[Senate Hearing 114-223]
[From the U.S. Government Publishing Office]
S. Hrg. 114-223
NOMINATIONS OF MATTHEW RHETT JEPPSON, LISA M. FAIRFAX, AND HESTER MARIA
PEIRCE
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
Matthew Rhett Jeppson, of Florida, to be Director of the U.S. Mint
__________
Lisa M. Fairfax, of Maryland, to be a Member of the Securities and
Exchange Commission
__________
Hester Maria Peirce, of Ohio, to be a Member of the Securities and
Exchange Commission
__________
MARCH 15, 2016
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
MIKE CRAPO, Idaho SHERROD BROWN, Ohio
BOB CORKER, Tennessee JACK REED, Rhode Island
DAVID VITTER, Louisiana CHARLES E. SCHUMER, New York
PATRICK J. TOOMEY, Pennsylvania ROBERT MENENDEZ, New Jersey
MARK KIRK, Illinois JON TESTER, Montana
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina JEFF MERKLEY, Oregon
BEN SASSE, Nebraska ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota JOE DONNELLY, Indiana
JERRY MORAN, Kansas
William D. Duhnke III, Staff Director and Counsel
Mark Powden, Democratic Staff Director
Dana Wade, Deputy Staff Director
Jelena McWilliams, Chief Counsel
Elad Roisman, Securities Counsel
Shelby Begany, Professional Staff Member
Laura Swanson, Democratic Deputy Staff Director
Graham Steele, Democratic Chief Counsel
Elisha Tuku, Democratic Senior Counsel
Megan Cheney, Democratic Legislative Assistant
Dawn Ratliff, Chief Clerk
Troy Cornell, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
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TUESDAY, MARCH 15, 2016
Page
Opening statement of Chairman Shelby............................. 1
Opening statements, comments, or prepared statements of:
Senator Brown.................................................... 3
NOMINEES
Matthew Rhett Jeppson, of Florida, to be Director of the U.S.
Mint........................................................... 5
Prepared statement........................................... 39
Biographical sketch of nominee............................... 42
Responses to written questions of:
Senator Brown............................................ 92
Lisa M. Fairfax, of Maryland, to be a Member of the Securities
and Exchange Commission........................................ 6
Prepared statement........................................... 52
Biographical sketch of nominee............................... 53
Responses to written questions of:
Senator Crapo............................................ 92
Senator Corker........................................... 93
Senator Kirk............................................. 95
Senator Sasse............................................ 96
Senator Rounds........................................... 100
Senator Schumer.......................................... 103
Senator Menendez......................................... 104
Senator Warner........................................... 109
Hester Maria Peirce, of Ohio, to be a Member of the Securities
and Exchange Commission........................................ 7
Prepared statement........................................... 63
Biographical sketch of nominee............................... 64
Responses to written questions of:
Senator Corker........................................... 111
Senator Kirk............................................. 112
Senator Sasse............................................ 113
Senator Rounds........................................... 118
Senator Schumer.......................................... 121
Senator Menendez......................................... 122
Senator Warner........................................... 124
Additional Material Supplied for the Record
Charts submitted by Senator Brown................................ 126
(iii)
NOMINATIONS OF MATTHEW RHETT JEPPSON, OF FLORIDA, TO BE DIRECTOR OF THE
U.S. MINT; LISA M. FAIRFAX, OF MARYLAND, TO BE A MEMBER OF THE
SECURITIES AND EXCHANGE COMMISSION; AND HESTER MARIA PEIRCE, OF OHIO,
TO BE A MEMBER OF THE SECURITIES AND EXCHANGE COMMISSION
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TUESDAY, MARCH 15, 2016
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:03 a.m., in room SD-538, Dirksen
Senate Office Building, Hon. Richard Shelby, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The Committee will come to order.
This morning, we will hear testimony on a nomination for
the U.S. Mint and two nominations for the Securities and
Exchange Commission. This panel of nominees, if confirmed, will
have important responsibilities for the manufacturing and
distribution of our currency as well as for overseeing our
Nation's capital markets.
The Committee will first hear from Mr. Matthew Rhett
Jeppson, who is nominated to be Director of the United States
Mint. He has served as the Principal Deputy Director of the
Mint since January 15, and before that was Acting Chief
Operating Officer of the U.S. Small Business Administration. If
confirmed, Mr. Jeppson would be responsible for overseeing the
manufacturing and distribution of currency as well as
collectible coins, national medals, and other precious metals.
Mr. Jeppson, the Committee welcomes you this morning.
Both Ms. Fairfax and Ms. Peirce are nominated to be members
of the Securities and Exchange Commission. Ms. Fairfax is a
Leroy Sorenson Merrifield Research Professor of Law at the
George Washington University Law School. Since 2009, she has
served on the Executive Board and is the Director for Programs
for the George Washington Center for Law, Economics, and
Finance. She has previously served as a visiting professor at
the Georgetown University Law Center as well as various roles
at the University of Maryland School of Law. Ms. Fairfax has
also previously worked at a Washington, DC, law firm. She is a
graduate of Harvard College and Harvard Law School.
Ms. Peirce is a Senior Research Fellow at the Mercatus
Center at George Mason University and the Director of the
Mercatus Financial Markets Working Group. Before joining
Mercatus, Ms. Peirce served as Senior Counsel for securities
issues on this Committee's staff, and prior to that, she served
at the SEC as a Staff Attorney and Counsel to Commissioner Paul
Atkins. Before that, she had clerked for Judge Roger Andewelt
on the Court of Federal Claims and was an associate at a
Washington, DC, law firm. Ms. Peirce earned her B.A. in
economics from Case Western Reserve University and her J.D.
from Yale Law School.
As SEC Commissioners, Ms. Fairfax and Ms. Peirce would be
responsible for helping the SEC fulfill its mission of
protecting investors, maintaining fair, orderly, and efficient
markets, and facilitating capital formation. The Committee
welcomes you both and looks forward to the nominees' testimony.
Before we get into that, I would like to comment on a few
other things.
The nominations update. Last week, the Committee voted to
report out favorably the nomination of Adam Szubin to be Under
Secretary of the Treasury for Terrorism and Financial Crimes.
We currently have 16 nominations pending before the
Committee. Of those 16 nominations, seven are privileged, which
allows them expedited floor consideration upon Committee
certification of the receipt of paperwork. Of those seven
privileged nominations, the Committee has transmitted to the
floor a certification of receipt of nomination information for
four individuals, for nominations for Directors of the
Securities Investor Protection Corporation, John Menendez and
Leslie Bains, and for nominations for Members of the Board of
Directors of the National Association of Registered Agents and
Brokers, Raymond Farmer and Heather Steinmiller. Certifying the
receipt of paperwork for privileged nominations effectively
clears them for floor consideration.
With respect to the other three privileged nominations
before the Committee, we are awaiting a response from the
Administration related to two additional nominees to the
National Association of Registered Agents and Brokers and have
not received the completed paperwork for a third nominee to
this association.
With respect to others pending before the Committee, I have
scheduled a markup for April 7 for the nomination of J. Neal
Lerner to be Inspector General of the Federal Deposit Insurance
Corporation and Amias Gerety to be Assistant Secretary of the
Treasury. I expect to add other nominations to this markup, as
well, including those before us today. However, I have excluded
them from the notice at the request of the Ranking Member at
this time.
Regarding the Fed nominations, as I have said before, I
will not hold a hearing on the two nominations for members of
the Federal Reserve Board of Governors until the President
fulfills his duty under the law and nominates a Vice Chairman
for Supervision. Section 1108 of the Dodd-Frank Act amends the
Federal Reserve Act to establish this position, one of two Vice
Chairmen, which is responsible for overseeing the Fed's
supervisory and regulatory activities.
