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Commissioner Peirce Speaks to SEC Investor Advisory Committee

Thank you Anne [Sheehan] and other members of the committee for arranging an impressive list of panelists to share their views and perspectives on the important topics on today’s agenda.  The committee has not let COVID-19 stop it from holding meetings; this is the third such meeting in the last two months.  I am appreciative of the committee’s diligence and dedication during this time and believe it is emblematic of the tireless efforts put forth over the years by the members whose terms are expiring in the coming days.

I want to take a moment to thank each of you

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Making Sense of Out-of-Pocket Damages

Most securities fraud class actions under SEC Rule 10b-5 involve revelation of negative information about the defendant company that should have been disclosed earlier – bad news that (allegedly) has been covered up by company agents. The standard remedy in such cases is out-of-pocket damages (OOPs). But this measure of harm is inherently ambiguous. Some courts interpret it as price inflation at the time of purchase.[1] Others interpret it as the difference between the price paid and the price at which a stock settles after corrective disclosure.[2]

Although it might seem that these formulations are synonymous, the latter … Read more

Does State Sponsor of Terrorism Disclosure Limit SEC Financial Reporting Oversight?

The Securities and Exchange Commission (SEC) regularly reviews financial filings to ensure compliance with accounting standards and other disclosure requirements.  The SEC review team analyzes firm’s financial filings and asks questions (in a comment letter) about perceived deficiencies.  A comment letter may request clarification regarding an accounting or reporting issue and may ask a firm to revise or update its financial reports.  According to the SEC, this comment process “deters fraud and facilitates investor access to information.”

Comment letters are publicly available on EDGAR, and both accounting and law firms monitor comment letters to ascertain where the SEC is directing … Read more

SEC Chair Clayton Speaks on Market Function and Monitoring and Disclosure

From a systemic risk point of view, the SEC’s primary responsibilities[1] in this period of stress are three-fold:

  1. Market function. Using our authority, expertise and experience to help ensure the continuing, orderly and fair function of the securities markets—including equities, fixed income securities, funds and other products.
  2. Market monitoring. Monitoring market prices and price movements, flows of capital and availability of credit to assess functionality and resiliency of the capital markets—and taking action, including providing regulatory relief and guidance, as appropriate.
  3. Corporate and other issuer disclosure. Monitoring and providing guidance concerning, and emphasizing, timely and accurate

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SEC Enforcement Chief Discusses How the Division Is Responding During the Pandemic

We are all too familiar with the many ways in which the COVID-19 pandemic has transformed our personal and professional lives over these last several months.[1] We are confronting new and serious personal challenges, all the while endeavoring to continue our respective professional responsibilities. Like most of you, the SEC Staff have been teleworking since March. The disruption and changed work environment has had – and will continue to have – a substantial impact on the activities of the Division of Enforcement. But I am gratified to report that we have continued to execute on our important mission to

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Insider Trading Data Reveals Pandemic Is a Time for Questioning, Not Answering

Following news reports about executives selling shares in their corporations to avoid losses due to the pandemic, we take a closer look at insider trades and find that net insider purchases have been positive in February and March, revealing corporate optimism, not pessimism. Our findings are a reminder that not all burning questions about the impact of the pandemic can or should be answered right now.

Accurate answers rely on good data, but good data are hard to come by. One reason is that we are measuring some things for the first time, such as the true death toll of … Read more

SEC Chair Addresses Proposed Equity Market Data-Governance Reforms

Good afternoon.  This is an open meeting of the U.S. Securities and Exchange Commission on May 6, 2020, under the Government in the Sunshine Act.  The Commission today will consider a staff recommendation to issue an Order that would direct the registered equities exchanges and the Financial Industry Regulatory Authority (“FINRA”) to propose a new, single national market system (“NMS”) plan to govern the public dissemination of real-time, consolidated market data for NMS stocks.

