[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




                     EXAMINING THE SEC'S FAILURE TO
                   IMPLEMENT TITLE II OF THE JOBS ACT
                   AND ITS IMPACT ON ECONOMIC GROWTH

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 17, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-15





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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia                BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
              Subcommittee on Oversight and Investigations

              PATRICK T. McHENRY, North Carolina, Chairman

MICHAEL G. FITZPATRICK,              AL GREEN, Texas, Ranking Member
    Pennsylvania, Vice Chairman      EMANUEL CLEAVER, Missouri
PETER T. KING, New York              KEITH ELLISON, Minnesota
MICHELE BACHMANN, Minnesota          ED PERLMUTTER, Colorado
SEAN P. DUFFY, Wisconsin             CAROLYN B. MALONEY, New York
MICHAEL G. GRIMM, New York           JOHN K. DELANEY, Maryland
STEPHEN LEE FINCHER, Tennessee       KYRSTEN SINEMA, Arizona
RANDY HULTGREN, Illinois             JOYCE BEATTY, Ohio
DENNIS A. ROSS, Florida              DENNY HECK, Washington
ANN WAGNER, Missouri
ANDY BARR, Kentucky












                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 17, 2013...............................................     1
Appendix:
    April 17, 2013...............................................    41

                               WITNESSES
                       Wednesday, April 17, 2013

Walter, Hon. Elisse B., Commissioner, U.S. Securities and 
  Exchange Commission............................................     7

                                APPENDIX

Prepared statements:
    Walter, Hon. Elisse B........................................    42

              Additional Material Submitted for the Record

McHenry, Hon. Patrick:
    Chairman's Exhibits for this hearing.........................    48
    Section 619 of Public Law 111-203 regarding the 
      implementation deadline for the Volcker Rule...............    57
    Federal Reserve System press release entitled, ``Volcker Rule 
      Conformance Period Clarified,'' dated April 19, 2012.......    60
Green, Hon. Al:
    Letter to Fed Chairman Bernanke, FDIC Chairman Gruenberg, 
      CFTC Chairman Gensler, SEC Chairman Schapiro, and 
      Comptroller of the Currency Curry from Financial Services 
      Committee Chairman Bachus and Vice Chairman Hensarling, 
      dated November 29, 2012....................................    62

 
                     EXAMINING THE SEC'S FAILURE TO
                   IMPLEMENT TITLE II OF THE JOBS ACT
                   AND ITS IMPACT ON ECONOMIC GROWTH

                              ----------                              


                       Wednesday, April 17, 2013

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 2:17 p.m., in 
room 2128, Rayburn House Office Building, Hon. Patrick T. 
McHenry [chairman of the subcommittee] presiding.
    Members present: Representatives McHenry, Fitzpatrick, 
Duffy, Grimm, Fincher, Hultgren, Ross, Wagner, Barr; Green, 
Cleaver, Maloney, Sinema, Beatty, and Heck.
    Ex officio present: Representatives Hensarling and Waters.
    Also present: Representative Rothfus.
    Chairman McHenry. The subcommittee will come to order.
    This is the Subcommittee on Oversight and Investigations of 
the Financial Services Committee, and our hearing today is 
entitled, ``Examining the SEC's Failure to Implement Title II 
of the JOBS Act and its Impact on Economic Growth.''
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. The Chair notes that 
Members have before them a packet of materials labeled the 
``Chairman's Exhibits,'' which some Members may wish to refer 
to when questioning the witness today. The packets containing 
Chairman's Exhibits 1 through 7 are labeled accordingly. Our 
witness, Commissioner Walter, has these exhibits in a binder 
before her. These, in essence, were what we provided the 
Commission last week.
    Without objection, members of the full Financial Services 
Committee who are not members of the subcommittee may sit on 
the dais and participate in today's hearing.
    We will now turn to the subject matter of today's hearing. 
We will have 10 minutes of opening statements per side.
    Commissioner Walter, I know you are well-versed at 
testifying before Congress, so I hope you enjoy the show here.
    But with that, I will recognize myself for 7 minutes.
    In April of last year, with overwhelming bipartisan support 
from Congress, the JOBS Act was signed into law by President 
Obama. I was at the Rose Garden that day. Recognizing the 
difficult economic times, the new law provided hope for an 
economic recovery. And now, 1 year later, unfortunately very 
little has been completed, due to the SEC's delay. In 
particular, the lifting of the ban on general solicitation 
under Title II, which would enable private issuers to advertise 
for investors, continues to linger as a proposed rule.
    In August of last year, I sought internal communication 
from the SEC to understand the delay to Title II of the JOBS 
Act. Emails provided to the Oversight Subcommittee revealed 
that the SEC disregarded the law in response to concerns 
expressed by a single lobbyist. An internal SEC email dated May 
9, 2012, reveals that the Office of the General Counsel (OGC) 
advised the Division of Corporation Finance that due to the 
implementation deadline for Title II, the SEC should issue an 
interim final rule without notice and comment. The OGC was 
dubious that the SEC could enforce the ban on general 
solicitation against those that comply with Title II of the 
JOBS Act.
    The email indicates that in Rule 506, private issuers 
advertising for accredited investors, the Commission would 
likely lose a legal challenge. Specifically, Thomas Kim, Chief 
Counsel of the Division of Corporation Finance, wrote, ``We met 
with Rich Levine and Aseel Rabie this morning to discuss OGC's 
comments on the term sheet that we received yesterday. Their 
biggest comment, which they conveyed more fully at our meeting, 
is on process. As you know, they have been concerned about what 
happens on Day 91. Can the SEC enforce the ban on general 
solicitation in Rule 506 offerings after it fails to meet the 
deadline Congress has imposed for lifting the ban on general 
solicitation in Rule 506 offerings? I think they're dubious as 
to whether we could.'' That is an important phrase.
    Thus, Mr. Kim relayed OGC's concerns to the then-Director 
of Corporation Finance, Meredith Cross. On May 23rd, Ms. Cross 
emailed a term sheet which recommended that the SEC proceed 
with the interim final rules to Commissioners on May 23rd.
    On August 7th, an email from a lobbyist with the Consumer 
Federation of America expressed strong reservations regarding 
the SEC's plans to adopt an interim final rule without notice 
and comment. The email stated that the affected groups ``are 
prepared to be quite aggressive in voicing our concerns.''
    Shortly thereafter, then-Chairman Mary Schapiro emailed 
Director Cross with the subject line, ``Please don't forward.'' 
She certainly didn't forward it, but we did get the documents 
as a matter of public record.
    The content said, ``I have 2 worries--one is that if these 
guys (CFA, et al) feel this strongly, it seems like we should 
give them a comment period. Its not really asking for much. The 
other is that I don't want to be tagged with an Anti-Investor 
legacy. In light of all that's been accomplished, that wouldn't 
be fair but it is what will be said given how high emotions run 
on anything related to the JOBS Act. Doesn't seem worth it for 
an extra 45 days of process...''
    In August, Chairman Schapiro informed the remaining 
Commissioners of her decision to dispense with an interim final 
rule and proceed with a proposed rule.
    Consequently, on August 8th, Commissioner Gallagher emailed 
Chairman Schapiro with the subject line, ``I am furious.'' The 
email stated, ``I just got word about the latest change to 
general solicitation. It is not acceptable. I have been 
operating in good faith, reviewing the multiple proposals sent 
to me for consideration this month, and I continue to find 
shifting sands. A `proposal' on general solicitation could have 
been done months ago, and indeed should have been done years 
ago. Meredith and Lona made it crystal clear to me on Monday 
that there is no need for a proposal because we know what the 
comments will be. And so, I spent hours working on how to 
accommodate your desire for a study within an interim final 
rule, and we did so--just to find out now that you have changed 
your mind again.''
    It is clear that Chairman Schapiro prioritized special 
interest groups over the law. This is entirely unacceptable.
    Commissioner Walter, Title II of the JOBS Act is clear in 
its purpose. There is no debate that Congress imposed this law 
precisely to eliminate the ban on general solicitation for Rule 
506 private offerings to accredited investors.
    Applying the most basic Chevron analysis, the SEC's current 
broad ban on general solicitation is not authorized by statute, 
specifically Title II of the JOBS Act. While the contents of 
Title II may not please some, that does not provide the SEC 
authority to deny the law nor deny the reality that the law was 
passed by a wide bipartisan majority.
    As of July 4, 2012, due to the expiration of the 
implementation deadline, Title II of the JOBS Act has changed 
the law.
    It would appear to me that with this change, the SEC lost 
the authority to enforce its ban on general solicitation 
against issuers which abide by Title II. I understand the SEC 
is under new leadership, and with new leadership comes changes, 
obviously, and you as a Commissioner are certainly working with 
the new Chairman to set that agenda and hopefully to work 
together to come to some accord. And I hope the SEC finalizes 
the rules under Title II of the JOBS Act as well as a few other 
provisions that I have talked to Commissioner Walter about over 
the last year or so.
    As promised in that Rose Garden ceremony 1 year ago this 
month, the JOBS Act can have a major impact and help get this 
economy moving again, and help small businesses, even large 
small businesses get access to the capital that they need.
    Commissioner Walter, I want to thank you for your service 
to our government. You have been a faithful public servant. As 
I said to you, I have high esteem for your intellectual 
capacity, and even though we at times may disagree on different 
ideas and different laws and different regulations, I certainly 
appreciate your willingness to be here today, and I want to 
thank you for your time.
    With that, I will recognize the ranking member of the 
subcommittee, Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman, and I thank you for 
holding this hearing today. I would also like to thank 
Commissioner Walter for appearing today. I know that you have a 
very busy schedule, and there is much you are attending to. In 
fact, I have made some notes as to some of the things that you 
are doing.
    According to the information that I have, the SEC oversees 
approximately 35,000 entities, 11,000 investment advisers, 
9,700 mutual fund and exchange trade funds, 4,600 broker 
dealers with more than 160,000 branch offices, approximately 
9,500 reporting companies, approximately 460 transfer agents, 