I would remind you, this is no small role, given the Fed's
unprecedented authority over our financial system granted in
Dodd-Frank. Leaving the position vacant also deprives Congress
of an important oversight tool, as the Vice Chairman for
Supervision is statutorily required to testify before this
Committee twice a year. I believe this position should have
been filled long ago. It has now been almost 6 years since the
enactment of Dodd-Frank. The President should obey the law and
hold the Federal Reserve accountable for its actions.
Senator Brown.
STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman, for holding today's
hearing. Congratulations to the three of you as this process
begins to move forward.
Government is only as good as the people who are entrusted
with positions of leadership. I have been clear in my
frustration with this Committee's failure to act on the many
nominees for whom we are responsible. We have received 19
nominations over the past 15 months. We have acted in Committee
on only 1 of those 19, and that one we did last Thursday. No
other Senate committee failed to act on a nominee last year
throughout calendar year 2015 except this one.
While a lazy or an uninformed observer might chalk this up
to partisan bickering or the sort of thing that happens all the
time, that is not really the case. Do not take my word for it,
as Casey Stengel liked to say, you could look it up.
Posted on the Minority's Web site, this chart are
spreadsheets of the actions of the Committee and the Senate on
nominees over the past 15 years. The lowest share of nominees
reported by the Committee was 81 percent, in part because three
nominees arrived in late December. That 81 percent was during
my first Congress, my first 2 years on the Banking Committee,
in 2007 and 2008. There was a Democratic majority on this
Committee and in the Senate. There was a Republican President.
Yet, we confirmed 81 percent. That number would have been
higher if those three nominees had not arrived so late. Our
record to date is 26 percent, and just a few weeks ago, it was
zero.
The lowest rate of confirmation of nominees during this
period, from the 107th through the 114th Congresses, the lowest
rate of confirmations was 80 percent. Confirmation means the
Committee acts, the Senate acts. Our record on these 19
nominees is zero.
We should make progress on all the nominees pending before
the Committee, not just the nominees before us today, but those
who have been in limbo for 200 or 400 or even 900 days.
I know there are disagreements with President Obama's
policies. That is natural. But he was elected the Chief
Executive of our country twice. In fact, in the last century,
only four Americans have received a majority of the popular
vote twice, Dwight Eisenhower, Franklin Roosevelt, Ronald
Reagan, Barack Obama. Only four human beings in our country
have gotten a majority of the vote for President of the United
States twice.
President Obama has the right to put qualified people in
executive positions to carry out his policies and to enforce
the law. It would be a mistake to adopt a wholesale policy of
holding staff hostage for supporting the views of their boss.
That said, Mr. Chairman, I am pleased to welcome today's
nominees. Mr. Matthew Rhett Jeppson has been nominated to be
Director of the Mint. Ms. Lisa Fairfax and Ms. Hester Peirce
have been nominated to be members of the SEC.
Our first nominee exemplifies public service. He has served
our country since 1989 in active duty in the First Marine
Division and then in the U.S. Marine Corps Reserves. Between
1995 and 1999 and again from 2001 through 2012, Mr. Jeppson
held leadership positions within unified combat commands, the
Marine Corps, and U.S. military forces in Afghanistan. In 2012,
Mr. Jeppson joined the Small Business Administration to focus
on veterans business development and served as Acting COO, and
last year he became Principal Deputy Director of the U.S. Mint.
Eight years after the financial crisis, the importance of
the SEC in monitoring financial markets, protecting investors,
is only more obvious. We continue to learn that markets and
large institutions are interconnected and increasingly complex.
Ms. Peirce has spent much of her career in public service,
first at the SEC, then working on this Committee's Banking
staff. At that time, Ms. Peirce saw the financial crisis
unfold. I trust that experience will serve her well as the SEC
finalizes Dodd-Frank rules and tackles the rest of its agenda,
including Chair White's initiatives on mutual funds and market
structure.
Ms. Fairfax brings an academic's expertise combined with a
reasoned perspective to address the complex issues facing SEC.
Her scholarship on the duties and responsibilities of corporate
boards will be a valuable point of view when considering
enforcement issues and the best way to achieve accountability.
In order to navigate an ever-changing financial market
landscape, the SEC must work closely with other regulators here
in the U.S. and abroad to make sure markets function well and
that investors are protected. SEC Commissioners owe a duty to
the public to achieve these goals. We need to ensure that SEC
has the power and the resources to do that.
Thank you, Mr. Chairman.
Chairman Shelby. Thank you, Senator Brown.
Will all the nominees rise and raise your right hand.
Do you swear or affirm that the testimony that you are
about to give is the truth, the whole truth, and nothing but
the truth, so help you God?
Mr. Jeppson. I do.
Ms. Fairfax. I do.
Ms. Peirce. I do.
Chairman Shelby. Do you agree to appear and testify before
any duly constituted Committee of the Senate?
Mr. Jeppson. I do.
Ms. Fairfax. I do.
Ms. Peirce. I do.
Chairman Shelby. You may be seated.
All of your written testimony will be made part of the
hearing record.
Mr. Jeppson, we will start with you, and you sum up what
you want to say.
STATEMENT OF MATTHEW RHETT JEPPSON, OF FLORIDA, TO BE DIRECTOR
OF THE U.S. MINT
Mr. Jeppson. Thank you, Mr. Chairman, Senator Brown, and
Members of the Committee. I am honored to appear before you
today.
I would also like to thank the President for the trust he
has placed in me by nominating me to serve as the 39th Director
of the United States Mint.
Since January 2015, I have had the honor of serving as the
Principal Deputy Director of one of our Nation's oldest and
most venerable public institutions. The Mint was established
early on in the life of our republic; coining money is one of
the powers the Constitution explicitly grants to Congress.
I would like to begin my remarks by sharing how my personal
story led me to the Mint and describing what qualifies me to
become its next leader. Following that discussion, I will
explain how the Mint is fulfilling its mission today and what
we need to do to sustain the positive results we have produced
for the American people.
Throughout my career, I have served our Nation in a variety
of capacities. Prior to the Mint, I was Associate Administrator
for Veterans Business Development and later Chief Operating
Officer at the United States Small Business Administration. In
those roles, I am proud of the significant strides we made to
aid Veterans seeking to start small businesses.
Earlier in my career, I served as Director of State
Purchasing in my home State of Florida, where I oversaw the
implementation of a new electronic procurement system that
saved the State government millions of dollars.
Each of these professional experiences has shaped me in
important ways, but my greatest source of pride is my service
in the United States Marine Corps. My career as a Marine, from
those early days leading Marines in combat during Desert Storm,
to my more recent service in Afghanistan and Europe, has given
me the deepest admiration and respect for the Corps and its
mission.
In January of this year, I retired from the Marine Corps
after nearly 28 years of combined Active and Reserve service.
Serving our Nation as a Marine has profoundly influenced who I
am. It has given me a distinct approach to leadership and
management which I will bring to the Mint, if I am confirmed.
David Rittenhouse, renowned American astronomer, inventor,
clockmaker, and close friend of George Washington, was the
first Director of the Mint. He held a deep appreciation for
coin design as an artistic expression of our shared values.
Other American leaders have also taken great pride in our
work. President Theodore Roosevelt shared Rittenhouse's belief
that the way that we design our coins ought to reflect our
shared heritage. He personally commissioned the redesign of
American coinage in the early 20th century.
