the Comcast proposal were identical, requesting that the board of directors prepare a report with the board’s assessment of how the company’s retirement plan options align with the company’s climate action goals. The supporting statement suggested that the report include, at the discretion of the board of directors, how the company could provide employees with more sustainable investment options, such … Read more

SEC Chair Gensler Speaks Before Investor Advisory Committee

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Good morning. It is great to join the Investor Advisory Committee (IAC) today. As is customary, I’d like to note that my views are my own, and I’m not speaking on behalf of the Commission or Securities and Exchange Commission staff.

I would like to welcome the new members of this Committee. The eight of you bring a wide-ranging set of experiences to this group, coming from government, academia, funds, non-profits, and the U.S. Navy. Thank you for volunteering your time and energy on behalf of investors.

Today’s meeting marks a year since I first had the opportunity to meet

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SEC Chair Gensler Speaks on Plans to Overhaul Stock Trading

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Thank you, Rich (Repetto), for that kind introduction. It is good to be with you again. As is customary, I’d like to note my views are my own, and I’m not speaking on behalf of my fellow Commissioners or the SEC staff.

Rich, at last year’s conference, you and I spoke about how technology has transformed and continues to transform our equity.[1]

This has led to some good things. For example, retail investors have greater access to markets than any time in the past.

This technological transformation, though, also has led to challenges, including market segmentation, concentration, and potential

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Don’t Forget the “G” in ESG: The SEC and Corporate Governance Disclosure

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In March 2022, the SEC proposed rules (the “Proposed Rules”) that, if adopted, will require public companies to include extensive climate-related disclosures in their periodic reports.[1]  According to the SEC, this disclosure will help investors “make informed judgments about the impact of climate-related risks on current and potential investments.”[2]  However, requiring public companies to disclose information about climate-related risks is not enough to protect investors or ensure that they are fully informed.  The SEC also needs to require public companies to disclose additional information about their corporate governance practices, especially those relating to shareholder rights.

In my recent … Read more

Universal Proxy Cards and the 67 Percent Solution

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The upcoming Universal Proxy Card (UPC) presents activist investors with only one potentially significant new burden: solicit two-thirds of the shares in a proxy contest at a portfolio company. Everything else in the new rule, including the new proxy card format and contents and the notice schedule, is largely immaterial to investors.

A close read of the rule and the supporting economic analysis suggests activists can handle this new requirement easily. Almost all proxy contests already hit the 67% level, probably because it means soliciting a surprisingly small number of shareholders. And an activist with an appetite for pushing legal … Read more

SEC Chair Gensler on ESG Disclosures Proposal

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Today [May 25], the Commission is considering a proposal to improve disclosures by certain investment advisers and funds that purport to take Environmental, Social, and Governance (ESG) factors into consideration when making investing decisions. I am pleased to support this proposal because, if adopted, it would establish disclosure requirements for funds and advisers that market themselves as having an ESG focus.

It is important that investors have consistent and comparable disclosures about asset managers’ ESG strategies so they can understand what data underlies funds’ claims and choose the right investments for them.

When I think about this topic, I’m reminded

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SEC Commissioner Peirce on ESG Disclosures Proposal

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Thank you, Mr. Chair. A key impetus for today’s [May 25’s] rulemaking[1] is a legitimate concern about the practice of greenwashing by investment advisers and investment companies. This concern is real because advisers can mint money by calling their products and services “green” without doing anything special to justify that label. Only days ago, we settled an enforcement proceeding in which we alleged that an adviser said one thing about ESG and did another.[2] Yet while enforcement proceedings of this sort illustrate the problem, they also show that we already have a solution: when we see advisers that

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Katten Discusses Shareholder Litigation Risk in an Unstable Geopolitical Environment

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Over the past two years, U.S. public companies faced an unpredictable risk environment.  Two geopolitical crises – the Covid-19 pandemic, and the Russian invasion of Ukraine – strained international supply chains and destabilized financial markets.

It is tempting to view these events as temporary departures from the stable climate for international commerce of the past 75 years.  There are reasonable grounds for that position.  After all, Covid-19 was the first global pandemic since 1919, and the conflict in Ukraine marks the first large-scale conventional conflict in Europe since World War II.  However, geopolitical instability may be the new normal, and … Read more

Sullivan & Cromwell Discusses Recent Rulings’ Effects on SEC Use of Administrative Forum

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Two cases—one recently accepted for review by the Supreme Court, and another recently decided by the Court of Appeals for the Fifth Circuit—could change the manner in which the SEC brings enforcement actions against those accused of violating federal securities laws.

The Supreme Court Accepts Cochran v. SEC

Congress has empowered the SEC to bring civil enforcement actions seeking a variety of sanctions, including monetary penalties, in either a federal court or in agency proceedings before administrative law judges (ALJs) at the SEC.  On May 16, 2022, the Supreme Court agreed to hear a case about when and where the … Read more

SEC Chair Gensler Testifies Before U.S. House Financial Services Subcommittee

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Good morning, Chairman Quigley, Ranking Member Womack, and members of the Subcommittee. I’m honored to appear before you for the second time as Chair of the Securities and Exchange Commission. It is good to be here alongside Federal Trade Commission Chair Khan. As is customary, I’d like to note that my views are my own, and I am not speaking on behalf of my fellow Commissioners or the SEC staff.

The Gold Standard of Capital Markets

I’d like to open by discussing two key years in economic policymaking: 1933 and 1934.

We were in the midst of the Great Depression.

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Does the Threat of Securities Class Actions Add Value for Shareholders? Evidence from China

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Securities class actions (SCA) are an important governance mechanism in the U.S. securities market, but there is a significant debate about their costs and benefits to investors. SCA are intended to serve two key functions in investor protection: disciplining and deterring fraud and compensating aggrieved investors. On the one hand, SCA are more efficient and powerful than individual securities suits and, thus, can enhance investor protection. As for deterrence, there is growing evidence that lowering directors’ and officers’ (D&Os) liability risk using corporate charter provisions, D&O insurance coverage, or liability law changes can exacerbate agency problems by reducing managerial vigilance … Read more

SEC Enforcement Chief Speaks on Delays of Defense Counsel

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Ordinarily at an event like this one, I’d speak about all the ways in which we are working to protect investors, including our increased focus on the private fund space, the additional resources we’ve committed to our Crypto Assets and Cyber Unit, and other enforcement priorities. And I’d likely close by reassuring each of you in the defense bar that we’re not doing away with the White Paper and Wells processes, but rather streamlining them. But I’d like to take a different approach today given some recent experiences and observations. As is customary, my remarks today express my views, and … Read more