Investors Get a Voice at the Regulator: SEC Names Its First Head of the Office of the Investor Advocate

Though investors might have assumed that the entire Securities and Exchange Commission was their advocate to begin with, on February 12th the agency announced that it had hired Rick Fleming to be its very first Investor Advocate in the recently created Office of the Investor Advocate (“OIA”).

In hiring Fleming, the SEC is implementing Title IX of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which amended the Securities Exchange Act of 1934 by creating, among other things, an Investor Advisory Committee, the OIA, and an ombudsman to be appointed by the Investor Advocate.  Fleming comes to the SEC from his most recent job as Deputy General Counsel at the North American Securities Administrators Association where he advocated for state securities regulators in matters before Congress and the SEC.  Fleming previously spent several years in Kansas state government, including some fifteen years in the state’s Office of the Securities Commissioner.

While Dodd-Frank required the Investor Advocate to begin reporting yearly on the OIA’s objectives starting in 2011, the position had gone unfilled for roughly four years, due in part to rulemaking and delays in Congress.  The OIA itself comes from Title IX of Dodd-Frank, a section of the law with the understated title, “Investor Protections and Improvements to the Regulation of Securities,” which also swept in enhanced whistleblower protections and say-on-pay, among other reforms.  Congress envisioned the Investor Advocate assisting retail investors in resolving “significant problems” with the SEC or self-regulatory organizations (think FINRA or the NASD, for example), identifying areas in which investors would benefit from changes in the regulations or rules, identifying problems that investors have with financial service providers and investment products, and analyzing the potential impact on investors of‘ proposed regulations and rules of self-regulatory organizations.  Seemingly absent from the law is any real authority for the Investor Advocate, though the law does provide that, the ‘‘to the extent practicable,” the Investor Advocate can propose “changes . . . that may be appropriate to mitigate problems” identified by the office.  The Investor Advocate is also responsible for appointing an ombudsman within 180 days to act as a liaison between the SEC and investors and who will be responsible for making recommendations on behalf of investors while keeping communications with investors in confidence.

The law calls for the Investor Advocate position to be filled by someone “having experience in advocating for the interests of investors in securities and investor protection issues, from the perspective of investors.”  Fleming appears to have spent most of his career either working for a state securities regulator or advocating for state securities regulators, and it remains to be seen whether the OIA and its new advocate represent something more than optics.  Investors would be right to ask whether, if the SEC wasn’t their advocate all along, then what can this new position—with an ombudsman yet to come—do, other than add more layers between the public and the regulator.  Indeed, the SEC already had an Office of Investor Education and Advocacy.  But the law does contain provisions addressing the independence of the Investor Advocate.

Specifically, the law provides that the Investor Advocate cannot have worked for the SEC two years prior to appointment and cannot work for the SEC in the five years after leaving the regulator.  In addition, the law requires that the Investor Advocate’s report be made directly to Congress “without any prior review or comments” from the SEC.  The law allows the Investor Advocate to staff the office, though the SEC sought just six positions for the office in its 2013 budget request.  As the OIA ramps up operations and hires its first ombudsman, this blog will be there.