Mr. Chairman, the modern United States Mint is a lean,
vibrant, and efficient organization. When I began my service at
the Mint, one of the first things I set out to do was visit
each of our facilities and visit with our employees. Their
advice and ideas have helped me set priorities for the Mint. We
must continue to invest in our people and enable them to have
the skills they need to accomplish our mission and meet the
coinage needs of the United States.
In 2016, our mission is more important than ever. Cash
remains the most common method consumers use for payment,
comprising 40 percent of transactions, according to a recent
report by the Federal Reserve.
In fiscal year 2015, we shipped more than 16 billion coins,
an increase of 24 percent from the previous year. Bullion coin
sales were up more than 25 percent for fiscal year 2014, with
American Eagle Silver Bullion Coin sales at their highest since
the program started in 1986. Numismatic earnings were up more
than 32 percent.
Even as our production needs have increased considerably,
we have controlled costs. Last year, general and administrative
costs associated with circulating coin production were down 9
percent. The unit cost of the penny was the lowest since 2008,
the nickel the lowest since 2009, and the dime and quarter were
at their lowest since 2006. Thanks to these strong financial
results, we were able to transfer more than $550 million of
seigniorage to the Treasury General Fund, which can be used to
reduce the cost of the interest on the national debt. We also
generated an additional $61 million in numismatic and bullion
earnings, which were transferred to the General Fund for
operational use.
Mr. Chairman, Members of the Committee, I believe the Mint
reflects the very best of our Nation. Our motto, ``Connecting
America Through Coins'', has real meaning. The design, themes,
and subjects depicted on our coinage represent our shared
values, history, aspirations, and culture.
If I am privileged to be confirmed by the Senate as the
next Director of the U.S. Mint, I pledge to uphold the trust
placed in me by you and the President. I appreciate this
opportunity to speak with you today and look forward to your
questions.
Chairman Shelby. Ms. Fairfax.
STATEMENT OF LISA M. FAIRFAX, OF MARYLAND, TO BE A MEMBER OF
THE SECURITIES AND EXCHANGE COMMISSION
Ms. Fairfax. Chairman Shelby, Ranking Member Brown, and
Members of the Committee, thank you so much for giving me the
opportunity to speak with you today. It is an incredible honor
and privilege to appear before you as one of the President's
nominees to be a Commissioner of the Securities and Exchange
Commission.
Before I begin my remarks, I would like to briefly
introduce my family members who are here with me. I am grateful
to be joined today by my husband, Roger Fairfax, my three
daughters, Fatima, Regina, and Nadia, my mother, Elizabeth
White, my mother-in-law, Charlene Fairfax, my brother-in-law,
Justin Fairfax, and my sister-in-law, Jennifer Fairfax. I have
a large extended family.
[Laughter.]
Ms. Fairfax. And I want to thank all of them, as well as
all of my friends, for their incredible and continued support.
I also would like to congratulate Hester Peirce, who like
me is here today as a nominee to serve on the Commission.
I sit before you today because I believe deeply in the
importance of robust and healthy securities markets. I also
believe deeply in the SEC's three-part mission to protect
investors, maintain fair, orderly, and efficient markets, and
facilitate capital formation. I am honored and humbled by the
prospect of potentially serving the Nation and its investors
alongside the Chair, the other Commissioners, and the many
staff members who work tirelessly to support the vital work of
the SEC.
As a law professor, over the last 15 years, I have had the
privilege of teaching corporations and securities law to the
next generation of practitioners, judges, and regulators, so
that they can understand the increasingly complex world in
which companies must operate, markets must perform, and
regulators must monitor.
My teaching, along with my research and writing in these
areas, have given me a deep understanding of the issues
confronting the SEC, as well as a strong desire to help tackle
those issues head-on. My research and work with organizations
such as the American Bar Association and FINRA have taught me
the importance of engaging a variety of different, diverse
perspectives when seeking to develop solutions to complex
problems. I look forward to such engagement if I am fortunate
enough to be confirmed.
Importantly, I believe that the SEC's three-part mission is
more than a statement. It is a set of guiding principles that
should shape every aspect of the agency's activities. It is
also a set of principles that must work together.
I believe the SEC's work must be aimed at ensuring that
investors are protected at all times and that investors have
confidence in the markets and the financial system. The SEC
also has a responsibility to facilitate access to needed
capital for all participants in the market, from the
corporation and small business owner in need of cash and
credit, to the individual investing to support a family,
finance a child's education, or ensure a comfortable
retirement. And all of these participants need assurances that
their capital is safe and secure, which is why the SEC has a
responsibility to maintain markets that are orderly, efficient,
and fair. Everyone needs to play by the same rules and there
must be strong repercussions for those who break them.
Thank you again for the opportunity to appear before you.
If I am confirmed, I will work tirelessly to maintain the
confidence that the President, this Committee, and the Senate
will have shown in me. I look forward to answering any
questions you may have.
Chairman Shelby. Ms. Peirce.
STATEMENT OF HESTER MARIA PEIRCE, OF OHIO, TO BE A MEMBER OF
THE SECURITIES AND EXCHANGE COMMISSION
Ms. Peirce. Chairman Shelby, Ranking Member Brown, and
Members of the Committee, thank you for the opportunity to be
here today as one of President Obama's nominees for the SEC. It
is a particular privilege to be here and to be considered along
with Professor Fairfax.
My desire to serve at the SEC stems from a belief that the
capital markets unlock people's potential. Investors are able
to build their retirement nest eggs, their downpayments, and
their children's education funds through the capital markets.
And vibrant capital markets are able to find and fund
individuals and companies with ideas that can enrich our
communities, that can enhance our Nation's prosperity.
This belief in the value of the capital markets stems from
lessons learned at the Peirce family dinner table, in
classrooms at Case Western Reserve and Yale, and then from
colleagues and mentors throughout my career. In securities law,
I found a way to combine my undergraduate degree in economics,
my law degree, and my childhood hobby of plotting stock prices.
When I began at the SEC, I was a Staff Attorney in the
Division of Investment Management, where my job was to write
rules for mutual funds and investment advisers. After that, I
served on the staff of Commissioner Paul Atkins. And then,
after my 8 years at the SEC, I had the honor of serving on the
staff of this Committee for then-Ranking Member Shelby. In all
of these positions, I learned the important role that strong,
carefully crafted, and well enforced rules play in maintaining
vital capital markets and in protecting investors.
At the Mercatus Center, I am surrounded by colleagues who
are committed to effective regulation and to sound regulatory
process. I have learned much from their careful scholarship.
And I have also learned much from my colleagues on the Investor
Advisory Committee at the SEC, where we work to educate,
empower, and protect investors. I would welcome the opportunity
to apply all of these lessons at the SEC to protect investors,
to uphold the integrity of our financial markets, and to
facilitate innovation in economic growth.
Thank you for the honor of appearing before you today and I
look forward to answering any questions.
Chairman Shelby. I will direct this question to both
nominees to the SEC. The U.S. capital markets are the envy of
the world, and to maintain this standing, I believe that
regulators should do everything they can to ease the regulatory
burdens on American businesses while ensuring investor
protection. As part of this, regulators and Congress, I
believe, should review rules and regulations in order to
understand their effect on the markets and the economy and to
streamline them appropriately.
In your opinion, how important is economic analysis as part
of rulemaking, and second, do you agree that regulators should
do retrospective reviews of rulemakings? What areas of security
laws would benefit from such reviews?
Ms. Peirce, we will start with you, go right to left.
Ms. Peirce. I certainly believe that economic analysis is a
very important tool in the toolbox of regulators. It is a way
for them to identify a problem that they are trying to fix and
then to look at alternative solutions to those problems to try
to figure out which solution will be the most effective for
each problem. And then to anticipate what the unintended
consequences might be of the particular solution.