17 national security exchanges, 8 active clearing agencies, 10 
nationally recognized statistical rating organizations, and the 
list goes on, as we say. But I do want you to know that we 
appreciate the stellar job that the SEC does.
    As a matter of fact, we seem to think that the SEC can do a 
lot more with less. We have not funded the SEC at the levels 
that have been requested, and my hope is that we will be able 
to help you get fully funded so that you will have adequate 
resources to do all of the many things that we inundate you 
with.
    I would also like to take a moment and congratulate the new 
Chairman. I am told that this is a statutory title, and as 
such, I want to make sure that I honor what the law requires. 
But I want to congratulate Chairman White and I look forward to 
visiting with her. And I assure you that I will keep her in my 
prayers as well.
    I would like to also mention that Chairman McHenry and I 
have demonstrated some bipartisanship as it relates to the JOBS 
Act. While it is not in Title II of the JOBS Act, Chairman 
McHenry and I were able to accomplish something that I thought 
was significant. He led the effort to create a framework for 
crowdfunding and a reporting exemption in capital markets. I 
was honored to offer an amendment that would disqualify 
individuals convicted of securities fraud from participating in 
crowdfunding. And I am honored to say, Mr. Chairman, that I 
think that you and I are still working together well and I am 
looking forward to producing similar legislation with you in 
the future.
    I want to mention one more thing as I move through rather 
quickly, and I will probably give back some time to the 
chairman. We in Congress have demanded much from the SEC over 
the last 3 years, all while asking you to meet goals with less 
money than you have asked for. We should not trivialize in any 
way the responsibility that you have in regulating our capital 
markets and protecting our investors. Not only do you regulate 
the markets, but you do have as a mandate protecting investors 
as well.
    More importantly, the SEC should not set aside its 
rulemaking responsibilities under the Dodd-Frank Act to 
implement some other legislation. I believe that you are trying 
to do both as expeditiously as you can, and I appreciate your 
hard work.
    Both of these pieces of legislation, Dodd-Frank and the 
JOBS Act, are important, and we would hope that as we move 
forward, we will get them all done as quickly and expeditiously 
as possible.
    Again, welcome to the committee. I look forward to hearing 
your testimony. I have had a chance to peruse it. I also look 
forward to presenting some questions about some of the things 
that I believe to be relevant.
    Thank you, Mr. Chairman, for the time, and I will yield 
back the balance of my time.
    Chairman McHenry. I thank the gentleman, and I certainly 
thank him for his willingness to work with me on that 
provision. And as a former judge, you know a lot of criminal 
law quite well.
    Mr. Green. Thank you, Mr. Chairman.
    Chairman McHenry. At this point, I will recognize the lead 
sponsor of the JOBS Act, which was signed just over a year ago 
today, actually 13 months ago now, the gentleman from 
Tennessee, Mr. Fincher, for 1\1/2\ minutes.
    Mr. Fincher. Thank you very much, Mr. Chairman, for holding 
this hearing. As a lead sponsor of the JOBS Act, the gentleman 
from Delaware, Mr. Carney, and I believe that something had to 
be done to help small business and entrepreneurs create more 
jobs on Main Street. It is no surprise that Main Street 
continues to feel the brunt of a lagging economy.
    In my home State of Tennessee, the unemployment rate is 7.8 
percent, yet when you look at the individual counties in my 
district, the unemployment rates are a lot higher: A staggering 
12.4 percent in Obion County; 11.6 percent in my home County of 
Crockett; and 9.3 percent in Shelby County, our State's most 
populous county of nearly 1 million people.
    These numbers are reflective of the frustrations I hear 
from my constituents all the time: ``What are you doing to help 
create an environment where new ideas and companies can 
succeed, grow, and create more jobs?''
    While it has been nearly a year since the JOBS Act was 
enacted into law, not all sections of the bill have been 
implemented. Mr. Chairman, a car runs best when every component 
of the engine is in good working order and works together. In 
this case, if all sections are not enacted and working 
together, the full benefit of the JOBS Act to our economy won't 
be realized.
    I look forward to hearing Commissioner Walter's testimony 
about how she plans to support implementation of the remaining 
sections of the JOBS Act. And I yield back.
    Chairman McHenry. I thank the gentleman.
    Mrs. Maloney is recognized for 2\1/2\ minutes.
    Mrs. Maloney. Thank you, Mr. Chairman, and Mr. Ranking 
Member, and welcome, Commissioner, and thank you for your very 
hard work for all of us.
    I supported the JOBS Act and worked with the chairman of 
the subcommittee and others to strengthen the investor 
protections and the overcrowding title of the bill. And we also 
worked together on the--and I believe in the on-ramp that we 
created for small companies so that they can go public with 
less burden and so that these small companies can create 
capital, that they are more able to handle the compliance that 
larger companies to relieve it for the smaller ones.
    Part of it was to allow them to focus their growing 
businesses on raising private capital in the markets and to be 
able to go to the public markets.
    And that is why I believe that fully funding the SEC is so 
critically important. We put a great deal of burden on the SEC 
with the enactment of Dodd-Frank, covering whole areas which 
were not regulated, bringing them into regulation. Now, with 
the JOBS Act, that needs to be implemented, and they are a very 
important continuation of focusing on and working on investor 
protection.
    I strongly support the efforts of the ranking member of the 
full committee and the ranking member of this subcommittee, and 
he mentioned it in his opening statement, to have full funding 
for the SEC in the 2014 budget.
    I don't see how the SEC can take on these new burdens 
without the staff to implement it. So at the very least, we 
should give them full funding.
    I also support the work of the ranking member of the full 
Financial Services Committee and the ranking member of this 
subcommittee and the minority budget views which also urge full 
funding. I believe that the public and investors should have 
the opportunity to comment and present arguments and input on 
the rules that they will be implementing for the JOBS Act. And 
I believe the Commissioner was correct in allowing more time--
not that you want to delay anything--but it is important to get 
the rules right, and if the public and others are demanding and 
wanting comment time, it is appropriate to allow their voices 
to be heard.
    So I look forward to hearing your testimony today, and I 
thank you again, Mr. Chairman and Mr. Ranking Member, for 
calling this hearing. Thank you.
    Chairman McHenry. I thank my colleague, and I thank her for 
working with me on the crowdfunding provision in the JOBS Act 
as well.
    With that, I will recognize Mrs. Wagner of Missouri for 
1\1/2\ minutes.
    Mrs. Wagner. Thank you very much, Mr. Chairman. Ever since 
the JOBS Act was passed a little over a year ago, the mood 
amongst entrepreneurs and investors in the St. Louis area, an 
area which I am proud to represent, has gone from excitement 
and anticipation to one of frustration and bewilderment at the 
SEC's inability to implement vital portions of the bill, in 
particular Title II.
    Adding insult to injury, it appears that the SEC's inaction 
on Title II certainly is not due to the complexity of the issue 
itself. Indeed, it is both ironic and unfortunate that a 
bipartisan success such as the JOBS Act has been held up at the 
SEC for what appear to be political reasons.
    The JOBS Act was a success not just because of the policy 
it put in place, but because of the bill's implicit recognition 
that it is entrepreneurs and risk takers and fresh ideas which 
power the American economy.
    The idea that one Federal agency would put all of this on 
hold for no valid reason is, quite frankly, part of the reason 
why so many people have lost faith in Washington.
    With this in mind, Mr. Chairman, I look forward to hearing 
today about when exactly we can expect the JOBS Act to be fully 
implemented.
    Thank you. I yield back.
    Chairman McHenry. I thank my colleague. I now recognize 
Mrs. Beatty for 2\1/2\ minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and Mr. Ranking 
Member, for holding this hearing. And certainly, Ms. Walters, I 
thank you for being here today, and of equal importance, I 
thank you for your service to the American people.
    We are eager to hear your comments about the SEC's role in 
the implementation of Title II of the JOBS Act. So let me start 
with telling you what I hope to hear today.
    I hope that this hearing sheds light on three important 
concerns of mine: one, making sure that the SEC has the 
necessary funds to achieve its mission in regulating markets; 
two, getting new rules right rather than simply getting them 
done; and three, ensuring that the investors are protected.
    We know that since the Great Recession, the SEC has been 
under intense pressure to increase its regulatory oversight of 
financial firms in an effort to combat both core risk 
management within financial markets and also to detect and 
prosecute investor fraud. And frankly, as we have heard from 
several of my colleagues, in this environment, the Commission 
has also been charged with implementing a number of additional 
rules and regulations under the comprehensive Dodd-Frank Wall 
Street Reform and Consumer Protection Act. And now, with the 
enactment of the JOBS Act last year, the SEC has been 
instructed to conduct further studies, rulemaking and oversight 
functions.
    So I would like to make it clear that there does seem to be 
some inconsistencies as to the expectation of the Commission 
with respect to its rulemaking authority. Specifically, given 
that there are a number of final rules yet to be issued under 
Dodd-Frank, which in large part is designed to increase 
investor protection, while the JOBS Act wasn't signed into law 
until nearly 2 years later and is designed to relax security. 
So hopefully, we will be able to address some of these issues, 
and I just simply want to say thank you, and I yield back.
    Chairman McHenry. I thank the gentlelady.
    We will now recognize our distinguished witness. Ms. Elisse 
Walter is a Commissioner with the U.S. Securities and Exchange 
Commission. She served as the Acting Chairman of the SEC from 
December 2012 to April 2013, actually until last Friday.
    Before the SEC, the Commissioner held several positions, 
including with the CFTC and with FINRA. Commissioner Walter 
received a B.A. from Yale and her J.D. from Harvard Law School, 
a few small institutions which have more than a regional name.
    So thank you for your willingness to testify today. You 
will be recognized for 5 minutes to summarize your opening 
statement. And without objection, your written statement will 
be made a part of the record. With that, we will now recognize 
Commissioner Walter