Throughout my tenure as Chairman, I have discussed the need for the Commission to focus additional analytical resources on our ever evolving market structure.[1]  U.S.

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SEC Chair Addresses Special Meeting of the Investor Advisory Committee

Thank you, Anne (Sheehan).  I really appreciate your prompt response to our request to reconvene a special meeting of the Investor Advisory Committee to focus on issuer-investor engagement in the context of the challenges posed by COVID-19, including, in particular, disclosure considerations.

Over the last several weeks, my colleagues and I have had multiple teleconferences with retail and institutional investors, investor advocates, including members of this Committee, auditors, public company executives and board members.  There were two common themes in those meetings—(1) the importance of keeping markets functioning and (2) the importance of keeping investors and markets apprised about the

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Cleary Gottlieb Discusses How Court Allowed Securities Liability for Slack’s Direct Listing

Over the last two years, direct listings – in which companies list their stock on an exchange to enable insiders and early investors to sell their holdings to the public without issuing new shares – have received considerable attention as an alternative to traditional initial public offerings.[1]  Until now it has been assumed that claims under Section 11 of the Securities Act, which generally require plaintiffs to “trace” their purchases to a registration statement, would be difficult to pursue because many shares in a direct listing may be sold without using a registration statement.

On April 21, 2020, however, … Read more

Changing Expectations for Financial Disclosure of Climate-Related Information

In early 2020, State Street Global Advisors, BlackRock, and other investment firms announced their plans for persuading companies to address financially-material environmental, social, and governance (ESG) issues. The high-profile announcements followed moves in recent years by Wellington Management, CalPERS, and other institutional investors to integrate climate-related data into their processes and increase the pressure on companies to more deeply consider climate change risks and disclose how they are accounting for those risks in their operations. Companies have responded with a steady stream of climate-related goals, commitments to disclose in line with the Financial Stability Board’s Task-Force on Climate-Related Financial Disclosures … Read more

Wachtell Offers More on What to Say During Earnings Calls in Time of Covid-19

Upcoming first quarter earnings calls may be the most scrutinized in modern corporate history.  How to handle these calls in light of the unprecedented social and economic impacts of COVID-19 is a question confronting every company that has not yet announced.  Investors, the SEC and other stakeholders are clamoring for insight into what this extraordinary pandemic means for individual businesses, the private sector and the Nation at large.  We believe that these upcoming earnings calls provide an opportunity for companies to show leadership and purpose by providing the critical insights that will help investors, analysts and other stakeholders grasp where … Read more

Why the Proposed Blockchain Token Safe Harbor Makes Sense

The application of the U.S. securities laws to blockchain tokens has been a controversial subject, with the Securities and Exchange Commission (SEC) taking an aggressive posture.  On February 6, 2020, SEC Commissioner Hester Peirce proposed a non-exclusive safe harbor from certain of those laws for sales and other distributions of certain blockchain tokens (sometimes called token generation events, airdrops, SAFTs, ICOs or IEOs), as well as secondary trading in such tokens.

Token sales became a popular tool in 2016-17 for blockchain projects to seek initial traction for their network or platform by selling the digital item native to the platform … Read more

The Risks and Rewards of Shareholder Voting

[Editor’s Note: This and the following piece offer a point/counterpoint on shareholder voting.] The SEC’s recently proposed rules on proxy advisers and shareholder proposals have made shareholder voting one of the most prominently debated corporate governance issues ever.  In a new article, “The Risks and Rewards of Shareholder Voting,” I seek to shed more light on the role of shareholder voting in the governance of public companies.

Shareholders Are Notoriously Uninformed

Shareholder voting allows shareholders to participate in corporate decisions, but very few public company decisions are based on it.  This is understandable, because shareholder voting suffers from a collective … Read more

Columbia Law Professors Write Two of Top Corporate and Securities Articles

John C. Coffee, Jr., Zohar Goshen, and Joshua R. Mitts were among the authors of two of the best corporate and securities articles last year, the Corporate Practice Commentator has announced. The Columbia Law School professors were joined by Robert J. Jackson, Jr., a former professor at Columbia Law School and commissioner of the U.S. Securities and Exchange Commission and now a professor at NYU School of Law.