It is also important to set out, when you adopt a
regulation, to set out metrics to measure whether or not the
regulation is successful in achieving those objectives, and
that gets to your point about retrospective review, which I
think is tremendously important. You always want to go back and
look and see whether the rules are working as intended.
I think one area where that is particularly called for at
the moment is in equity market structure, where we have built
up rules over many years, and I think a lot of folks are
looking and saying, how well are the rules working, and that is
an area I would like to be involved in if I were confirmed.
Chairman Shelby. Ms. Fairfax.
Ms. Fairfax. Thank you so much for your question. I, too,
think that economic analysis is very important. I think it is
important because in the context of rulemaking, we need to make
sure that we understand the costs and benefits of rules that
are being created, and economic analysis is one of those tools,
as well as many others, that should be utilized to make sure
that everyone is properly thinking through the process and
impact of the rules that are being created.
With regard to retrospective review, I think, absolutely,
that it is important, as well. I think it is very important to
think about the cost and benefit, but, obviously, you are
regulating in the face of uncertainty and things change in the
regulatory environment, which means that sometimes you will
have unintended consequences of rules. Sometimes, you will have
metrics and goals that you set and then you will realize as you
move through the regulatory process, and certainly as the rules
get implemented, that what you thought would occur does not, in
fact occur. Since the purpose is to try to get things right,
and I think looking back and understanding whether or not you
got things right is very much important.
Chairman Shelby. In the area of enforcement, I believe
enforcing the law is important to maintain confidence in our
markets and to deter misconduct. And while the SEC does not
have criminal authority, it does have civil enforcement
authority, which is a powerful tool.
To both of you, can you describe your views on the SEC's
enforcement program as well as your views on bringing actions
against individuals and not just regulated entities, when
appropriate. Ms. Peirce.
Ms. Peirce. The SEC's enforcement program is a key part of
the SEC. Many companies are trying to do the right thing and
the compliance program's purpose is to work with those
companies to try to enable them to comply. But, there are some
companies and some individuals that simply do not want to
comply with the rules, and the enforcement program is
necessary. We need strong, clear, swift enforcement, and the
SEC is blessed to have a tremendous staff of enforcement
attorneys who are very talented and very experienced. And, so,
their role is to pursue wrongdoers, and I would welcome the
opportunity to be part of that if I were confirmed.
And, in terms of individuals versus corporations, I think,
too, often, it is easier to charge a corporation rather than
going after individuals who are responsible, and presumably, if
a corporation has done something wrong, there are individuals
who have been engaged in that wrongdoing. And, so, I do think
that that is an area where it is important to press forward
even when it is difficult to charge individuals.
Chairman Shelby. Ms. Fairfax.
Ms. Fairfax. Thank you. I absolutely believe that
enforcement is a priority. It instills investor confidence, it
ensures accountability, and it deters misconduct. I also
believe that accountability, both with respect to individuals
and with respect to corporations, is very important and the SEC
needs to aggressively engage in enforcement efforts.
Chairman Shelby. To both of you, prior to the nomination
hearing, were you asked, either of you, to support any policy,
rulemaking, or initiative in exchange for support for your
nomination?
Ms. Peirce. The only pledge I made was, if I am confirmed,
to aggressively fulfill the mission of the SEC, including
investor protection.
Chairman Shelby. OK. Ms. Fairfax.
Ms. Fairfax. Yes. I was not asked that question. Thank you.
Chairman Shelby. Mr. Jeppson, could you briefly elaborate
on the U.S. public's demand for coins, and with the advent of
online and card payment technologies how the Mint's production
needs to have shifted and will continue to shift. In other
words, what is the future of the Mint and coins in the U.S.
Mr. Jeppson. Mr. Chairman, thank you for the question. We
have seen that since 2009, with the improving economy, the use
of coins has increased. We have climbed back to historic
levels. We have risen from about five billion coins in 2009 to
production of the circulating line at about 16.1 billion coins
last year. This is a threefold increase. Circulating coin
production continues to be strong. The Federal Reserve forecast
holds us flat at about 1 billion for the, really, next 12
months, and we believe that we will be within that 14 to 16
billion range for the circulating lines. Production continues
to be strong.
On the numismatic side, we saw a big decline in 2009. We
have managed to gain back some of that demand. We have been
able to----
Chairman Shelby. Is that because of the economy tanking?
Mr. Jeppson. Yes, sir, I believe that in large part it was
because of the economy. With collectable coins, disposable
income plays a large role, so I believe that the economy was
probably the single largest factor in the decline. We have
managed to gain back some of that.
But, we also have a demographic that is changing. So, we
have instituted some outreach to try to broaden our appeal to a
larger demographic of coin collectors and to make the Mint more
accessible. We have also moved more to online sales, which has
become the preferred method for most of our coin collectors to
purchase coins.
Chairman Shelby. Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
I want to begin by highlighting the important work that
remains for the SEC to complete its Dodd-Frank Act rules. A
number of rules still need to be finalized. Others have not yet
been proposed.
A question for both of you, start with you, Ms. Peirce. If
confirmed, are you committed to finishing the rulemaking
process promptly and faithfully according to the law,
regardless of your personal views?
Ms. Peirce. Senator, I am committed to working with Chair
White and the rest of the Commissioners to carry out the rest
of the agenda given to us by Dodd-Frank. I will note that
because the Chairman does set the agenda, the ability of an
individual Commissioner to control the timeline is sometimes
quite difficult.
Senator Brown. Ms. Fairfax.
Ms. Fairfax. Yes, absolutely. I believe that completing the
mandate under Dodd-Frank is important, so I would be committed
to making sure we try to get that done as quickly and as
appropriately as possible.
Senator Brown. Thank you.
Ms. Peirce, you in response to the Chairman's question
mentioned pursuing wrongdoing. I want to follow up on that. The
SEC's enforcement record shows a vast majority of cases are
settled, and even in recent years, admissions of guilt are
infrequent. To make matters worse, many settlements are with
repeat offenders. How do you think settlements with admissions
of guilt and meaningful punishments, especially for chronic
offenders, can be achieved in enforcement cases?
Ms. Peirce. I think that that is a very important issue,
Senator, and I think that perhaps because it has become a
tradition at the SEC to have settlements with neither admit nor
deny, that is just what the expectation is from both sides.
But, I do think that a settlement sends a stronger message if
there is an admission of wrongdoing. And, sometimes--it is more
costly for the SEC to pursue that because the respondent may
say I will not do that and I want--you have to take me to
court, either in-house court or a District Court. But,
sometimes it is worth that price for the SEC to take that step.
I think you mentioned repeat offenders, and I think that that
is particularly a case where it may be worth taking the extra
resources and applying them to get an admission of wrongdoing.
Senator Brown. Ms. Fairfax, follow-up on enforcement
issues. Experts say the tone at the top is important in guiding
responsible corporate behavior. In your research, what elements
of corporate governance promote better behavior and
accountability?
Ms. Fairfax. Thank you. That is a very good question. I
think the tone at the top is extremely important. I think you
need to have people who are able to listen to and understand a
range of perspectives and who can work collectively to engage
in problem solving. I do think you also need to have people
with independence and objectivity, because that is important.
You need to have expertise, because that is also important, and
people with a true commitment, and understanding of a
particular mission or a particular responsibility.
Senator Brown. Ms. Peirce, on Friday, the National Archive
released documents from the Financial Crisis Inquiry
Committee's review of the causes of the financial crisis. The
documents show lapses across the board, both at big banks and
by the regulators, lapses in understanding risks. Previously,
Alan Greenspan conceded he made a mistake in thinking that
banks could manage risk to protect their firms and
shareholders, and he has commented that incentive structures
matter. Post-crisis regulations, in my opinion, including Dodd-
Frank, have improved risk management and will create better
incentive structures at financial firms. Do you think these
improvements could have happened without a change in the law,
in the new rules?