STATEMENT OF THE HONORABLE ELISSE B. WALTER, COMMISSIONER, U.S. 
               SECURITIES AND EXCHANGE COMMISSION

    Ms. Walter. Chairman McHenry, Ranking Member Green, and 
members of the subcommittee, thank you for the opportunity to 
testify today regarding our implementation of Title II of the 
Jumpstart Our Business Startups Act (JOBS Act). Implementing 
Title II and the other provisions of the JOBS Act is a top 
priority for the Commission.
    As you know, Title II requires the Commission to revise 
Rule 506 of our Regulation D to allow general solicitation or 
general advertising for certain offers and sales of securities 
provided that all purchasers are accredited investors. The 
rules the Commission adopts must require issuers to take 
reasonable steps to verify that purchasers of the securities 
are accredited investors using such methods as determined by 
the Commission.
    The Title II rulemaking was required to be completed within 
90 days of enactment of the JOBS Act, and I am committed to 
finalizing these rules and working closely with my colleagues 
to do so expeditiously.
    Prior to enactment, a rule-writing team was formed 
consisting of staff from across the Commission, including 
economists from the Division of Risk Strategy and Financial 
Innovation. And in August, the Commission issued for public 
comment proposed rules to implement Title II.
    Under the proposed rules, companies issuing securities in 
an offering conducted under Rule 506 of Regulation D would be 
permitted to use general solicitation or general advertising so 
long as the issuer takes reasonable steps to verify that the 
purchasers of the securities are accredited investors.
    The proposal explains that in determining such 
reasonableness, issuers should consider the facts and 
circumstances of the transaction. Meanwhile, the proposed rules 
would preserve the existing portions of Rule 506 as a separate 
exemption so that companies conducting Rule 506 offerings 
without the use of general solicitation or general advertising 
would not be subject to the new verification requirement.
    To aid the rulemaking process and to increase the 
opportunity for public comment, the Commission permitted 
interested parties to submit comments regarding this provision 
even prior to issuing its proposal. These pre-proposal 
commenters expressed a variety of views, including how the 
verification process should work. Some focused on the capital 
formation benefits they believed the rulemaking could provide, 
while others raised serious investor protection concerns that 
would arise if general solicitation was permitted without 
additional safeguards.
    The comment period for the proposal, which ended in 
October, resulted in more than 220 letters. Those letters have 
generated meaningful discussion regarding the issues and have 
been very useful in our consideration of how to implement Title 
II.
    As with the pre-proposal stage, commenters on a proposal 
were sharply divided in their views. On the one hand, a number 
of commenters expressed general support for the proposals, with 
many stating that eliminating the ban on general solicitation 
and general advertising would facilitate capital formation.
    In addition, several supporters recommended that the 
proposed framework for verifying accredited investor status be 
supplemented by including a nonexclusive list of specific 
verification methods that could be relied upon by issuers.
    On the other hand, a number of commenters expressed general 
opposition to the Commission's proposal, with some stating that 
the proposed rules, if adopted, would result in an increase in 
fraudulent offerings.
    A number also recommended that the Commission consider 
additional safeguards such as those recommended in certain pre-
proposing release comment letters.
    Currently, staff in the Divisions of Corporation Finance 
and Risk Strategy and Financial Innovation are developing 
recommendations for the Commission's consideration as to how 
best to move forward with the implementation of Title II.
    Although the Commission and the staff continue to work on 
implementing Title II, I fully recognize the need to move 
forward on this rule quickly, and I can assure you that I am 
committed to doing that.
    Implementing the JOBS Act is a top priority for the 
Commission, and getting this particular rulemaking done is a 
matter on which I believe we need to be acutely focused.
    Thank you again for inviting me to appear before you today. 
I would be pleased to answer any questions you may have.
    [The prepared statement of Commissioner Walter can be found 
on page 42 of the appendix.]
    Chairman McHenry. I thank the Commissioner, and I thank you 
for your service to your government.
    I will now recognize myself for 5 minutes. If you look at 
the first exhibit in the exhibit book, the last two sentences 
of the first paragraph, ``Can the SEC enforce the ban on 
general solicitation in Rule 506 offerings after it fails to 
meet the deadline Congress has imposed for lifting the ban on 
general solicitation in Rule 506 offerings? I think they're 
dubious as to whether we could.''
    So the sentence before those two, though, says that legal 
counsel ``have been concerned about what happens on Day 91.'' 
What were the SEC lawyers concerned about on Day 91?
    Ms. Walter. As the JOBS Act was written, the ban on general 
solicitation was not automatically lifted. There was a 
determination by Congress to mandate that the SEC conduct 
rulemaking to lift it. So on Day 91, the ban on general 
solicitation would remain in effect. However, there was an 
expression of congressional policy that on a going-forward 
basis, the Commission should lift the ban.
    So as I understand it, what they were concerned about is if 
we were to find a situation where general solicitation was 
being conducted and bring a case against that person for 
violating the law, in the absence of another exemption from 
registration, there was concern that a court or other tribunal 
might not be willing to impose relief because of the 
congressional policy determination.
    Chairman McHenry. So, the enforceability of said ban is 
questionable?
    Ms. Walter. The question of enforceability in the sense of 
whether we would be able to obtain relief in that instance.
    Chairman McHenry. Okay. So you agree with the SEC lawyers' 
approach here?
    Ms. Walter. I agree that there was an issue. I personally 
was not that troubled by this issue.
    Chairman McHenry. Okay. The next exhibit is an email which 
states that, ``Meredith supported going straight to a final 
rule...'' In this context, and we provided these emails to you 
last week, is ``Meredith'' in reference here to Meredith Cross?
    Ms. Walter. Yes.
    Chairman McHenry. Okay. Do you concur with her assessment?
    Ms. Walter. My preference was always to have notice and 
comment. The Division of Corporation Finance determined to 
recommend at one point that we go without notice and comment 
for the rule.
    As I understood it, their primary reasoning was that they 
didn't believe we would obtain very much information in the 
comments that were made given what we had heard already. I 
believe that the over 200 comment letters, which were quite 
substantive and interesting to me and my colleagues that we did 
receive, showed that in fact was not the case.
    Chairman McHenry. So if you look at Exhibit 3--we are just 
going to walk through this process--dated May 23, 2012, the 
implementation deadline was July 4th for this provision of the 
JOBS Act. That would have given you 90 days. So Exhibit 3 is 
dated before the implementation deadline.
    This is an email you are included on as a Commissioner, and 
it comes from Meredith Cross stating that, ``As you will see, 
we are recommending that the Commission proceed with an interim 
final rule.'' There are a number of other pieces of information 
there, obviously.
    So almost a year ago, you had a draft in good enough 
condition to circulate among all Commissioners, isn't that 
right?
    Ms. Walter. This was a draft term sheet, and let me explain 
a little bit about our term sheet process, which has been quite 
valuable for us. It is one of the earlier steps in rulemaking 
in that it outlines what the rule would do. It is not a draft 
of the actual text of the rule accompanied by the release which 
would be issued if a rule was proposed or adopted.
    Chairman McHenry. Okay. But you did have this term sheet?
    Ms. Walter. We did.
    Chairman McHenry. Okay. How long does it normally take from 
that point to actually have a rule?
    Ms. Walter. There really is no--
    Chairman McHenry. Apparently pretty long.
    Ms. Walter. There really is no standard length of time. 
What the term sheet is meant to start is the discussion process 
and to get an initial feeling from each of the individual 
Commissioners of where they stand on the major issues in a 
rulemaking process.
    Chairman McHenry. Okay, not to interrupt, but I only have 
20 seconds left.
    But at that point, the Commission had intended to meet its 
statutory deadline?
    Ms. Walter. Certainly, we always intended to try to meet 
the statutory deadline.
    Chairman McHenry. Apparently not very consistently, since 
we are now approaching almost 11 months after this email with 
the term sheet.
    So the question here is that the staff recommended a final 
rule, and yet there was a pullback. Did you think a pullback at 
that point was appropriate?
    Ms. Walter. I would point out, too, before this, the staff 
had recommended a proposal. So this was a very fluid process. 
Staff first recommended a proposal, then recommended a final 
rule, and then it was changed back to a proposal. As I said, 
throughout that process my preference was to go with a proposed 
rule.
    Chairman McHenry. I now recognize Ranking Member Waters of 
the full Financial Services Committee for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman. I have a 
question about SEC resources and the agency's ability to ferret 
out fraud given the expanded ability of securities issuers to 
use general advertising and solicitation under Title II of the 
JOBS Act.
    Will the SEC need to expand the number of enforcement staff 
looking for fraud under Rule 506 offerings, given the expansion 
of rule Rule 506 under the Act?
    Ms. Walter. Thank you, Ranking Member Waters. It is 
imperative, and I have believed all along and worked with the 
staff very closely, that when this rule is enacted, as with 
many rules, but this rule in particular because we have 
received serious comments that this rule may increase the 
opportunity for fraud, that there be an intensive review 
program to determine what impact the rule has. Does it lead to 
offerings being sold to the wrong people? Does it lead to 
increased fraud, of course, compared to the situation with 
respect to other private placements? And I do believe that we 
will need to expend both examination and enforcement resources 
that we would not otherwise have to expend.
    Ms. Waters. The JOBS Act removes certain investor 
protections for all offerings made under Rule 506 by 
eliminating the ban on general solicitation and advertising so 
long as only accredited investors are purchasers. Given the 
updates made under the JOBS Act, is it appropriate for the 
Commission to perhaps reexamine the definition of accredited 
investor?
    Ms. Walter. Yes, I believe it is. I have often said in this 
process that I agree with both sides of this debate. I believe 
we should lift the ban on general solicitation and focus on 
those who purchase in private offerings, not those to whom the 
offer is made. But I also believe that we have to be careful 
about who those people are. It is my view that the accredited 
investor definition is outdated, at least the numerical 
standards need to be looked at, but in fact my preference would 
be to change the criteria entirely as to how we attempt to 
measure sophistication and access to information. And I think 
that would be a significant investor protection effort well 
worth undertaking.
    Ms. Waters. Is the Commission applying the same standards 
to the rulemakings under the JOBS Act as what they have applied 
to rulemakings under the Wall Street Reform Act? For instance, 
under the general solicitation rulemaking, did the Commission 
consider the losses that might be sustained by allowing 
investors to purchase investments that are marketable under the 
newly expanded Rule 506 but would never have been so successful 
in a registered offering that required full disclosure?
    Ms. Walter. As we were required to do, we did conduct an 
economic analysis which is contained in the proposal release. 
Of course, we have not yet issued an adopting release, and part 
of our responsibility in reviewing the comments is to determine 
what we have heard about the impact of the rule and to explain 
the economic impact of the decisions that we make when we 
adopt.
    Ms. Waters. Thank you very much.
    I yield back the balance of my time.
    Chairman McHenry. We will now recognize the vice chair of 
the subcommittee, Mr. Fitzpatrick of Pennsylvania.
    Mr. Fitzpatrick. Thank you, Mr. Chairman. Commissioner, 
thank you for your testimony and your time before the committee 
today.
    The JOBS Act passed the Congress over a year ago, passed 
the House of Representatives on March 8, 2012. The vote was 
390-23, a pretty significant bipartisan effort. Two weeks 
later, it sailed through the Senate. The vote was 73-26, and it 
was signed, of course, by the President on April 5th. So the 
rules were supposed to be promulgated within 90 days, or by 
July 4th.
    I would ask you to refer to exhibits 2 and 3 if they could 
go up on the screen. Exhibit 2 is an email from Thomas Kim. In 
the first paragraph he said, ``Meredith supported going 
straight to a final rule, as we could then have a pilot period 
where we could assess how issuers are verifying accredited 
investors and whether or not these investors are, in fact, 
accredited, after which point we could decide whether to adopt 
final final rules or amend the rule to address any concerns. 
She was more comfortable doing this as an interim final 
temporary rule, which means it would sunset at some future 
date.''
    Exhibit 3 is Meredith Cross' email of May 23rd: ``Attached 
for your review is a draft term sheet for the rulemaking to 
remove the ban on general solicitation...''
    It appears from the emails, Commissioner, contained in 
exhibits 2 and 3 that Meredith Cross, the Director of the 
Division of Corporation Finance at the SEC, agreed that the 
best course of action was to go to a final rule.
    Do you recall her support for an interim final rule prior 
to implementing Section 201?
    Ms. Walter. I am sorry, I couldn't hear the last part of 
your question, her support for the rule.
    Mr. Fitzpatrick. Do you recall her support for an interim 
final rule to implement Section 201?
    Ms. Walter. Yes, I do.
    Mr. Fitzpatrick. Was she the most knowledgeable person 
within the organization?
    Ms. Walter. She was the head of the division in charge of 
implementing the rule as a matter of substance, and a very 
knowledgeable person.
    Mr. Fitzpatrick. Was her support based on concerns over the 
enforceability of the ban on general solicitation?
    Ms. Walter. As I understand from talking to her at the 
time, her support was more based on the fact that she felt that 
there wasn't a great deal of benefit to be gained from the 
comment process. And as I said earlier, I believe the comments 
that have come in have shown that there was a great deal of 
benefit to be gained. And my colleagues in the Division of 
Corporation Finance agree with that.
    Mr. Fitzpatrick. Commissioner, to what extent were you an 
active participant in the discussions and negotiations 
pertaining to the implementation of Title II of the JOBS Act?
    Ms. Walter. I was an active participant in the sense that I 
was to vote as well as the other four Commissioners.
    Mr. Fitzpatrick. Do you agree that Title II of the JOBS Act 
is a relatively straightforward and simple set of provisions 
that provide only limited discretion to the SEC with regard to 
implementation?
    Ms. Walter. I agree that the statute itself is 
straightforward, but it also raises serious investor protection 
concerns that do not impact necessarily whether one moves 
ahead. We have a congressional directive to move ahead with 
lifting the ban. I agree with lifting the ban. I also believe 