The Corporate Practice Commentator’s Robert Thompson, a professor at Georgetown University Law Center, conducted the 26th annual poll to compile the list. Teachers of corporate and securities law voted to select

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SEC Urges More Disclosure in First-Quarter Earnings Reports Amid the Pandemic

The Securities and Exchange Commission and its senior staff have put out a succession of releases that combine some relief, some guidance and some warnings. The SEC Coronavirus (COVID-19) Response page is available here.

The latest in the series came on Wednesday, April 8, in the form of a long, forceful public statement published on the SEC’s website by Jay Clayton, the SEC Chair, and Bill Hinman, the Director of the Division of Corporation Finance.  It focused on upcoming corporate disclosures – with a particular view to first-quarter earnings releases of calendar-year companies – and it contained some helpful guidance … Read more

Improving Enforcement and Adjudication at the SEC

Earlier this year, the Office of Management and Budget solicited suggestions for “regulatory reforms that will better safeguard due process in the regulatory enforcement and adjudication settings.”  That invitation was a rare opportunity to comment on the procedures federal agencies use to investigate potential misconduct and to litigate charges in administrative proceedings.

My comments addressed several enforcement and adjudication procedures at the Securities and Exchange Commission:

(1)  Partiality issues with the heads of certain agencies including the SEC and with initial SEC administrative proceedings before administrative law judges.

Due process prohibits the same person from charging a defendant and then … Read more

Top SEC Officials Address What to Say on Earnings Calls During Pandemic

The SEC’s three part mission—maintain market integrity, facilitate capital formation and protect investors—takes on particular importance in times of economic uncertainty.  Disclosure—providing the public with the information necessary to make informed investment decisions—is fundamental to furthering each aspect of our mission.[i]

In the coming weeks, our public companies will be issuing earnings releases and conducting analyst and investor calls.  We urge companies to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning.  In an effort to facilitate robust disclosure and engagement, we provide the following

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Will FinTech Disruption in the ‘20s Be Roaring?

In recent podcasts, we addressed three themes, among other topics: how artificial intelligence and machine learning (AI/ML) can change how decisions get made; how blockchain can transform how we transact and how we record and communicate things; and how technology shapes how we trade stocks.  We entered 2020 with a lot to watch.  Perhaps this decade will be the “roaring ‘20s of FinTech.”

From Here to There for AI/ML.  The promise of AI/ML is transformative, and companies (small and large, new and longstanding) are fast at work developing and deploying real-world applications, from autonomous driving to growing crops to detecting … Read more

SEC Chair on Investors, Allocation of Resources, and Regulation Best Interest in Uncertain Times

Over 57 million American households are invested in our securities markets.  The interests of these individuals—our long-term Main Street investors—are the lens through which we evaluate whether we are effectively advancing the SEC’s mission.  The 4,500 women and men of the SEC are committed to these investors and the integrity of our markets.  The uncertainties caused by COVID-19 have not changed our perspective or commitment.

Approach to Allocation of Resources, Oversight and Rulemaking

In recent weeks, the Commission has been assisting market participants in their efforts to continue business operations, including investor service operations, in the face of various challenges

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The Senator Traded While His Constituents Died: A Legal Analysis of Insider Trading by Public Officials

The coronavirus’ impact across the United States will make an epic, even Tolstoyan, saga, sweeping across all levels of American society and featuring brave heroes and tragic victims. But so far, this story has lacked one figure that every drama needs: a clear villain – someone the public can despise. No, President Trump cannot play this role. Reckless, ignorant, and delusional as he may be, he can only play the fool of the story, but not the villain, because he has not been profiting off the tragedies of others.

A true villain would be useful. In the 1930s, much of … Read more