Ms. Peirce. I think that the financial crisis showed all of
us that a change in the financial regulatory structure was
necessary. It is very important to set incentives properly. One
of the concerns that I had leading up to the crisis was that
the incentives coming from regulations were all wrong and they
encouraged bad behavior by financial institutions, and the
financial institutions, frankly, followed right along and
engaged in that bad behavior.
And, so, changes were necessary. I do worry that some of
the changes that we have put in place will not lead to more
personal responsibility by people in the financial industry but
will lead to outsourcing of risk management to regulators, and
so I think we need to keep an eye on how the Dodd-Frank reforms
are working. We need to ensure that they are working well, and
if they are not, we need to make adjustments. But, certainly,
strong and effective regulation can be helpful in directing
behavior so that it is not harming people.
Senator Brown. Thank you.
Mr. Jeppson, one question for you. You mentioned the
immense aging workforce could create gaps in manpower and
training to make it difficult to meet high demands. What are
the skill gaps that you--the most significant skills gaps you
anticipate in years ahead? What kind of tools are you going to
use, recruitment channels will you use to address staffing and
training challenges?
Mr. Jeppson. Yes, sir. As you highlighted, the Mint has an
aging workforce, much like the rest of the Federal Government.
More than 30 percent of our employee base is retirement
eligible in the next 3 years, and they tend to stay for about 3
years after becoming eligible for retirement.
So, we have two tracks. First, we have begun a new training
initiative that allows people to gain leadership and technical
skills which will allow them to advance, and also a course
which may enable an employee to cross-train into other areas.
The Mint has a wide variety of skill sets, probably more so
than any other agency, everything from our wage-grade employees
as metal forming operators and die setters and heat treaters
all the way to sculptors and engravers and accountants and
designers. So, it is a very broad range, and it affects all of
those positions. Training is a large component of that,
preparing our people for leadership roles.
Also, we are going to do targeted outreach around our local
Mints to recruit people and make people aware of the
opportunities there. We will also focus on our time to hire, so
that when we do find those talented people, we can actually get
them in the door in a timely fashion.
Senator Brown. Thank you. Thank you, Mr. Chairman.
Chairman Shelby. Senator Heller.
Senator Heller. Mr. Chairman, thank you. I want to thank
you and the Ranking Member for holding today's hearing.
I appreciate the comments that have been made so far, and
congratulations to all three and welcome your family here,
also.
I will probably spend most of my time talking to the two
nominees at the SEC. I have a tremendous amount of respect for
you, Mr. Jeppson, but in this case, we only have a few minutes.
So, I regulated the securities industry in Nevada for 12
years and also was a securities license. I go back to a comment
that Arthur Levitt said when he was Chair of the SEC under
President Clinton. He quoted, an individual's philosophic
orientation has unfortunately become more important than their
knowledge of securities law. And, there is some concern up
there that people believe that qualified individuals with
private sector experience and knowledge of the securities law
are being overlooked. And, this is not a reflection on
yourself. I am just trying to get to a better understanding of
both of your qualifications. I appreciate both of your
comments.
I guess the question I have for both of you is what has
been your experience in practicing securities law in the past?
Ms. Peirce, I will start with you.
Ms. Peirce. After clerking after graduating from law
school, I joined a law firm in D.C. that focused on--had other
practice areas, but my focus was on securities law. And then I
joined the SEC, where I worked for 8 years, and then was here
on the Committee working on securities law issues, as well.
And, my research now is broader than just securities, but it
does include securities, as well.
Senator Heller. Have you ever had a securities license?
Ms. Peirce. I have not.
Senator Heller. OK.
Ms. Fairfax. Thank you for your question. When I graduated
from law school, I worked at a large law firm and my focus area
was in corporate and securities work. I did a wide range of
corporate and securities transactions, from public offerings to
private placement, did what was back then something that not
many people were aware about, securitizations. I did work with
respect to that, as well.
After I came out of practice, I started teaching. I have
been teaching for over 15 years in the corporate and securities
area, and I will say that what teaching in that area has done
for me is given me a real breadth and depth in terms of my
understanding of the securities market.
I did some work with FINRA, which in terms of licensing,
gave me a real appreciation for licensing and self-regulatory
organizations and the mission of FINRA and how that connects to
the broader securities market. I have done work at the ABA. In
connection with my work there, I have worked on rulemaking with
regard to the Model Corporations Act. So I certainly
understand, at least from that level, what rulemaking looks
like, and what working with diverse perspectives and figuring
out complex solutions looks like. So, I have had a wide variety
of experiences in that area.
Senator Heller. Have you ever held a securities license?
Ms. Fairfax. I have not.
Senator Heller. You have not. Do you have any specific
expertise in the equity markets?
Ms. Fairfax. My research touches on the equity markets. I
also have done teaching in that area and that is where my
understanding of that market comes from.
Senator Heller. Ms. Peirce, how about the fixed income
market? Any specific expertise in that area?
Ms. Peirce. I do not have specific expertise in fixed
income, although I recognize that it is very important. And, I
will note that the SEC has many people who are very
experienced, including people who have been in industry, and if
I were to be confirmed, my door would be open so that I could
hear from people from all perspectives. I do think that one
area the SEC needs to probably have more expertise in is fixed
income. At least when I was there, there was not enough
attention paid to that.
Senator Heller. OK. In the Chairman's initial questioning,
he asked about cost-benefit analysis. Can either one of you
give me an existing regulation that you believe that the costs
outweigh the benefits?
Ms. Peirce. I would argue that many of the regulations
coming out of Dodd-Frank raise questions about that. One that
posed particularly difficult cost-benefit issues was the
conflict minerals rule, which is very far outside the SEC's
normal expertise. But, subsequent reports have led me to
believe that the benefits actually may be very outweighed by
the costs and that there may actually be a severe human cost to
the very people that that rule was intended to help.
Senator Heller. Thank you.
Ms. Fairfax. I think engaging in a cost-benefit analysis is
very important. Sitting here right now, I cannot pick out of
the hat something that I think the costs outweighed the
benefits, because sitting from where I am right now, while I
have a kind of outside perspective, I have not really had the
opportunity to hear staff concerns and concerns of all of the
other market participants to get a real deep understanding of
the costs and benefits of certain rules.
I know that there are concerns raised about a lot of
different regulations, and I would certainly, if I am fortunate
enough to be confirmed, be interested in listening to those
concerns and to ask, as the Chairman pointed out, about costs
and benefits, and to the extent it turns out that the costs
outweigh the benefits, I would be responsive.
Senator Heller. Thank you to both of you and to all three
of you.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Reed.
Senator Reed. Well, thank you very much, Mr. Chairman.
First, Mr. Jeppson, thank you for your service as a Marine
in Afghanistan and Iraq. I think that probably prepares someone
for doing lots of jobs, including the one you are nominated
for. But, thank you very much, sir.
Let me turn my attention to the nominees to the Securities
and Exchange Commission. Thank you very much for your
willingness to serve. I would like to ask both of you the same
question initially.
Shareholder protection--investor protection--is critical to
the SEC's mission, and not only for their protection, but also
to ensure that there is real shareholder governance in a
corporation. And, there are a number of issues that are
arising. The issue of cybersecurity, the issue of climate
change, the issue of political spending--in all of these
shareholders should, I think, have some voice and be protected.
And, let me ask this specifically. Starting with Ms.
Fairfax, what is your top objective or top initiative with
respect to shareholder protection and investor protection?