that as the Federal agency which is charged with protecting the 
markets, facilitating capital formation, and protecting 
investors, it is important that we look at those investor 
protection concerns as well.
    I also believe that although it is sometimes posed as a 
balance between investor protection and capital formation, the 
two go hand in hand, and they are really dependent on each 
other. If we don't take care of investors they will have no 
confidence in the markets, they will not invest, entrepreneurs 
will not be able to build businesses, and we won't be able to 
have sufficient capital formation.
    Mr. Fitzpatrick. So what was the problem in getting the 
rule implemented within 90 days as the law required?
    Ms. Walter. First, I will say the rulemaking process--I 
don't know that I have ever seen a rule proposed and adopted in 
90 days. If I have, they are rare, few, and far between. The 
rulemaking process generally takes longer than that. There are 
of course exceptions where it takes less time than that. The 
answer here is that responsible people, and I will particularly 
cite which influenced me in the comment process, that our 
Investor Advisory Committee which if you look at the 
constituency of it is rather broad, wide and deep, people from 
all walks of life, from institutional investors, representing 
retail investors, from businesses as well, came unanimously to 
us with recommendations saying you should not move ahead with 
this without addressing the following investor protection 
problems.
    Our mandate is to lift the ban. Our mandate is also to 
consider investor protection. That made it more complicated 
than it seems on its face.
    Chairman McHenry. Mr. Cleaver is recognized for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Madam Chairwoman, my concern is that the things that were 
principally intended or the ones that are not being implemented 
and the things that we probably didn't think would happen are 
the ones getting the most attention. Would you agree that the 
one part of the JOBS Act which is being used more than anything 
else is the one which allows companies to avoid the executive 
pay rule?
    Ms. Walter. The part of the JOBS Act that is now in effect 
is Title I, which basically is the IPO on-ramp, and it does 
create a category of smaller companies which among other 
things, do not have to comply with the executive pay rule.
    Mr. Cleaver. So you are saying ``yes?''
    Ms. Walter. Yes.
    Mr. Cleaver. Thank you. The SEC was created after the Great 
Depression in part as a reaction to all of the fraudulent 
practices that had gone on that probably contributed to the 
Great Depression. So if we begin to relax any of the 
regulations in the JOBS Act, do you think that it would lead to 
any additional jump in fraudulent activity?
    Ms. Walter. I don't know the answer to that. And that is 
why from the beginning of consideration of Title II, I asked 
the staff to develop a review program so that we could monitor 
that. That doesn't necessarily have to be the case. It doesn't 
have to be true that lifting the ban would lead to greater 
fraud. If I had thought that was inevitable, I would not have 
been in favor of it. I still would have done it because 
Congress told me to.
    So I think the important thing to do here is to analyze the 
investor protection issues that are present, see if some of 
them can be addressed and they really do revolve mostly around 
who the investors are rather than how they are solicited, and 
then put in place a review program so that we can make sure 
that these offerings are not being sold to the wrong people and 
that there isn't an increase in fraud. And if there is a 
notable increase in fraud, we should come back and tell you 
because this was a congressional determination.
    Mr. Cleaver. Is there any kind of way in which you can 
detect the increase early on so that it would be brought back 
to Congress for us to hopefully make some immediate 
alterations?
    Ms. Walter. We will be able to monitor certain of the 
offerings fairly easily. There is a form that gets filed and 
that form, if it goes through as proposed, would have a box 
that would check whether people were using general 
solicitation. But although people are required to file the 
form, it is not a condition of the exemption, so not everyone 
does. So if those people don't file, we are going to have to 
rely on other efforts such as surfing the Internet and the like 
to try to identify what offerings are going on.
    That is why one of the suggestions that was made in the 
course of the comment process was to make the form a condition. 
There are pros and cons to that which I would be happy to 
address if you like.
    Mr. Cleaver. Thank you. Let me move over to another area. 
The whole IPOs, I think, giving ordinary citizens the 
opportunity to become investors, sounds good except that for 
the most part when we are talking about investors, we are 
talking about some very sophisticated people, people who 
understand, they are venture capitalists and so they understand 
it.
    Is there anything that the SEC can do or is there anything 
that we need to do to make sure that the start-up community 
understands and appreciates the risk involved?
    Ms. Walter. I believe that some of that happens in the 
course of the process of doing a standard IPO, because they 
generally involve investment professionals who provide advice 
and counsel about that. It also involves filing a public 
document with the Commission, going through the Commission 
review process, responding to the Commission's comments. There 
is less education about that, I believe, in the private 
offering market. People don't really understand that. 
Certainly, there are educational efforts that could be 
launched. There are some that we are doing, and there are some 
that are done by the private sector as well, which would be 
quite helpful to businesses as well as to investors.
    Chairman McHenry. The gentleman's time has expired.
    We will now recognize Mr. Ross for 5 minutes.
    Mr. Ross. Thank you, Mr. Chairman.
    Commissioner, thank you for being here. I appreciate your 
acknowledging in your opening statement the significance of the 
JOBS Act, specifically with regard to Title II in that you 
agree that it was intended to lift the ban on general 
solicitations for Regulation D, Rule 506 that seek only 
investment from accredited investors. That was pretty clear 
wasn't it? That is fairly direct, straightforward, and 
unambiguous?
    Ms. Walter. Absolutely.
    Mr. Ross. And it was relatively clear and unambiguous also 
in the JOBS Act that this was to be done within 90 days, 
correct?
    Ms. Walter. Yes. That is correct.
    Mr. Ross. So my question is, in your opinion, what would 
cause a regulator to deviate from clear and unambiguous 
language mandated by Congress in the promulgation of a 
particular rule?
    Ms. Walter. There are other statutes that we are compelled 
to comply with, including the Administrative Procedure Act.
    Mr. Ross. I agree. The leading case of Chevron v. Natural 
Resources, the Supreme Court case in 1984, really set forth the 
only criteria in this two-step process by which there may be 
great deference given to a regulator in trying to interpret or 
otherwise implement a statutory requirement.
    And if I could just have Exhibit 4 up there for just a 
second, in Exhibit 4, which, I guess this was the interim rule 
that was being proposed, the interim final rule, and it says 
there that, and this was prepared by the lawyers, ``First, we 
believe that the statutory language in Section 201(a) is clear 
and straightforward as to how to amend Rules 506 and 
144A(d)(1), such that prior notice and comment are 
unnecessary.''
    It appears as though, and this is the theme I keep coming 
back to, it was clear and unambiguous what the requirement was 
for the SEC to do with regard to implementation of Title II. Do 
you disagree with that?
    Ms. Walter. I believe I disagree with your interpretation 
of what the governing statutes are in terms of process. Yes, 
what Congress wanted us to do was clear. Congress' 
determination that there be a 90-day deadline was clear. But in 
order to dispense with notice and comment, we had to have good 
cause, that is intended to be a narrow exemption--
    Mr. Ross. And wouldn't the good cause have been the final 
interim rule? In fact, in the exhibits here before us, it 
indicates on advice of counsel that if the SEC implemented the 
interim final rule, it would allow for this process to engage 
for a couple of years, so that you could then reevaluate and 
issue a final rule.
    Now, that was suggested in June of 2012, 29 days before the 
deadline of 90 days.
    What happened in the interim? Did it have to do with Ms. 
Roper?
    Ms. Walter. What happened is that there were concerns--
actually, I can't speak for exactly what happened.
    Mr. Ross. But something happened.
    Ms. Walter. For what happened in my own mind, there were 
concerns expressed by others outside the agency about the 
process that was being followed. First I should make clear, we 
never got legal advice from our lawyers that this was the way 
we had to go. We were told--
    Mr. Ross. Who prepared the interim rule?
    Ms. Walter. The Division of Corporation Finance.
    Mr. Ross. Your Office of General Counsel had nothing to do 
with that?
    Ms. Walter. They were consulted. They did not prepare it.
    Mr. Ross. Okay, and you have no evidence or otherwise have 
any reason to believe that they objected to that?
    Ms. Walter. They advised us that it would be possible to do 
an interim final rule, not that it would be without risk, but 
that it was one possible avenue.
    Our rulemaking division first recommended that it be done 
by proposal, then it recommended that it be done by interim 
final, and then a determination was made that it be done by 
proposal. We were never told that we had to do an interim 
final, and it is very difficult to conceive of an instance in 
which that would be true.
    Mr. Ross. But you knew you had to do it within 90 days, and 
then in the interim Ms. Roper does an email to Ms. Schapiro and 
suddenly things change, the 90 days is expired. Do you not 
believe that even based on the recommendations or advice of 
your Office of General Counsel that this will lead to 
litigation unnecessary and totally unavoidable had it been 
promulgated within the 90 days?
    Ms. Walter. I believed that it could have led to litigation 
if it had been promulgated within the 90 days. It may also 
lead--
    Mr. Ross. Because it had ambiguities, because it wasn't 
specific?
    Ms. Walter. Because it didn't--
    Mr. Ross. The elimination of general solicitations.
    Ms. Walter. Because an argument was likely to be made that 
we didn't thoroughly analyze and consider alternatives to the 
rule, which is what we do in our economic analysis, and the 
implications of the rule.
    Mr. Ross. And in light of the 90 days being expired, now 
there might not even be authority for the SEC to implement this 
particular requirement.
    Ms. Walter. Oh, no. That authority does not cease simply 
because the deadline passes. We still have authority to 
implement the requirements. We believe it is our job to do so, 
and we are going to.
    Mr. Ross. Even contrary to what your attorneys have advised 
you?
    Ms. Walter. Our attorneys did not advise us that our 
authority expired after 90 days. They have never suggested 
that.
    Mr. Ross. I yield back.
    Chairman McHenry. We will now recognize Ms. Beatty for 5 
minutes.
    Mrs. Beatty. Thank you very much, Mr. Chairman, and thank 
you, Mr. Ranking Member.
    Again Commissioner, thank you for being here and taking 
your time to address our many questions. We have spent a lot of 
time in the last few minutes asking you about the processes 
that relate to rulemaking from the proposal to your last 
response to the question.
    In that same light, but shifting it a little bit, can you 
please speak to how SEC's funding and resource level impacts 
its ability to properly complete its rulemaking authority?
    Ms. Walter. Of course, there are two questions. One was the 
fact that I think even before the Dodd-Frank Act was passed in 
2010, the SEC was underresourced. And I mean that both in terms 
of personnel, and in particular in terms of technology. There 
was a substantial gap in our capacity compared to the private 
sector that we regulated.
    When the Dodd-Frank Act was passed and followed by the JOBS 
Act, I will conflate them, we had serious additional 
responsibilities that were given to us, first, to promulgate a 
large number of rules, close to 100 new rules, to do a number 
of studies. That is work which is continuing. We have not 
finished our work under the Dodd-Frank Act, and we have not 
finished our work under the JOBS Act.
    Even more significant than that, however, when all of these 
rules are done and all of them go into effect, those rules will 
be meaningless unless they are administered and enforced, and 
we need the resources and again both on the people level and 
the technology to do that right, and that is why we have 
continued to ask for additional resources.
    Mrs. Beatty. Mr. Chairman, Mr. Ranking Member, let me ask 
you another question. Does the SEC believe that the criteria 
for qualifications as an accredited investor, are they 
significantly restrictive as to protect unsophisticated 
investors with moderately high salaries from unregistered 
security or should there be a revision of the qualifying 
standards?
    Ms. Walter. Of course, I cannot speak for all of my 
colleagues, but I believe very strongly that there should be a 
revision of the qualifying standards. I believe that the 
definition of ``accredited investor'' as it stands today does a 
poor job of screening out people who are unsophisticated and 
people who do not have the wherewithal to demand access to 
information, and includes many unsophisticated investors.
    Mrs. Beatty. Thank you very much. I yield back.
    Chairman McHenry. We will now recognize Ms. Wagner for 5 
minutes.
    Mrs. Wagner. Thank you, Mr. Chairman, and thank you, 
Commissioner Walter.
    I am as dismayed as anyone that the SEC has put what I 
consider a lid on innovation and investment in their inaction 
surrounding Title II. So I want to highlight some of the 
entrepreneurs, real life examples, you get out of the process 
weeds here perhaps, in the St. Louis region that are doing just 
great things and stand to help our economy even more if only 
the SEC would do what Congress has directed them to do 
regarding Title II. And these are just a couple of the 
companies, just a couple, looking for growth capital. Global 
Velocity, this company provides the world's first data loss 
prevention solutions that have been built for the Cloud. They 
are the cutting edge of providing cybersecurity solutions which 
is absolutely critical in our economy today. And in 2011, the 
company was named a finalist for Forbes Magazine list of 
America's most promising companies.
    Next, would be Big Event Mobile. Big Event has developed a 
mobile app that allows trade show producers to build and better 
capitalize events that they have put on.
    Commissioner Walter, the bottom line here is that there are 
endless, I think, examples of companies such as this around the 
country that are innovating and looking to expand, looking to 
hire, and really it just seems unacceptable to me that the SEC 
continues to drag its feet here. There is, I think, a direct 
link between SEC inaction regarding Title II and decreased 
economic activity around the country. And I think it needs to 
be one of the key takeaways today.
    So Commissioner, I would ask that the SEC Title II rule 
proposal pointed out that the market for Reg D offerings, and 
this is of course pre-JOBS Act in 2010 and 2011, was larger 
than all other private offerings, public debt and public equity 
offerings combined.
    The same SEC analysis clearly has high expectations that 
lifting the solicitation ban could further increase such 
capital formation.
    Do you agree with the SEC's analysis?
    Ms. Walter. I believe that is likely.
    Mrs. Wagner. Likely or--the analysis was very specific here 
in terms of post a trillion dollars, this is even pre that 
could be there.
    Ms. Walter. Clearly, there is a large amount of money that 
is raised in the private offering market. And I am saying it is 
quite likely that when the general solicitation ban is lifted, 
that amount will go up significantly.
