On September 26, 2017, SEC Chairman Jay Clayton testified before the Senate’s Banking, Housing and Urban Affairs Committee regarding the direction of the SEC under his Chairmanship. He also took the opportunity to address the 2016 cyberattack on EDGAR, the agency’s electronic filing system.
As in his first public speech as SEC Chair, in July 2017, Chairman Clayton’s testimony reveals his focus on issues related to cybersecurity, capital formation, and enforcement actions addressing traditional forms of fraud and misconduct. His testimony further reveals his position that regulations should be retroactively evaluated and relaxed as necessary, in order to account for the direct and indirect costs of compliance.
Below are key highlights of Chairman Clayton’s testimony:
The SEC last week announced that it has sanctioned several market participants in the penny stock industry, including attorneys who wrote offering documents as well as stock transfer agents, for their roles in various sham IPOs of microcap stocks. These are the latest in a string of penny stock enforcement actions since outgoing SEC Chair Mary Jo White announced the implementation of the Commission’s “broken windows” policy in 2013. That policy targeted both large and small issuers and market participants. The strategy has resulted in the SEC racking up its largest-ever volume of enforcement cases in fiscal year 2016.
In the first enforcement actions, the SEC alleged that a California-based securities lawyer wrote false and misleading registration statements in connection with five microcap IPOs, which were part of a scheme to transfer unrestricted shares to offshore market participants. The SEC also alleged that the CFO of American Energy Development Corp. (AEDC), one of the issuers in question, and the attorney who wrote opinion letters for the offerings made false and misleading statements. The market participants were barred from any further penny stock activity, and the attorneys were permanently suspended from appearing and practicing before the SEC. The SEC also suspended trading in shares of ADEC.
Last week, several securities industry groups filed critical responses to the SEC’s plan for an audit trail. While most groups that commented on the SEC’s proposed regulation supported implementing the proposal, several had concerns regarding the cost for investors and firms, and the protection of private data.
On April 13, 2016, the SEC published a concept release discussing and seeking public comment on modernizing certain business and financial disclosures required by Regulation S-K, which lays out reporting requirements for various public company SEC filings. The release focuses on whether the disclosure requirements – many of which have seen little change in decades – continue to elicit the information that investors need for investment and voting decisions, and whether any of the relevant rules have become outdated or unnecessary. It also seeks input on how registrants can most effectively present material information, including how the Commission can assist with improving the readability and navigability of SEC filings. As SEC Chair Mary Jo White explained in an April 13, 2016 statement regarding the release, “[w]e want to make sure that [the Commission’s disclosure] rules are facilitating both timely, material disclosure by companies and shareholders’ access to that information. And we want to make sure that our requirements are as efficient as they can be.”
Speaking last week at the SEC’s and Rock Center’s Silicon Valley Initiative at Stanford Law School, SEC Chair Mary Jo White cautioned Silicon Valley’s start-up companies regarding their potential lack of internal controls. In particular, she warned that unicorns—nonpublic start-up companies valued north of one billion dollars—may warrant special scrutiny into whether their corporate governance and investor disclosures are keeping pace with their growing valuations. Ms. White repeatedly warned that the prestige of obtaining “unicorn” status may drive companies to inflate their valuations.
The leaders of the Securities and Exchange Commission (“SEC” or “Commission”) addressed the public on February 19-20 at the annual SEC Speaks conference in Washington, D.C. The presentations covered an array of topics, but common themes included the Commission’s ongoing effort to carry out the rulemaking agenda set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act, its increasing focus on cyber issues including its use of new technology to surveil and root out harmful practices in the modern and increasingly-complex market, and its continued focus on the conduct of gatekeepers. From a litigation and enforcement perspective, key takeaways from the conference include the following:
SEC Chair Mary Jo White began her remarks by touting the “unprecedented number of enforcement cases” brought by the Commission in 2015, which produced “an all-time high for orders directing the payment of penalties and disgorgement”—a trend that she stressed would continue in 2016. READ MORE →
In a recent address, SEC Chair Mary Jo White stated that the SEC had focused its reinvigorated investigation and enforcement efforts on holding preparers and auditors accountable for their work on financial statements. She alerted the 2015 American Institute of Certified Public Accountants (“AICPA”) National Conference to the weighty responsibilities and challenges faced by auditors and preparers, as well as audit committee members, standard setters and regulators, when endeavoring to ensure high-quality, reliable financial reporting.
In a speech last Thursday, SEC Chair Mary Jo White publicly addressed the issue of whether the SEC has been too lax in granting waivers to large corporations that are subject to certain restrictions under the Well-Known Seasoned Issuer (“WKSI”) regulations or the so-called “Bad Actor Rule.”
The SEC classifies certain large widely followed issuers as WKSIs under Rule 405 of the Securities Act of 1933. Issuers with WKSI status benefit from greater flexibility in registration and investor communications. Most notably, registration statements filed by WKSIs become effective immediately and automatically upon filing. Certain categories of “ineligible issuers”—including those convicted of certain crimes and those determined to have violated the anti-fraud provisions of the securities laws—are precluded from qualifying for WKSI status. The SEC, however, can (and does) grant waivers to ineligible issuers upon a showing of good cause.
Securities and Exchange Commission leadership and staff members addressed the public on February 20-21 at the annual “SEC Speaks” conference in Washington, D.C. Common themes among the numerous presentations included the Commission’s increasing use of data analytics, the Commission’s focus on gatekeepers such as accountants and attorneys, and the Commission’s still incomplete rulemakings mandated by both the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Jumpstart Our Business Startups Act.