Ms. Fairfax. Thank you so much for the question, and as my
opening remarks, I hope, reflected, I think investor protection
is extremely important. Obviously, it is a critical aspect of
the SEC's mission. And, I think that everything that we do at
the SEC, if I am fortunate enough to be confirmed, will relate
to investor protection. I think one priority is market
structure, and that is very much interlinked with investor
protection. As I mentioned, I do not think you can really
protect investors if you do not have fair, orderly, and
efficient markets and to make sure that investors are operating
in a structure that treats them fairly and a market structure
that is secure.
The other thing I think is really important is corporate
disclosure. I think making sure that investors have the right
information is important. We talked about what is at the crux
of the SEC, and it is about putting a spotlight on information
and making sure investors have information so that they can
make appropriate decisions.
I also, which should not come as a surprise, think that
corporate governance issues are important, especially issues
around the proxy apparatus and making sure that the voting
structure works appropriately so that changes in the way in
which shareholders vote and the matters that they vote on are
taken into account when looking at that structure and trying to
figure out how to move forward.
Senator Reed. Thank you.
Ms. Peirce, please.
Ms. Peirce. As Professor Fairfax underscored, investor
protection issues are important across the board of what the
SEC does. One area that I think will see changes, positive
changes made for investors, is the disclosure effectiveness
review that is going on now. Trying to find the information
that users need and present it to them in a way that they can
use it, potentially incorporating new technologies, ensuring
that the disclosure mechanism at the SEC is up to date in terms
of technology, I think all of that will be very helpful for
investors.
In terms of my work on the Investor Advisory Committee, we
worked on a proposal which I think has merit, as well, which is
trying to do a better job of aggregating information about
financial professionals and making that available to investors
in one place, and I think that is an exciting initiative that
the SEC would do well to work on.
Now, I will say that perhaps when I get to the SEC, I will
discover that there are other more pressing issues, and I want
to keep an open door to that possibility, as well.
Senator Reed. Thank you.
There has been some discussion about cost-benefit analysis,
which implies, if you are going to do it correctly, that you
have to have access to all the costs that are relevant, which
would imply--well, let me ask. Would the SEC, if it had that
direction, also have the authority to go in and get the costs
of different companies, some of which might be argued could be
proprietary?
Ms. Peirce. The Paperwork Reduction Act actually limits the
ability of the SEC to go to more than nine people. So, when I
was at the SEC, and I did work on some economic analysis when I
was there, we were able to call three small, three medium, and
three large companies. Now, needless to say, that leads to some
potential gaps. One way that the SEC gets around that is to ask
for comment that has data in it, and I think those are
sometimes the most effective comments, the comments that bring
data with them.
Now, certainly, any cost-benefit analysis has assumptions
and those assumptions need to be spelled out, and where there
are data gaps, the agency needs to be very clear, we have a gap
in data here, and that it is all out there and then people can
respond to that.
Senator Reed. I think the comment was actually very
revealing, because there has been this mantra about we are just
going to do cost-benefit analysis, and what you have indicated,
first of all, is that there are only a few companies that the
SEC can directly ask, given the present system. And, second, it
relies upon comments which are voluntary, and so some people
could withhold data until after the rule is promulgated, and
then present the data as, well, this is, you know, your costs
are not accurate. So, I think we have to be, very, very careful
as we pursue this approach.
The second issue is--and I think you alluded to it in terms
of the minerals rule--it is quantifying social benefits, which
is always a very challenging problem. So, I think, again, that
this is something the SEC does, but we have to be very, very
careful about the limitations, both legal limitations and
practice limitations.
But, thank you both. You are both bringing incredibly
robust academic and legal backgrounds to a very demanding job
and I thank you.
Chairman Shelby. Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman, Ranking Member
Brown.
Senator Reed mentioned it, but Mr. Jeppson, I just wanted
to also say thank you for your service to our country and I
appreciate your offering to step up and to participate right
now in another role.
Most of my comments once again will be directed to our two
nominees for the SEC position today. Professor Fairfax, I
appreciated the time that we spent in my office. Thank you very
much. It is great to see that you brought your family here, as
well. I come from a large family. I have got nine brothers, one
sister, two step-brothers, and a step-sister, so it is always
great to see support from family members here.
I also appreciated--we touched on a subject while you were
in my office and I said that I wanted to bring it up today and
provide you with an opportunity, but also to bring it out and
to talk about it a little bit. What we talked about was--the
topic that we discussed was the amicus brief that you signed in
the Walmart v. Trinity case. The brief asked the court to allow
the Trinity Wall Street Church to include a proxy statement
which urged Walmart's board to provide oversight concerning the
formulation of a policy, a company policy, regarding the sale
of products that, in their words, especially endanger public
safety and well-being, have substantial potential to damage
Walmart's reputation, and/or would be reasonably considered by
many offensive to the family and community values integral to
Walmart's promotion of its brand.
When we spoke, you said that you had concerns that what was
written was perhaps inartful, but you signed the brief anyway.
I hunt. I shoot at targets. I also own firearms, as many South
Dakotans do. In 2010, the Supreme Court ruled that it is clear
that the Framers counted the right to keep and bear arms among
those fundamental rights necessary to our system of ordered
liberty. This is settled law.
The question that I have is, is do you believe it is
reasonable to consider the sale of guns by Walmart or any other
retailer offensive to family and community values?
Ms. Fairfax. Yes. Thank you so much for that question. You
are right, we discussed it before and I thank you for the
opportunity to speak about it here today before the Committee.
First, in signing onto that brief, it was not at all a
signal about any position with regard to the underlying issue
or a signal about my position with regard to one company or one
industry. It was instead aimed at the larger corporate
governance proposition about shareholder proposals and what
they should look like, and making sure that shareholder
proposals maintain that careful balance between allowing
directors and officers the ability and the important discretion
to set corporate policy on the one hand, and allowing
shareholders to communicate on issues that they think are
significant on the other.
The other thing that I explained is, in my view, it is very
important for boards to have the discretion to determine what
is a significant policy and to determine what impacts their
values and what impacts the corporation's bottom line, and it
was my view that that was not what the shareholders were
asking, that is, to set policy and make those decisions; but
rather, what they were doing was communicating their desire to
have the board engage in their oversight role and engage in the
process where directors also were thinking about what is
appropriate in that context.
So, again, my signing the brief was about the governance
principle of protecting the shareholders' ability to
communicate on important matters, which is, of course, an
ability that is protected by the Federal securities laws, and
balancing that very important right with the other very
important right of allowing boards to set policy and to think
through, of course, in their oversight role, what things impact
the corporation and its bottom line.
Senator Rounds. It was the concern about whether or not it
was the underlying issue that was of concern, because in an
earlier brief--I also read the amicus brief that you signed in
Burwell v. Hobby Lobby. In that case, the amicus brief you
signed opposed Hobby Lobby's contention that the owners of
Hobby Lobby retained their fundamental First Amendment right to
free exercise of religion, because once they formed a
corporation, they lose the ability to make moral adjustments.
To me, this seemed contrary to the position that you took
in the Walmart case. In fact, you went so far as saying that
the court should reject Hobby Lobby's contentions because doing
so could make the raising of capital more challenging,
recruitment of employees more difficulty, and entrepreneurial
energy less likely to flourish.
My question is, is why is it OK for Walmart's shareholders
to instruct the company's board to closely scrutinize firearm
sales because of concerns about family and community values,
but it is not OK for a family that owns a corporation to
exercise their sincere religious objections?