    Mrs. Wagner. So then if the Reg D market pre-JOBS Act was 
nearly a trillion dollars, wouldn't you agree that if the SEC 
finally implemented Title II to allow for solicitation, the 
economic benefits could just be enormous?
    Ms. Walter. I don't know what the impact will be. And the 
overall net economic benefits will depend in part, again, on 
how we implement it. For example, in the course of the comment 
process, even from supporters of the proposal, they did not 
like the way we decided to treat reasonable steps to verify. 
They wanted us to do something different. They wanted further 
comfort. So if in fact we had gone forward with an adoption, 
many of the supporters of this rule, many of the people who 
wanted to use it would not have been happy about how we had 
implemented one of the key provisions.
    Mrs. Wagner. And why was that?
    Ms. Walter. Because they felt they wanted more specific 
guidance. We put out a proposal that was extremely flexible 
about what reasonable steps to verify would be, and in fact we 
were surprised the supporters of the rule wanted a safe harbor 
in terms of specific things that they would be able to do. And 
we heard that. The impact of the rule will also vary depending 
on what happens, as we track it, to see whether in fact it ends 
up being used, perhaps not by the honorable and upright 
companies that you are citing, but other companies to use it as 
a vehicle for fraud.
    Mrs. Wagner. Let me ask about that in terms of risk and 
risk-taking. These are all accredited investors that would be 
involved in these kinds of offerings. Is that correct?
    Ms. Walter. They are accredited investors. I, frankly, 
believe that the definition of accredited investor is too 
broad. In any event--
    Mrs. Wagner. And why is that?
    Ms. Walter. Because it covers any number of people who 
neither have the wherewithal to lose the money that they could 
lose, the sophistication to evaluate the investment 
opportunities--
    Mrs. Wagner. These are investors who can afford advice and 
who can, I think, better afford the kind of risk taking that is 
out there. And certainly--
    Ms. Walter. Not necessarily, particularly not if an 
offering is done by general solicitation over the Internet. All 
it has to be is someone who has the right financial numbers who 
answers an Internet solicitation. And you don't have to have an 
adviser at all. So there are risks there. That does not mean to 
me that we should not go forward with this. We should. But we 
have an obligation to look at the investor protection concerns 
as well.
    Mrs. Wagner. I yield back.
    Chairman McHenry. I will now recognize Mr. Heck.
    Mr. Heck. Thank you, Mr. Chairman.
    Commissioner Walter, thank you very much for your presence 
and your testimony today. I want to follow up, as we keep 
butting up against this issue of the definition of an 
accredited investor. Am I correct that Dodd-Frank permitted the 
SEC to review that definition? And if so, is there one under 
way?
    Ms. Walter. Dodd-Frank did several things in this area. It 
mandated that in determining net worth, you not consider your 
primary residence. And it said that the SEC could move forward 
in reviewing the definition, but was not permitted to change 
the net worth standard until the middle of 2014.
    Mr. Heck. Has a review been initiated?
    Ms. Walter. We have started to look at those issues.
    Mr. Heck. And you have said several times that you don't 
think that the definition is adequate. As I recall, and I could 
be mistaken, the principal pillars of the definition are a net 
worth threshold and an annual income level. So, obviously, you 
have a strength of conviction here, having heard you respond in 
that fashion 3 times now. How would you change it? Or what 
kinds of things would you add to get at this objective of 
ensuring that an accredited investor was sufficiently capable 
of evaluating an investment opportunity above and beyond income 
and/or net worth?
    Ms. Walter. Some of the things that we could consider, and 
I wouldn't rule out others, would be of course raising the 
numbers that are in the definition. Alternatively, we could use 
a different criterion. I tend to think that if we were to look 
at the amount an individual had invested--and we are really 
talking about natural person accredited investors here, we are 
not talking about entities--but if we were to look at a 
standard of a person having so much already invested, that 
prior experience wouldn't be perfect, but would be nonetheless 
an objective indicator that perhaps would be better.
    We could also look to criteria that are not specifically 
with respect to the definition. Borrowing from Title III of the 
JOBS Act, if you look at the crowdfunding provision, there is a 
provision in there that someone who is going to invest through 
a crowdfunding site has to go through a process of 
demonstrating that they understand basic concepts, essentially 
an online--it would end up being probably an online learning 
module where you would have to keep going through until you got 
the answers right. So it would demonstrate a certain degree of 
knowledge. And we could perhaps consider something like that as 
well.
    Mr. Heck. In addition to requiring an accredited investor 
to meet some threshold of invested funds, would you personally 
favor increasing either or both the annual income level or the 
net worth level?
    Ms. Walter. I would probably, sitting here today--and I 
don't have a fixed judgment; I would like to go through the 
process--prefer to do away with the income and net worth levels 
and go to an amount invested, unless we can find a different 
objective criteria that will work. I do think it is important 
that this be relatively simple and objective so it is 
administerable.
    Mr. Heck. And what range of invested amount would you 
think--I am asking for a range, and I am obviously not asking 
for some kind of an enduring commitment here--but I am just 
trying to get a sense of at what level do you think people are 
demonstrating some level of sophistication sufficient to 
warrant this?
    Ms. Walter. To me, it would have to be relatively high. We 
could either use one of our existing standards or we could do 
something like $500,000. I fear for hard-working people who 
haven't made very much in their lives, who have accumulated 
money in a retirement account and are nearing retirement, so 
that they are at the high point of their asset accumulation 
level and are just rife targets for fraud, and that money is 
going to have to last them for the rest of their lives. So I 
would think it would have to be relatively high, but I don't 
know the right number right now.
    Mr. Heck. Lastly, do you have the authority to in any way 
limit the manner in which the general solicitation and 
advertising is done, or does by definition, general 
solicitation preclude you from prohibiting certain kinds of 
venues or channels for appeal?
    Ms. Walter. That has been a matter of some controversy. 
Some have said we do, and some have said we don't. I believe 
that we do. We, of course, would have to propose that.
    Mr. Heck. Very good.
    Mr. Chairman, thank you. I yield back the balance of my 
time.
    Chairman McHenry. I certainly appreciate that. Very 
interesting line of questions and interesting comments as well.
    We will now go to Mr. Hultgren of Illinois for 5 minutes.
    Mr. Hultgren. Thank you, Mr. Chairman.
    Thank you, Commissioner Walter. I appreciate you being 
here. I do apologize. There are several things going on at 
once. I have had to step out a little bit. So I know you have 
maybe brushed on some of these things, but I do want to--I have 
some questions I wanted to ask. The proposed rule to implement 
Title II, which proposes a solution to accredited investor 
verification, passed the Commission on August 29, 2012, and the 
comment period, as you know, ended on October 5, 2012. It is 
now April 17, 2013. I wondered if you could explain why during 
your tenure as Chairman, you haven't voted on a final rule to 
implement Title II?
    Ms. Walter. I believed that my job as Chairman was to try 
to chart a way forward that took into account the comments on 
both sides and tried to come out with a way to go forward in 
what I considered to be a responsible fashion, and 
significantly a way to go forward that would garner three votes 
among the four Commissioners we had at that point in time.
    We didn't reach that point. I didn't reach an answer that I 
felt met that standard. I regret that it has taken longer than 
we had expected. We now have a new Chairman. We are at full 
strength as a Commission, so I am hopeful that we can move 
forward expeditiously. And I certainly am fully committed to 
doing that. It is one among many projects that have been 
pending that led me to decide to stay on as a Commissioner.
    Mr. Hultgren. So there were discussions, but there wasn't 
agreement on it. There was never a full vote on a proposal? Is 
that correct?
    Ms. Walter. I never had the staff put a formal proposal 
back to the Commission. My fellow Commissioners came at this 
from very different points of view. And I was in the process of 
trying to figure out how to walk the line to come up with a 
proposal--I don't mean a proposed rule--I mean a proposed 
solution to this problem that would satisfy my concerns and 
garner at least two additional votes.
    Mr. Hultgren. We are just past the 1-year anniversary of 
the passage of the JOBS Act, and are approaching the 1-year 
anniversary of the 90-day implementation deadline for Title II. 
Looking back during this time, I see that the SEC deployed 
resources to consider political contribution regulation, an 
area of law that the SEC has little expertise over and 
questionable jurisdiction. The SEC also found time to work on 
money market fund regulation despite no legislative mandate to 
do so. At the same time, the SEC failed to implement Title II 
of the JOBS Act, a two-page part of a highly bipartisan law 
with limited discretion.
    Based on the time the Commission found to pursue money 
market reform and political contribution regulation, is it 
reasonable to believe that the Commission could not manage to 
implement Title II, a two-page section of the JOBS Act, with 
limited discretion?
    Ms. Walter. First, I should say very little time was spent 
on political contributions. And the question of whether or not 
there should be corporate disclosure of political 
contributions, I do think is in the Commission's mandate.
    Second, with respect to money market reform, although there 
was no statute, there was quite a hue and cry from all aspects 
of the public and all around government for us to address that. 
And that is done by entirely different staff than the staff who 
are working on this.
    Mr. Hultgren. It appears that there should have been plenty 
of time to get this done.
    Ms. Walter. It is not a question of time. We did not come 
out with the resolution, and we were sitting with a four-member 
Commission. We now have a five-member Commission, and we will 
move forward on this as expeditiously as possible. We had 
Commissioners with decidedly different views on this. And a 
Chairman does not get to decide what the answer is. The 
Chairman is one vote.
    Mr. Hultgren. I also believe a Chairman is given direction 
and needs to follow that direction. There clearly was 
congressional direction here. I wonder if you are aware of 
other cases where a regulator ignored a direct command of 
Congress through obvious delay tactics. At least, that is how 
it appears to us.
    Ms. Walter. There were no delay tactics involved here. I 
can assure you of that. I have never in 1 second during this 
period of time engaged in any delay tactics. There certainly 
have been other instances in which congressional deadlines for 
rulemaking were not met. The rulemaking process is not as easy 
a one as it appears to be. Until you sit down and engage in it, 
it has a lot of complexities, and it takes time. But there were 
no delaying tactics here.
    Mr. Hultgren. The appearance to us, again, and even you 
said in the previous question, that other things didn't take 
that much time. This isn't a matter of time. So you could take 
forever to get this done. And yet this is a clear command, 
basically a direction by Congress, a law that was passed, a 
bipartisan law, again, through the House and the Senate, agreed 
to by the President, signed by the President, and yet we have 
seen, from our perspective, no action on this.
    Again, I just see that as unacceptable. Even if there is 
action and not agreement, at least there is activity. And from 
our perspective, there is no activity. That is the frustration 
I think that many of us are feeling, and many of our 
constituents are feeling as well.
    With that, I see my time has expired. I yield back.
    Chairman McHenry. Thank you.
    I will now recognize the ranking member of the subcommittee 
for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman. And I thank the witness 
again for appearing today.
    I do want to give you an opportunity to restate your 
position with reference to moving expeditiously. You have been 
very clear that you are not refusing to do this, but I think 
that you should have the opportunity to make the record as 
clear as possible on this issue.
    Ms. Walter. Thank you. I appreciate that. My position is 
twofold. One, I believe that Congress has given us a mandate. 
We need to fulfill it. I am committed to moving forward with it 
as expeditiously as we can. And two, I will say on the 
substance, since the 1980s I have been in favor of lifting this 
ban. So this is not something that I personally oppose. I do 
think that there are other considerations that need to be taken 
into account, and we are looking at those.
    Mr. Green. There seems to be a good deal of consternation 
with reference to the comment period. Is it the norm to have a 
comment period or is it the exception to have a comment period?
    Ms. Walter. It is absolutely the norm. The lack of a 
comment period is quite rare. And it is generally done either 
in exigent market circumstances or where some external event 
causes an obligation to kick in unexpectedly that people aren't 
prepared for. And in our case, even in the midst of the market 
crisis, it happened on average 2 or 3 times a year.
    Mr. Green. And have you received comments on this piece of 
legislation?
    Ms. Walter. Yes. We received over 220 comments, which were 
mixed. A little less than half of them were in support of the 
proposal. A little more than half opposed the proposal as it 
was put out for comment.
    Mr. Green. Let's talk for just a moment about your budget, 
because it has been mentioned--I mentioned it earlier, and I 
have heard other Members mention it as well. While I have your 
2012 numbers, I will focus on 2013. My evidence indicates that 
you requested $1.56 billion. The House passed $1.371 billion. 
And the actual budget was $1.321 billion, decidedly less than 
what you were asking for. Did you ask for that $1.56 billion 
because you actually needed the $1.56 billion to perform 
efficaciously?
    Ms. Walter. Absolutely. As I mentioned before, even prior 
to the passage of these two major pieces of legislation, we had 
certain very pressing needs. In particular, I would highlight 
the fact that we don't have sufficient resources to do a good 
enough job examining the investment adviser population. We 
examine 8 percent of the investment adviser population a year 
and that simply isn't sufficient. So one of the things that we 
intend to do is to try to beef up that program.
    In addition to that, we are way behind the outside world we 
regulate in terms of the technological tools we use, both to 
examine the entities that we regulate, and in even as simple a 
case as when we litigate cases in court. And that is another 
area where we really need the funds to catch up.
    Mr. Green. You have 35,000 entities that you oversee, which 
is a huge number.
    Ms. Walter. Yes, it is.
    Mr. Green. And 11,000 investment advisers. Can you in any 
way put these things aside to make sure that you get other 
things done, or do you have to try to do everything?
    Ms. Walter. You have to try to do everything. And what you 
do is try to develop techniques to get to be as efficient as 
possible. For example, in our examination program we have taken 
many steps over the last few years to try to enhance our risk 
assessment and the analytics we use in determining which 
entities we examine. But in the end, when you have to do 
everything and you don't have enough, you don't do anything 
quite as well as you should.
    Mr. Green. Quickly, on the question of the money market 
fund, did FSOC have anything to do with the reason you 
endeavored to deal with the money market fund?
    Ms. Walter. I think that answer might differ depending on 
who at the Commission you spoke with. If you may recall, before 
the FSOC got involved we had made some changes in money market 
fund regulation, in 2010, I believe, and we said at the time 
that there was going to be a second step where we were going to 
analyze whether further changes were needed.
    Our Chairman was working on that. There was opposition from 
other Commission members. And she decided not to present it to 
the Commission. At that point, the FSOC stepped in and made a 
request of us that we look at these issues. So they definitely 
have been playing a role.
    Mr. Green. Thank you, Mr. Chairman, for the extra time. I 
yield back.
    Chairman McHenry. We will now recognize Mr. Grimm for 5 
minutes.
    Mr. Grimm. Thank you, Mr. Chairman.
    And thank you, Commissioner. I appreciate you being here 
today. I want to just go back, the ranking member of the full 
committee and the ranking member of this subcommittee had 
mentioned the budgets and funding. You were asked basically if 
you had the resources to deal with an expansion in fraud that 
lifting this ban could lead to. But I want to ask a different 
question. Regardless of any potential increase in fraud, 
implementing this part of the JOBS Act, do you have the 
resources to do that?
    Ms. Walter. Yes, we do. We obviously have to set 
priorities. And one of the things that happened with the 
passage of Dodd-Frank and the JOBS Act is those priorities took 
the place of other, more discretionary, voluntary initiatives 
that we would like to pursue. We do not have the resources to 
do everything we would like to do, but we obviously prioritize 
congressional mandates.
    Mr. Grimm. Okay. Taking a step back, the ranking member 
just asked about those priorities, and you did I think just 
testify that you do try to do everything. And I understand that 
is hard, especially with 35,000 entities out there that you are 
regulating.
    Ms. Walter. That is correct. There are certain things; 
certain types of rulemaking are discretionary. Most of our job 
is not discretionary. We have an examination program. When we 
review public company filings, we are under a mandate to do a 
third of the public companies every year. So it really depends 
on the particular aspect of the job, the manner in which it is 
discretionary or mandatory, but we have many things that we 
must do.
    Mr. Grimm. How about enforcement of the existing rules 
prior to even Dodd-Frank changes? Would you say that you are 
capable of doing that?
    Ms. Walter. We are. But again, we choose our cases. You 
probably could not give us enough resources so that we could 
bring every case that is out there. And that is appropriate. 
When you run an enforcement program you have to decide what to 
prioritize, what types of cases to look for, how to use your 
resources. And that, of course, is done.
    Mr. Grimm. It is a little off the topic of today, but since 
I went down this road I would like to ask you, where would you 
say the priority of illegal shorting, the ban against naked 
shorting? I see that as a huge issue. Is that a priority?
    Ms. Walter. I believe it is. We have set up over the last 
few years a tips and complaint system, a TCR system. And what 
we do is we gather in all of the complaints that we get from 
the outside world and we perform triage on them. We are able to 
determine who is complaining about what to try to decide what 
to pursue.
    Mr. Grimm. Have you ever looked at the fall of Lehman 
Brothers?
    Ms. Walter. Yes, our agency did do that. And I will say 
personally, I was recused from Lehman matters, so I can't speak 
to it personally.
    Mr. Grimm. The shorts were 17 times the actual float. There 
is only one way that could happen, and that is if they were 
illegally trading. It happened with Lehman Brothers; it 
happened with Bear Stearns; and Overstock.com always has this 
issue. It just seems from what I have seen, the SEC turns a 
blind eye to naked shorting.
    Ms. Walter. I believe that we do enforce the rules we have 
on the books.
    Mr. Grimm. Lehman Brothers would disagree. Well, they can't 
disagree any more.
    Okay. With that, I will yield back.
    Chairman McHenry. Will the gentleman yield to the--
    Mr. Grimm. I will yield to the chairman.
    Chairman McHenry. Thank you.
    Commissioner Walter, you stated that you wanted to open up 
the proposal to comments. Is that correct? On lifting the ban 
on general solicitation?
    Ms. Walter. Yes. That is correct. I have found--
    Chairman McHenry. Okay. And as a matter of policy and 
procedure at the SEC, when you go to an interim final rule, is 
that a rule that is final, or can it then be adjusted after it 
is up and running?
    Ms. Walter. Both interim final rules and normal final rules 
can be adjusted.
    Chairman McHenry. So, people can comment on interim final 
rules as a matter of process?
    Ms. Walter. However--
    Chairman McHenry. Is that correct?
    Ms. Walter. Yes, that is correct.
    Chairman McHenry. Yes, okay. Now, you wanted to answer. Go 
right ahead.
    Ms. Walter. Thank you. I appreciate that. One thing I have 
learned in many years of doing rulemaking is, first of all, 
comments are more robust--our post-proposal comments were more 
helpful than the pre-proposal comments because there was a 
specific proposal out there.
    Second, it is often difficult to go ahead and adopt a rule, 
have people set up systems, for example systems for 
verification in this particular case, and then accept comment 
and then modify them. It can subject people to undue costs. It 
is better, if you can, to have a system set up the way you want 
it to be in the first instance.
    Chairman McHenry. Yes, counter to the law existent, though. 
That is the reason why we are having this hearing.
    So with that, we will now recognize Mr. Duffy for 5 
minutes.
    Mr. Duffy. Thank you, Mr. Chairman.
    I missed a little bit of this hearing, so I hope I am not 
repetitive. But again, I want to bring up my concern about the 
chain of emails that has been reviewed today and the fact that 
the SEC had come out with an agreement, an internal agreement 
that you were going to introduce an interim final rule. And 
when the Chairman got an email notice from an outside lobby 
group expressing a concern, she was willing to change course 
from an interim final rule to go to a proposed rule.
    And to think that this institution which has had, frankly, 
a pretty rough couple of years, and that you were able to get 
Democrats and Republicans, House Members and Senators, to agree 
to the JOBS Act, and to get the President to sign that bill, 
and then to see these emails from an outside lobby group which 
was able to prevent the implementation, or a portion of the 
implementation of the JOBS Act is outrageous. I guess I would 
like to hear your comment on why an outside lobby group can 
impact the SEC more than this institution.
    Ms. Walter. I don't believe that is the case. And I will 
say that--
    Mr. Duffy. Did you read the emails, by chance?
    Ms. Walter. Yes, I have read the emails.
    Mr. Duffy. And you come to a different conclusion from 
these emails?
    Ms. Walter. Yes, I do.
    Mr. Duffy. And what is that?
    Ms. Walter. First of all, there was no agreement reached 
that it was the proper way to proceed. The staff who were 
working on the rulemaking switched from recommending a proposed 
rule at one point to recommending an interim final rule at 
another point. One thing that is true in rulemaking is that 
nothing is final until the vote is taken, and the vote had not 
been taken. Throughout this process, we heard from investor 
groups, we heard from industry groups, and we meet with 
everyone who comes in.
    Mr. Duffy. And you heard from an outside lobby group. And 
it was after that email that the Chairman expressed her concern 
about the pressure that was going to be put on the agency. And 
it was after that that you then went to a proposed rule from an 
interim rule. How could the conclusion be any different?
    Ms. Walter. We always talk to all sides of the issue, and 
we listen to their views. And frequently, very frequently in 
the course of a rulemaking project, we change our minds about 
basic issues, peripheral issues, the approach which we are 
going to take. This was--
    Mr. Duffy. Reclaiming my time, we don't always have email 
chains from the Chairman expressing concern about comments made 
by an outside lobby group. We have that. And it was after that 
concern was expressed, that the course changed within the SEC 
to go from an interim rule to a proposed rule. And that doesn't 
concern you?
    Ms. Walter. It doesn't concern me because I believe--I 
cannot speak for Chairman Schapiro, but quite frankly, as I 
have said several times during the course of this hearing, I 
always thought the better course of action was to propose a 
rule from the beginning. And I thought that was the better way 
to go. We also are always concerned when we are told by outside 
groups, in essence, that if you go a different way, we will sue 
you. We don't want to adopt rules--
    Mr. Duffy. I want to reclaim my time.
    Ms. Walter. --and then have them invalidated or stayed.
    Mr. Duffy. If I could direct your attention to the screen, 
it is an email from Chairman Schapiro. And it says, ``I have 2 
worries--one is that if these guys (CFA, et al) feel this 
strongly, it seems like we should give them a comment period. 
Its not really asking for much.'' So that means she is saying 
they have asked for a comment period, which means they have 
asked for a proposed rule instead of the interim final rule. 
And she says they have asked for it, so we should give it to 
them. Isn't that what she is saying?
    Ms. Walter. Yes. And you have to keep in mind that a 
comment period is the norm. It is the way rulemaking is 
traditionally and overwhelmingly done. The question here was--
    Mr. Duffy. Then how did you ever get to the point where you 
were going to go with an interim final rule?
    Ms. Walter. The suggestion was made that in this case, 
there was an adequate basis to do an interim final rule. The 
suggestion was never made that giving a comment period, which 
is a more informed way to do rulemaking--
    Mr. Duffy. I want to reclaim my time. This lobby group, the 
Consumer Federation of America, who sent this email which 
persuaded the Chairman to change direction, how many of those 
lobbyists are Members of Congress or Senators? How many?
    Ms. Walter. I would assume none.
    Mr. Duffy. Not one. That is right. But it was their 
influence that changed the course and will of this institution.
    I yield back.
    Chairman McHenry. We will now go to Mr. Barr of Kentucky.
    Mr. Barr. Thank you, Mr. Chairman.
    Commissioner, thank you for your testimony today. Is it 
your position that Section 201(a) is in conflict with the 
notice and comment requirement of the Administrative Procedure 
Act?
    Ms. Walter. No, it is not.
    Mr. Barr. Okay. What is your position with respect to the 
interface between notice and comment requirements under the APA 
and the JOBS Act 90-day provision?
    Ms. Walter. You have to look--we were required, if at all 
possible, to comply with both. We did not make the deadline. 
But in order to dispense with the notice and comment provision, 
we would have to have a justification and just cause. Our 
General Counsel's Office suggested that might be possible here 
and was one way of dealing with the risk of our perhaps not 
being able to obtain relief in the general solicitation case. 
But the fact that there is a congressional deadline does not in 
and of itself change the obligations under the APA.
    Mr. Barr. And you said in addition to that, agencies never 
meet congressional deadlines, or rarely meet the 90-day 
deadline.
    Ms. Walter. No--
    Mr. Barr. Was that your testimony?
    Ms. Walter. No. I said that 90 days is a very short 
deadline for rulemaking.
    Mr. Barr. Is it your opinion--
    Ms. Walter. What I said, if I may, is that rarely, if ever, 
have I seen a rule, mandated or not, go through the process in 
that short a period of time.
    Mr. Barr. I understand that. And I understand your 
testimony with Mr. Duffy that notice and comment on a longer 
period of time is traditionally done. The question here, 
though, is the 90-day directive from the Congress under the 
JOBS Act. And my follow-on question would be, is it your 
opinion that it is impossible for administrative agencies to 
meet a 90-day deadline on rulemaking such as was dictated in 
this case?
    Ms. Walter. It would have been extraordinarily difficult.
    Mr. Barr. Okay. Does the Administrative Procedure Act (APA) 
permit rulemaking within a 90-day window?
    Ms. Walter. Yes, it does.
    Mr. Barr. Okay. Do you agree that an interim final 
rulemaking would enable compliance with a 90-day deadline?
    Ms. Walter. Assuming that the standard was met, and I 
wasn't convinced that the standard was met, I think that is a 
litigable question.
    Mr. Barr. Okay. So why was a proposed rule decided upon in 
lieu of an interim rule, an interim final rule, in light of the 
fact that only an interim final rule would have been consistent 
with the 90-day statutory deadline?
    Ms. Walter. I can only speak for why I favored a proposed 
rule and preferred one. It was the only proposal that was put 
before the Commission for a vote. And I favored a proposed rule 
because I wanted to hear what people said both about how the 
ban should be implemented in terms of verification and--
    Mr. Barr. To reclaim my time, I understand your preference 
from your previous testimony. But my question to you really is, 
did Congress speak directly to the precise question, which is 
the 90-day deadline?
    Ms. Walter. Congress spoke directly to the 90-day deadline. 
It did not speak to the Administrative Procedure Act.
    Mr. Barr. Is the JOBS Act Section 201(a) more specific in 
its directive to Congress than the more general notice and 
comment of rulemaking direction under the Administrative 
Procedure Act?
    Ms. Walter. I believe that they are both specific 
directives, and that if we don't meet the standards of the APA, 
we have an invalid rule.
    Mr. Barr. Is the intent of Congress on 90 days clear to 
you?
    Ms. Walter. Yes, it is.
    Mr. Barr. Is the expressed intent of Congress on the 90-day 
deadline in any way ambiguous to you?
    Ms. Walter. No, it is not.
    Mr. Barr. Okay. Then under Chevron, and you comply with the 
Administrative Procedure Act regularly, you understand the 
requirements of the Supreme Court's interpretation of the law 
under Chevron, and under step one of Chevron, it is pretty 
clear what an administrative agency's obligations are. Always 
when Congress has spoken directly to the precise question at 
issue, if the intent of Congress is clear, that is the end of 
the matter for the court, as well as the agency must give 
effect to the unambiguously expressed intent of Congress. You 
just testified that you agreed that the unambiguous expressed 
intent of Congress was 90 days. Why did you not comply with 
that directive under the Chevron mandate?
    Chairman McHenry. The gentleman's time has expired, but the 
witness may answer.
    Ms. Walter. Thank you. Because I do not believe it 
overrides the Administrative Procedure Act, nor do I believe it 
overrides our job. We also have an obligation to consider the 
economic analysis, and we have an obligation to consider how it 
impacts the protection of investors and our mission. And I 
think we are supposed to do all of those things. We did not 
meet the 90-day deadline, as I have said. We regret that. I am 
committed to moving forward with the rule. And I do believe 
that what we are talking about in terms of the unambiguity 
really relates to the substance of the statute, not the timing.
    Mr. Fitzpatrick [presiding]. The Chair will recognize 
himself for 5 minutes.
    Commissioner, I just want to go back over those lines of 
questions we had about Meredith Cross. She was proposing a 
scenario where you were going to be able to comply with the 90-
day requirement. She wanted to go to interim rule or interim 
final rule. And you indicated that she was the staff person 