Ms. Fairfax. Thank you again for that question. We did not
talk about Hobby Lobby. And, I would say, number one, with
respect to my signing onto that brief, it was not about the
underlying issue, but about the broader corporate governance
issue. With regard to Walmart, that issue was about
shareholders' ability to communicate as opposed to any kind of
mandate. With regard to Hobby Lobby, it was actually a
corporate governance principle about the importance of the
separation of the corporate structure from the personal and the
individual shareholders.
In my view, the core component of a for-profit corporation
is that it has a legal existence that is separate and apart
from its independent shareholders and there are important
benefits that stem from that idea, important tax benefits,
important benefits with regard to limited liability. It is the
reason why people's personal assets are not the same thing as
the corporate assets. And, it has important benefits with
regard to the perpetual existence of a corporation. It is why
individual shareholders can change from day to day and even
from minute to minute and the corporation remains the same. So,
again, it was about that fundamental corporate governance
principle, that the corporation has a legal existence that is
separate and distinct from its shareholders and not the
underlying issue that was at play.
Senator Rounds. Thank you.
Mr. Chairman, you have been generous with your time. I had
some more questions, but I will yield back at this time. Thank
you for your patience. Thank you very much for your answers.
Ms. Fairfax. Thank you.
Chairman Shelby. Senator Scott.
Senator Scott. Thank you, Mr. Chairman.
Mr. Jeppson, as everyone already stated, God bless your
service and you do not get any questions.
[Laughter.]
Senator Scott. I would not complain about that ever, by the
way, on this Committee. Lord have mercy.
[Laughter.]
Senator Scott. And, Senator Rounds, I did not realize that
you have enough siblings to have a football team. That was a--
--
Senator Rounds. A basketball team and a referee to go with
it.
[Laughter.]
Senator Scott. Exactly. An unbiased referee, which would be
nice these days.
To the two nominees, thank you for your time and your
willingness to serve, without any question.
My first question is, can you give your views on how you,
as a Commissioner, will use data to explore the advantages and
disadvantages of a rule from the perspectives of an investor,
the company, and the capital markets. Either may start.
Ms. Peirce. Well, I would just start out by saying data is
very important at the SEC and I am glad to see that there has
been more emphasis in recent years on getting good data. And,
so, this sort of ties to something that Senator Reed asked me
about, economic analysis. One way to get information is to ask
companies directly, but the SEC should also be looking at other
data sources, publicly available data sources, private data
bases that it purchases. I think those are very important and
can all be very useful in painting a picture of what the rule
would look like if it were in practice compared to the existing
state of affairs. So, I am excited that the SEC is putting more
effort into getting good data.
Senator Scott. Ms. Fairfax.
Ms. Fairfax. I similarly think that it is important to have
the rulemaking process be driven by accurate data. I will note,
I think as Ms. Peirce has also noted, and Senator Reed has
noted, that sometimes data can be incomplete. If I am fortunate
enough to be confirmed as a Commissioner, I would try to find
ways to fill gaps with regard to that data. But, sometimes data
can be inaccurate, and so while I think it is extremely
important to focus on data and try to make decisions where you
have the most robust amount of data that you can, it is also
the case that sometimes you have to engage in rulemaking where
there are uncertainties, where the data is not there, and,
where there is an inability to measure, the impacts of certain
things.
And, certainly, if I am fortunate enough to be
Commissioner, I would try to balance the desire to get data and
the importance of getting that data with the need to move
timely and effectively toward a decision.
Senator Scott. Thank you.
Speaking of data and rulemaking, the reality of it is one
of the questions I think Senator Heller was trying to get at,
asking the question about whether or not either of you have had
a securities license, it is important from an investor
protection perspective to have worked in the field and spent
some time. I know Mr. Heller had a Series 7 license for about a
decade and I have had a Series 6 for about 15 years or so. So,
understanding investor protection from having worked in the
field and worked from the ground up is a very different
appreciation and perspective from what perhaps others may have.
When I think about something like the fiduciary rule that
is being promulgated by the DOL, I think there is an
opportunity for us to take a look at the data again, because
the data certainly, from my perspective, concludes that the
small investor is worse off under the current rule than they
would be without the rule. Are you both familiar with the
fiduciary rule?
Ms. Peirce. I am familiar with it, although I have not read
the proposal. I have not had a chance to read the proposal yet.
Senator Scott. OK. It appears to me that the rule itself
will make winners and losers of smaller investors in a way that
is inconsistent with what is in their best interest long-term.
Do you think it is good or not so good for the Government to
help pick winners and losers in this area?
Ms. Peirce. I am quite worried about the Department of
Labor's proposal, in part because I have heard, and it is
difficult knowing, being outside the SEC, that the SEC's input
was not considered. And, I think the input goes to some of the
very issues you raised. We need to understand how rules like
this are going to affect everyday people, people who cannot
afford to pay a lot for a financial professional but who do
rely now on a financial professional. And, I worry that what
will end up happening is that we are going to cut a whole
segment of people out of getting access.
And, so, if I were to be confirmed, I would want to talk
with the staff at the SEC to understand what work they have
done to try to see what would happen and what work the DOL has
done on that front, as well.
Senator Scott. Yes.
Ms. Fairfax. Absolutely. I think that protecting investors
in this space is of critical importance. I think protecting
access to quality and appropriate advice in this area is also
important, particularly for middle- and lower-income investors
who clearly sometimes cannot afford a quality investment
advisor and certainly whose resources would be significantly
undermined, if they have investment advice that goes wrong. So,
that is of critical importance and that means that thinking
about how any rule like this would impact those investors is
critically important.
I think it is also critically important to think about
transparency in this area, because, one of the things that we
have figured out is sometimes the investor is sitting across
from an investment professional and they do not realize the
role that the investment professional is actually going to be
playing, or the potential conflicts that might be there with
regard to that professional.
So, those are both priorities for me, making sure that we
maintain access to good advice, and making sure that we reduce
conflicts and that there is transparency. And, of course,
keeping client needs at the center.
I have looked, as you might imagine, at the proposals, but
do not really have a clear understanding of what is going to
happen at the end of the road. Certainly, if I am fortunate
enough to be confirmed as Commissioner, I would want to know. I
would want to talk to everyone involved to get a clear sense of
what is happening, what the rule is going to be, and their
thoughts about what its impact is going to be so that we can
engage in the appropriate response.
Senator Scott. Thank you very much for your answers.
Certainly, with respect to the Department of Labor and their
coordination with SEC, from my chatting with some other folks,
that is why included the definition of collaboration differs
from the Labor Department to the SEC from my perspective, and I
would certainly encourage you both to take some time, if you
are confirmed, to look deeply into it. This is one of those
issues where you see a bipartisan collaboration happening with,
I think it was 97 House Democrats signed a letter with serious
concerns about the fiduciary rule and what it would do to some
of the smallest investors, and the notion that we can figure
out how to have no advisor and just use robo-advisors through
technology does not appear to be in the best interest
consistently of the smaller investor.
Thank you.
Chairman Shelby. Senator Schumer.
Senator Schumer. Thank you, Mr. Chairman.
First, I would be remiss if I did not acknowledge that the
chart behind us shows that many nominees are awaiting
confirmation. But, I want to thank our Ranking Member, Senator
Brown, for pushing so hard for these nominees. And I want to
thank our Chairman. We are making significant progress and very
much appreciated. We appreciated the fact that Adam Szubin came
out of Committee last week and we are looking to vote on
several nominees right away when we return.
These are positive steps, but there is more to be done. The
Eximbank is paralyzed right now. It cannot--it does not have a
sufficient number of members to make a quorum and I hope we can
move that nominee, as well. But, in general, I want to thank
the Chairman for his efforts in the last few weeks and hope
that we will continue to see progress moving forward.
Now, for my questions. This is for Ms. Fairfax and Ms.