with the most knowledge with respect to the rule, correct?
    Ms. Walter. That is correct.
    Mr. Fitzpatrick. And there were other staff members at SEC 
who were concerned that there might be a number of comments 
that she was unaware of, and so they decided to overrule her? 
Is that what happened?
    Ms. Walter. No, she didn't have the decision-making 
authority. Understand that the divisions work on 
recommendations to the Commission. Those recommendations are 
presented to the Commission. And it is the five voting 
Commissioners who have the decision-making authority.
    Mr. Fitzpatrick. But she, the person with the most 
knowledge within the agency, had actually provided a mechanism 
or a path where the Commission could both comply with the law, 
the 90-day requirement, and consider comments or suggestions or 
revisions going forward. I just refer to Exhibit 2, if we could 
put that up on the screen. That is the email from Thomas Kim. 
It says, ``Meredith supported going straight to a final rule, 
as we could then have a pilot period where we could assess how 
issuers are verifying...'' He goes on to say, ``She was more 
comfortable doing this as an interim final temporary rule, 
which means it would sunset at some future date. Two years was 
tossed around as a possible sunset date.''
    So didn't she provide a mechanism where you could both 
comply with the 90-day time period, comply with the law as 
passed by Congress, the House and the Senate, and signed by the 
President, be able to comply with the law, and consider 
suggestions going forward?
    Ms. Walter. She provided a possible way to go forward. She 
never said she was opposed to doing a proposal.
    Mr. Fitzpatrick. But it was possible to comply with the 
law. Correct?
    Ms. Walter. It was possible to meet the deadline.
    Mr. Fitzpatrick. I want to refer to Chairman's Exhibit 6, 
which is the email from Chairman Schapiro, the third sentence, 
which states, ``Its not really asking for much. The other is 
that I don't want to be tagged with an Anti-Investor legacy.'' 
Do you agree that asking for a comment period was not asking 
for much?
    Ms. Walter. Yes, I do, because I think the law generally 
provides for it. It is a right. It is the essence of 
rulemaking. And you have to have an exceedingly good reason to 
dispense with it. So, yes, I do agree with that statement.
    Mr. Fitzpatrick. Is breaking the law not asking for much? 
The law did require that this occur within 90 days, correct?
    Ms. Walter. Congress set that deadline. We tried to meet 
it. We did not meet it. There have been other instances in 
which we have not met deadlines. There are deadlines that we 
meet. We always try to meet them. We don't always meet them. I 
don't think, and I will repeat, I never felt comfortable with 
dispensing with the comment period, because you look at the 220 
comment letters we have gotten and tell me that they are not 
valuable in determining how to go forward with this rule.
    We have an obligation to do this and to do it right. This 
is a rule you told us to do. You told us to go and do the 
rulemaking. We have to do it in accordance with our 
responsibilities. I wish that we had been able to do it while 
meeting the 90-day comment period, but we did not.
    Mr. Fitzpatrick. But there was a way to do it within the 90 
days and consider the comments. Correct?
    Ms. Walter. There was a way to adopt a rule. Would it have 
been the right rule? Would it have been a responsible rule? I 
am not so certain of that.
    Mr. Fitzpatrick. I recognize Mr. Cleaver for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Ms. Walter, I served as the mayor of Kansas City for 8 
years, and as I was leaving office, I was asked to support 
various members of the city council and even people running to 
succeed me. One of the things I said to them was that I have 
been able to recreate two projects: one, Union Station; and 
two, the 18th and Vine Jazz District. And I said, that is my 
legacy. My concern is that you support my legacy.
    Now, everybody wants to be remembered. But the other part 
of it is we had invested about $250 million. So I wanted that 
legacy protected. And I am not sure that there was anything 
sinister in asking that my legacy be protected because it also 
had something to do with the city and the investment of the 
city. So if somebody wants their legacy to protect investors 
protected, what is wrong with that?
    Ms. Walter. There certainly is nothing wrong with it. I 
hope that in my short term as Chairman, I will be remembered as 
someone who protected investors.
    Mr. Cleaver. I yield back my time to the ranking member.
    Mr. Green. Thank you, Mr. Cleaver.
    I am assuming the remainder of Mr. Cleaver's time. Okay, 
thank you.
    First, let me compliment you for being such a person with 
great dignity and composure. Much has been said about the 90-
day window. You have never refused to come to Congress to give 
testimony when required or requested, have you?
    Ms. Walter. Of course not.
    Mr. Green. And did you receive any request from Congress as 
to your appearing and giving testimony as to whether or not 90 
days was the appropriate amount of time to perform this task?
    Ms. Walter. I was asked to come up to speak about Title II 
and how the process ran and why it wasn't done.
    Mr. Green. And has Congress ever made an inquiry of you as 
to whether or not 90 days was a sufficient amount of time prior 
to today?
    Ms. Walter. Not that I am aware of.
    Mr. Green. And are you aware that other persons do come and 
testify, I am sure, but do you have any knowledge of Congress 
performing any due diligence to come to a conclusion that 
surely 90 days is the amount of time that is needed to get this 
done?
    Ms. Walter. No, I don't know of any such due diligence 
being performed.
    Mr. Green. The 90-day window, did Congress mandate that you 
do it in 90 days, and that in doing it, you avoid the comment 
period?
    Ms. Walter. No.
    Mr. Green. So the comment period is something that is 
codified in the law?
    Ms. Walter. That is correct.
    Mr. Green. And the comment period is what is generally done 
so that you will do things that are reasonable, that are 
prudent, and that will protect investors in the process.
    Ms. Walter. Absolutely.
    Mr. Green. Have comment periods been beneficial in the 
past?
    Ms. Walter. In my experience, I always learn things through 
the comment period.
    Mr. Green. So we have a circumstance now where Congress 
gave you 90 days, did not indicate that you should avoid the 
comment period, and what you have done thus far is what would 
typically be done under normal circumstances, and we did not 
indicate that these circumstances were so exigent that you 
should avoid the comment period. Correct?
    Ms. Walter. Correct.
    Mr. Green. With the use of the comment period, you 
indicated that you received more than 200 comments. I don't 
remember the exact number. What was that number again?
    Ms. Walter. Two hundred and twenty, I believe.
    Mr. Green. Two hundred and twenty. And within what period 
of time, if you recall, did you receive the 220 comments?
    Ms. Walter. My recollection is, and I may need to be 
corrected, that the comment period expired in October. 
Generally speaking, comments come in through the comment 
period, a little bit after the comment period. I think in this 
particular case, given the amount of interest in it and the 
decidedly different views, we have continued to receive 
information from time to time. We always try to consider what 
comes in even if it is after the deadline.
    Mr. Green. And were these comments beneficial in this 
process?
    Ms. Walter. Yes, they have been very beneficial.
    Mr. Green. Have you acquired intelligence by way of the 
comment period that you would not have acquired but for the 
comment period?
    Ms. Walter. Yes. I believe we have.
    Mr. Green. Finally, this: Do you know of any rule or law 
that mandates that you have a certain amount of time to act on 
a given mandate from Congress with reference to developing a 
rule?
    Ms. Walter. No, I am not aware of any.
    Mr. Green. So Congress could have selected 60 days?
    Ms. Walter. Yes, I believe that is correct.
    Mr. Green. We could have selected 30 days. And we chose 90 
days. I won't say that is arbitrary and capricious, but I don't 
see a record that indicates that 90 days was the prudent thing 
to do.
    I yield back, Mr. Chairman.
    Mr. Fitzpatrick. Ms. Wagner is recognized for 5 minutes.
    Mrs. Wagner. Thank you. Mr. Chairman, I am also reminded 
that we are well beyond the 90-day enactment period.
    Commissioner Walter, the SEC has recently lost a series of 
high-profile cases in which it was determined that the SEC had 
acted beyond its authority. I am reminded of the Business 
Roundtable proxy access, I am reminded of Gabelli. You have 
acknowledged, Commissioner, that the enforcement concerns 
associated with the ban, you have acknowledged the clarity of 
Title II and its clear purpose. We have also heard repeatedly 
about the SEC's scarce resources. Additionally, the Commission 
has had a poor track record, I think obviously, as I stated, in 
court as of late. And given all of this, would the SEC use its 
scarce resources to enforce the ban against those that abide by 
Title II?
    Ms. Walter. I don't know that it would. That would have to 
be made in an individual case, and we would have to look at the 
facts surrounding it and seeing what the other circumstances 
were. For example, many times when there is a registration 
violation, there is also a fraud violation. They sometimes go 
hand in glove.
    Mrs. Wagner. Let me go back, if I can. I am a little 
troubled, going back to the accredited investors discussion 
here and your wanting to somehow change the way that it is 
determined. Explain that in a little broader sense, if you 
could. How is it that you would like to change the way that it 
is determined?
    Ms. Walter. The theory behind the private placement 
exemption, and these are all forms of private placement 
exemptions that we are talking about, is that there are 
categories of investors who don't need the protections that the 
law ordinarily brings in a registered offering. It is my 
concern that as accredited investors are defined today, and 
that same definition has been on our books, and it is a rule, 
not a statute, that hasn't been changed in decades, that it 
includes people who do need the protections of the securities 
laws.
    Mrs. Wagner. I am looking at this, and the rule, $200,000 
minimum income, $1 million in assets. Are you suggesting that 
only the wealthier and the wealthier should have access to 
these kinds of investments and capital markets?
    Ms. Walter. The theory of having a registration system is 
that there are protections given to investors by having 
information be made publicly available and subject to review by 
a government agency.
    Mrs. Wagner. But what specifically is the determination of 
an accredited investor? I think I just laid out what that is.
    Ms. Walter. That is what we decided it was in the early 
1980s. It is now 2013. And it is--
    Mrs. Wagner. You don't think hard-working families and 
middle-class families, my goodness, a $200,000 minimum income, 
a million dollars in assets, excluding their home. Why should 
only the wealthier and wealthier have access to this?
    Ms. Walter. The determination in the Federal securities 
laws enacted by Congress was the presumption that when you make 
an offering of securities to the public, it should be 
registered, and it should be subject to these protections. The 
private offering exemptions, the safe harbor included in Rule 
506, are for those people who don't need the protections the 
law applies. Congress could decide it doesn't like the 
registration system. That is not the determination Congress 
made. It said there would be a registration system, offerings 
would be made with these protections. And they are particularly 
concerned about protections against fraud.
    And we go through a comment process when we get a public 
offering, and we have a back-and-forth with an issuer to try to 
make sure that their disclosures are robust and full. That 
process is missing in the private offering process. So the 
theory is that there are certain people--and it is not really 
so much wealth, it is sophistication. What we are looking for 
is sophistication and the ability, the wherewithal to look at 
the issuer and say, I want to know more about your financial 
condition, tell me, there is not enough on this piece of paper. 
We now have these offerings being made to people who don't have 
the ability to demand that information and don't have the 
sophistication to make those decisions--
    Mrs. Wagner. And why is that? Why do they not have that 
ability?
    Ms. Walter. Because financial literacy in this country, 
even among people who are quite well-educated and who have a 
fair amount of money, is not what it should be. But there are 
lots of unsophisticated people.
    But I think your analysis really, if I may, stands the law 
on its head. The private placement is the exception. Your 
question suggests that the private placement should be the rule 
and one should have to justify needing the protections of the 
registration system. That is not the way the law is written. 
And that is the predicate on which the securities laws have 
been built since the 1930s.
    Mr. Fitzpatrick. The gentlelady's time has expired. Mr. 
Heck is recognized for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman. With your permission, I 
would like to yield my time to the ranking member of the 
subcommittee.
    Mr. Fitzpatrick. Without objection, it is so ordered.
    Mr. Green. Thank you very much, Mr. Chairman.
    Madam Commissioner, let's talk for a moment about the 
Volcker Rule. You are familiar with the Volcker Rule?
    Ms. Walter. I am.
    Mr. Green. Is it true that this rule was to be perfected by 
July 2012 or thereabouts?
    Ms. Walter. Yes, that is correct.
    Mr. Green. And I think it is safe to say that we have 
exceeded July 2012.
    Ms. Walter. I believe that is true.
    Mr. Green. We are approaching July 2013. The Volcker Rule 
was to be implemented around the same time as the JOBS Act. Is 
that a fair statement?
    Ms. Walter. I believe that is true.
    Mr. Green. Do you have any indication as to why the Volcker 
Rule has not been implemented? Have you been quizzed as to why 
you haven't implemented the Volcker Rule? Have we had a hearing 
comparable to this to ascertain why you haven't implemented the 
Volcker Rule?
    Ms. Walter. We have not. We have had correspondence, both 
from people who wanted to see it implemented faster and people 
on the Hill who don't want to see it implemented for quite a 
long time.
    Mr. Green. I am going to take just a moment to read a 
paragraph from a letter. This letter is addressed to the 
Honorable Ben Bernanke, Chairman, Board of Governors, Federal 
Reserve, and a host of other persons, including the Honorable 
Mary Schapiro, Chairman, U.S. Securities and Exchange 
Commission. It is a rather lengthy letter.
    So as to not exceed the time, permit me to read the next to 
the last paragraph. It reads, ``Given the time that it will 
take for you to agree on one version of the Volcker Rule as 
well as the tremendous uncertainty that market participants 
face in trying to anticipate what the final rule will look 
like, we respectfully suggest that the Federal Reserve Board 
delay the Volcker Rule''--some things bear repeating--``we 
respectfully suggest that the Federal Reserve Board delay the 
Volcker Rule's effective date until two years after the date on 
which the final rule is promulgated.''
    Now, I don't think that the persons who made this request 
are asking you to break the law. Listening to some of the 
comments today, I might conclude that some people think that 
what you have done has been a breach of the law because you 
have exceeded the 90-day window that Congress accorded you. But 
I, quite frankly, don't think that this is a breach of the law, 
and I certainly don't think that the persons who codified this 
letter and sent this letter to the Honorable Mary Schapiro and 
the Honorable Ben Bernanke, among others, I don't think that 
these persons broke the law, and I am going to stand up for 
them today. Because I have great respect for both of these 
persons who asked that you delay what was mandated by Congress. 
That is the way I read this letter, that you delay what was 
mandated by Congress. And I find that this letter has been 
signed by two people that I highly respect, and they are both 
friends of mine.
    I only introduce it because I want to make the point--I 
think it has to be made--that you are doing the best that you 
can under the circumstances existing, and that you are not 
doing this with malice aforethought, and that this is not the 
first time that we have exceeded a timeline that has been 
accorded you, that, in fact, Congress will ask that you take 
your time and make sure you get it right, which is not an 
unreasonable thing for Congress to ask.
    So, Mr. Chairman, I ask unanimous consent that I be allowed 
to place in the record this letter from my very good friend, 
the Honorable Spencer Bachus, and my very good friend, the 
Honorable Jeb Hensarling: Mr. Bachus as chairman; and Mr. 
Hensarling as vice chairman.
    Chairman McHenry. Without objection, it will be entered 
into the record.
    I ask unanimous consent that it also be noted in the record 
that the Volcker Rule did not have an implementation deadline 
of 90 days, as did Section 2 of the JOBS Act. Without 
objection, it is so ordered.
    With that, we will now recognize Mr. Grimm for 5--I am 
sorry, Mr. Duffy. I guess the two handsome men at the end of 
the dais get confused here. Sorry. Mr. Duffy is recognized for 
5 minutes.
    Mr. Duffy. Thank you, Mr. Chairman.
    Ms. Walter, I would like to direct your attention to an 
email that was sent from Chairman Schapiro on August 7th. It is 
an email that you were CC'd on. And in that email, the first 
line from Chairman Schapiro says, ``I know we spent an hour 
discussing this yesterday but they are making me very 
worried.'' And when she is saying ``they,'' there is an 
attached email from the lobby group we discussed in the last 5 
minutes I had with you.
    I am a bit concerned that Chairman Schapiro or the SEC is 
worried about a lobby group and their opinion; they are not 
worried about the law set forth by this institution. But that 
is not my question. You were CC'd on that email. Obviously, it 
is clear that Ms. Schapiro was expressing her worries about the 
position of a lobby group, so much so that she changed--or the 
SEC changed their position from going from an interim final 
rule to a proposed rule. What did you do to push back on Ms. 
Schapiro and others in the analysis that was being used in 
changing course and using the input from a lobby group and not 
the internal conversation of the SEC? Did you push back on 
that? Did you send emails out pushing back on this email from 
Ms. Schapiro?
    Ms. Walter. First, I will say I think it is entirely 
appropriate for public servants to consider views that are 
expressed both externally and internally within the agency in 
making their decisions.
    Second, I will say I have always said that I was not 
comfortable with dispensing with the comment period. And so, 
when she started to express more concern about dispensing with 
the comment period, that was closer to my views than vice 
versa.
    Mr. Duffy. And how about if the lobby group is expressing a 
position that is contrary to the will of the American people as 
spoken through Congress? Then do you have a concern?
    Ms. Walter. I do not believe that was the case. As I have 
said, I think there are a number of statutes that we need to 
comply with. And we need to do our rulemaking responsibly. 
Frankly, it would not save a rule--
    Chairman McHenry. If our witness would pull the microphone 
closer. It is hard to hear.
    Ms. Walter. I am sorry. I am height-challenged.
    Chairman McHenry. I can relate.
    Ms. Walter. It would not save our rule from scrutiny and 
perhaps being overturned by a court.
    Mr. Duffy. So you did nothing to push back on the comments 
made by Ms. Schapiro to say that she was worried about the 
comments made by this lobby group on the course of the--
    Ms. Walter. I, too, was worried about dispensing with 
notice and comment. So, no, I did not push back.
    Mr. Duffy. Okay. Changing course a little bit, would you 
agree that the purpose of the JOBS Act and the purpose of Title 
II was to actually expand and grow the economy, create more 
jobs within our communities? That was the purpose of this Act, 
right, including Title II, yes?
    Ms. Walter. Yes, that is correct.
    Mr. Duffy. Why didn't you have then the rule completed 
within 90 days?
    Ms. Walter. As I have said, we determined that we would put 
a rule out for comment and see what the commenters had to say, 
because we were given an obligation to lift the ban, we thought 
we also needed to explore how that was going to be done, the 
alternatives to different ways to do it, and whether there were 
additional issues that needed to be considered.
    Mr. Duffy. Okay. I am going to reclaim my time. You admit 
that this is a law that will create jobs within our society.
    Ms. Walter. No, I said I believe that is the intent. I hope 
when this law is implemented, either this law or other laws 
will create jobs. It is not my job to analyze whether it will 
carry out its purpose or not.
    Mr. Duffy. That is right. But it is your job to follow the 
will and intent of Congress, which is to get a rule out within 
90 days. And so you have come in and testified and said, 
listen, 90 days wasn't enough time for us. I will accept that. 
I think that is a good point. I am willing to accept that. I am 
concerned about these emails. I have expressed that to you.
    But we are well beyond 90 days. We are over a year and we 
are not done. Are you telling this institution that a year is 
not enough time for you to have this issue resolved and to have 
a rule out?
    Ms. Walter. The only thing I can say to you, Congressman, 
is that I regret we did not meet the deadline. I regret--
    Mr. Duffy. Is a year not enough time?
    Ms. Walter. It has turned out that we have not gotten it 
done. Could we have gotten it done?
    Mr. Duffy. Did you need more time than a year?
    Ms. Walter. We had rules that take far longer than a year 
to do. I am committed to trying to get this one done--
    Mr. Duffy. Is this one of them?
    Ms. Walter. --as expeditiously as possible. Yes, this was 
highly controversial, and we heard a lot of heavy comment from 
a lot of different people on both sides.
    Mr. Duffy. Can I ask one question? You took a little of my 
time with your height comment. Can I ask just one quick 
question? It is not on this, but on--
    Chairman McHenry. I ask unanimous consent that the 
gentleman has an additional minute.
    Mr. Duffy. Thank you. I am going to change topics on you 
quickly. There has been some conversation about a pilot program 
to increase tick sizes. It was discussed in the JOBS Act. There 
are quite a few people who support it. Ms. White has expressed 
some interest, I think. I don't know if in a pilot program. She 
has indicated that she agrees that a one-size strategy doesn't 
fit all. Is that something that you would agree with, exploring 
some modification to tick sizes for small companies?
    Ms. Walter. I don't yet have a formed position on that, but 
I do agree that it is a serious issue, and we should explore 
it.
    Mr. Duffy. Thank you. I yield back.
    Chairman McHenry. And with that, I will now recognize the 
ranking member of the subcommittee for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    My assumption is that you don't get letters from industry. 
We have talked about a letter today. You don't get letters from 
industry, do you?
    Ms. Walter. We certainly do.
    Mr. Green. Is it unusual to get letters from industry?
    Ms. Walter. Not at all. We get letters and visits from 
industry all the time on a very wide range of subjects. And I 
believe that as public servants it is my duty and my pleasure 
to meet with these people, read the letters no matter who is 
sending them, no matter who is coming in to meet with me.
    Mr. Green. Do you assume that because you get a letter from 
industry that somehow industry is doing something that is 
inappropriate and somehow exerting undue influence?
    Ms. Walter. No, I do not.
    Mr. Green. Do you find that it is helpful to have 
industry's point of view when you are promulgating rules?
    Ms. Walter. Yes, I do.
    Mr. Green. Have you, in fact, because you have received 
requests from industry, specific requests, have you honored 
some of those requests in the orderly rulemaking fashion?
    Ms. Walter. Yes.
    Mr. Green. Is it unusual to take seriously what industry 
ask of you?
    Ms. Walter. Not at all.
    Mr. Green. Do you find it unusual that persons who 
represent investors will ask that you give consideration to 
certain aspects of your rulemaking parameters?
    Ms. Walter. It is not unusual, but it happens with less 
frequency than it does with industry.
    Mr. Green. Some things bear repeating. Are you saying that 
you get more input by way of request from industry, which is 
not bad, but more from industry than you do from consumer 
entities?
    Ms. Walter. Yes. That is correct.
    Mr. Green. Are you offended by this?
    Ms. Walter. I am not offended by it, but I do wish that we 
had better means of communicating with the investing public, 
whom I consider to be our primary constituency, and we have 
been working on improving that.
    Mr. Green. Let's go back to the Volcker Rule for just a 
moment. You have now gone beyond the timeline to implement it, 
which was July of 2012, I believe, and we are beyond July 2012.
    Ms. Walter. Yes.
    Mr. Green. Probably about the same amount of time as before 
the JOBS Act.
    And it is true, for clarity purposes, that you have not 
been called before Congress to explain why you have gone beyond 
the timeline for the Volcker Rule; is this true?
    Ms. Walter. I have not.
    Mr. Green. And the Volcker Rule is designed to protect 
investors, is it not?
    Ms. Walter. Yes, it is.
    Mr. Green. Under the Volcker Rule, my suspicion is that you 
have received some letters from investors or people 
representing investors as well as from industry; is this a fair 
statement?
    Ms. Walter. I believe it is.
    Mr. Green. And would you give those your considered thought 
before you implement your new rule?
    Ms. Walter. Absolutely.
    Mr. Green. So with the Volcker Rule, as with the JOBS Act, 
we find ourselves being reasonable, prudent, and judicious as 
we move forward. I say ``we'' because quite frankly, we have a 
lot of input into what you do. But is that a fair statement?
    Ms. Walter. Yes, it is.
    Mr. Green. And you are not giving one less attention than 
the other?
    Ms. Walter. No.
    Mr. Green. You believe them both to be important?
    Ms. Walter. Yes.
    Mr. Green. Now, let's do something else. Let's talk about 
sequestration for just a moment. We talked about your budget 
earlier and we have talked about how you have been underfunded. 
Sequestration is going to have an impact on a good many 
agencies. Is your agency one of the agencies that will be 
impacted by sequestration?
    Ms. Walter. Yes, it is.
    Mr. Green. Do you have any sense of how this impact will 
have an effect on what you will be doing?
    Ms. Walter. For one thing, it is going to curtail our 
hiring. And we are going to have to parcel out those people who 
get to refill positions when people leave. It is also going to 
affect how much we are able to spend on technology and how much 
we are going to be able to progress on our second technological 
plans. Those are the two main issues but those are--our budget 
is largely a people budget given the nature of what we do, not 
surprisingly, so it will have an impact in both of those areas.
    Mr. Green. And you are expected to be the cop on the beat 
to make sure that the streets are safe for investors, is that 
correct?
    Ms. Walter. Yes, that is correct.
    Mr. Green. And it appears to me that you are also expected 
to do a lot more with a lot less.
    I yield back.
    Chairman McHenry. The gentleman yields back, and I will 
recognize myself for the final round, for the final question, I 
should say. This will be the last question of the day.
    I will put up Exhibit 6 on the board just to reiterate my 
opening statement.
    It is an email from Mary Schapiro, then the Chairman of the 
SEC, to Meredith Cross. The subject line is, ``Please don't 
forward.'' And the email states, ``I look forward to talking 
tomorrow. I have 2 worries--one is that if these guys (CFA, et 
al) feel this strongly, it seems like we should give them a 
comment period. Its not really asking for much. The other is 
that I don't want to be tagged with an Anti-Investor legacy. In 
light of all that's been accomplished,'' blah, blah, blah.
    So, not asking for much, anti-investor legacy.
    It is this email that should raise concern for you and for 
your agency, and it seems like this should be in some way 
upsetting and in some way a concern, right?
    And I don't see any outrage, any concern in your testimony, 
your comments today.
    Now, there was concern expressed and we will go to Exhibit 
7 on this, and Mary Schapiro forwarded an email to Meredith 
Cross and two others entitled, in the forward, ``I am 
furious.'' It comes from Dan Gallagher, a fellow Commissioner 
of yours. And he says, ``I just got word about the latest 
change to general solicitation. It is not acceptable. I have 
been operating in good faith, reviewing the multiple proposals 
sent to me for consideration this month, and I continue to find 
shifting sands. A `proposal' on general solicitation could have 
been done months ago, and indeed should have been done years 
ago. Meredith and Lona made it crystal clear to me on Monday 
that there is no need for a proposal because we know what the 
comments will be. And so, I spent hours working on how to 
accommodate your desire for a study within an interim final 
rule, and we did so--just to find out now that you have changed 
your mind again.''
    Now, Mary Schapiro forwards this on to others and says, 
``This did not go well.'' That was her only comment.
    So that is a concern, and that is why we have hearings, 
when we see an agency which has that type of disorder.
    I am hopeful that with a new Chairman, we can actually 
right this ship. And I certainly believe, as I said in the 
beginning, in your capacity, in your intellectual capacity and 
your understanding of securities laws to take this on.
    If you wish to respond, go right ahead.
    Ms. Walter. I would say that I don't see in these emails an 
agency that is in disarray. I see in these emails--I can't 
speak for what Mary Schapiro was seeing at the time--a concern 
that there is a constituency interested in our rulemaking, and 
as the ranking member points out, in this case it is an 
investor group, someone speaking for investors, it could have 
been industry saying we want a comment period so that we have a 
chance to see a specific proposal and to make comments on it, 
which is the essence of the rulemaking process, and I see a 
Chairman being concerned about that. I do not think that is a 
cause for outrage.
    Chairman McHenry. Yes. But the comment I am concerned about 
is ``an Anti-Investor legacy'' as she is leaving the agency. 
That is a concern I see.
    And so, why I bring this up is I am hopeful that we can 
take this on, that your agency can take on the JOBS Act 
implementation, and I would hope, I think the takeaways from 
this hearing is that the agency put those concerns over 
actually letting capital flow. And that is the reason why the 
JOBS Act even occurs as we see the SEC stifling the flow of 
capital and at the same time not protecting investors as well 
as they should.
    And so my concern is that you have prioritized that 
inaction over the will of Congress and the law.
    We have a two-page bill, the discretion is very limited, 
within 3 weeks you had a proposed rule at the staff level, we 
don't want any further excuses, and I am very hopeful that in 
the future, we will have some movement on this.
    I certainly appreciate your willingness to testify before 
Congress. The origin of this hearing was a request for a member 
of the staff, and you offered yourself when you were Acting 
Chairman. That was very kind of you, and I certainly appreciate 
your willingness to engage in the discussion today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place her responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    And without objection, this hearing is adjourned.
    [Whereupon, at 4:25 p.m., the hearing was adjourned.]










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