Peirce, and I thank you for being here today. Now, I want to
start with this. I make no secret in the fact that I believe 6
years ago, the Supreme Court ripped a giant hole through the
fabric of our campaign finance system. Since that time, our
politics has not been the same. Special interests have plowed
hundreds of millions of dollars of dark money into our
elections. They have created a rigged system, making it harder
for people to elect individuals that will fight for families to
get opportunities and to stay in the middle class.
There is no doubt in my mind that Citizens United has had a
corrosive effect--it is poison--on our election, our politics,
and ultimately on our country. The SEC certainly is not
responsible for patching that hole in our campaign finance
system, but you can help preventing that hole from being ripped
open even wider.
As you know, corporations are under no obligation to
disclose their corporate political spending to shareholders or
the public. As a result, shareholders remain in the dark as
executives of public corporations funnel money into our
political system with no transparency or accountability.
Citizens United has allowed for dark money to flood our
airwaves and choke our democracy. It is a decision that must be
overturned.
But even the Justices that supported the Citizens United
ruling did so with the assumption that the political spending
would promptly be disclosed to shareholders and the public.
Sadly, this has not yet happened. In my opinion, it needs to
change.
So, I am going to ask both nominees, Ms. Fairfax and Ms.
Peirce, do you believe that shareholders of a company have a
right to know about a company's corporate political spending,
and do you believe that the SEC has a responsibility to
investors to require that such disclosures are made?
And let me forewarn you, if I get a mushy answer, I am
going to seriously consider being against your nomination. I
feel that strongly about it, even if your other criteria are
good. The campaign finance system is killing us. I am very
upset that the Chairman of the SEC has not gone forward with
this. We need the new nominees to be for it, whether you are
Democrat, Republican, liberal, or conservative. So, I am really
serious about this and I really want an answer, not
gobbledygook. No offense, but we get a lot of that from other
witnesses, I hope not from you.
Ms. Fairfax.
Ms. Fairfax. Thank you for your question. Well, I
unfortunately have to start with, first and foremost, there is
a budget bill that appears to prevent rulemaking on this very
issue and so, obviously, because I think the Commission does
not have the freedom to ignore mandates from Congress, I
certainly would think seriously about whether or not that is
off the table. But, I understand that there----
Senator Schumer. Let us just say that the budget bill does
not apply here----
Ms. Fairfax. OK.
Senator Schumer. ----because I believe it does not. What
would you do? How would you vote?
Ms. Fairfax. OK. I think, sitting from the outside, I
cannot know how I would vote, and I am not being gobbledygook
and mushy, but I do think that my role is to consider the
various perspectives around this issue, and I understand that
this issue is one that is very much hotly contested. I
certainly appreciate the things that you have been saying----
Senator Schumer. I would like you to enumerate one argument
why shareholders should not know the money that corporations,
that the corporate board, corporate CEO, or whatever, has
decided to give in a political campaign. Give me one argument
against it.
Ms. Fairfax. Sure. I will tell you the arguments that have
been put forward. One argument that has been put forward is
that the information is immaterial. You will hear people saying
that is one argument----
Senator Schumer. What is--you mean the shareholders do not
care?
Ms. Fairfax. Umm----
Senator Schumer. Many do.
Ms. Fairfax. ----for some shareholders--I think there is an
argument about whether or not it is material----
Senator Schumer. Do you believe it is material, Ms.
Fairfax?
Ms. Fairfax. I think that there is certainly an argument to
be made that it is material. That argument stems not only from
what shareholders want, but also, of course, from the notion
that shareholders should be able to think through whether and
to what extent----
Senator Schumer. I want to hear from Ms.----
Ms. Fairfax. ----spending is consistent with corporate
governance.
Senator Schumer. OK. That argument that it is immaterial
does not cut much mustard with me, and, I think, with many
shareholders--not all, but many.
Ms. Peirce, would you please answer the question as
directly as you can.
Ms. Peirce. Well, I echo what Professor Fairfax said, that
right now, the Congress has made fairly clear that it should
not be a priority for the SEC. Were it to come up later, I
would need to know what the actual text of the disclosure
requirement was and I would want to speak with staff in the
Division of Corporation Finance as well as other interested
parties.
Senator Schumer. OK. I am not satisfied with either answer.
I am putting you folks on notice. If you think back, I am going
to submit the question in writing and I would ask you to give
me your answers in writing. I think in the light of day, the
written answers, what you said, will not stand up, so you had
better come--I hope you will come up with a better answer than
this, because right now, I would be leaning against both of
your nominations given your answers, OK. Thank you.
Chairman Shelby. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Congratulations to all on your nominations, and I want to
pick up where Senator Schumer just left off--not necessarily on
his very last statement. I have not gotten to that point yet,
but I may get there along with him.
I believe that the issue of the disclosure of corporate
spending is a shareholder interest, as well as a societal good.
Adding transparency, cleaning up campaign finance, and keeping
the elections process fair and free is incredibly important.
Now, the information, I believe, is material to how
shareholders decide where to invest their money and how to vote
in corporate elections. I do not know that I--you know, I want
to invest in a company that is going to ultimately make its
greatest profits and that, from my perspective as one
shareholder, to also make sure they are doing so within both
the ambit of the law and, hopefully, as a good corporate
citizen.
But, I really--if I want to go spend money in a campaign, I
will spend my money in a campaign and I will decide where it
goes. But, I have no interest in having a corporation spend the
money that in part is mine by virtue of my investments in
whomever they want or whatever they want. And if they are going
to be able to do that, fine, then at least I should know so
that I can make decisions as an investor, so that pension funds
can make decisions as investors as to whether or not to do
that.
So, last year, I reintroduced the Shareholder Protection
Act to require public companies to disclose their political
spending and to require a shareholder vote to approve it. It is
pretty elemental. At least let the shareholders decide if that
is what they want. Maybe they do. Maybe the shareholders in
that company want to. But, at least they should have what I
think is a commonsense solution.
So, I know that in response to Senator Schumer's question
you referenced the 2016 omnibus appropriations law that,
unfortunately, included a 1-year provision to try to block the
SEC from issuing, implementing, or finalizing a rule to require
public companies to disclose their political spending to
shareholders.
When we saw that, I sent a letter to Chair White along with
96 of my colleagues in the Senate and the House pushing the
Commission to move forward, notwithstanding the language of the
end-of-the-year bill because it is our analysis and those
shared by a series of law professors throughout the country
that this provision does not bar the SEC from moving forward to
prepare, propose, or develop a rulemaking on corporate
political spending. It may not be able to finally issue it, but
there is no reason it cannot prepare itself to do so when the
year ends.
So, I would like to hear from you, both of you, if, in
fact, you are confirmed as a Commissioner, what steps will you
set in motion for the development, preparation of such a rule,
even if the rule cannot ultimately be issued within and until
the year expires.
Ms. Fairfax. I would say, first, whether or not steps can
be put in motion at the top level is a decision that the Chair
has to make. But, at the secondary level, certainly I think
with respect to any of these issues, it is important not to
prejudge. I would need to, if I am confirmed, be very much
open, and I would be open, to hearing more information about
the debate. I will say the issue about materiality is not mine,
or necessarily mine, but something that I have heard, and I
think it is fair, certainly, if I am fortunate enough to get
into the position, to then listen to the concerns on the other
side and to think through those concerns.
I also would agree that the devil is very much in the
details. To that extent, what is the rule--if there is a rule,
what will it look like, how will it take shape, what kind of
impact will it have. Those are things certainly to think
through and I would certainly work with my fellow Commissioners
and staff and others who are interested, if I am fortunate
enough to be confirmed, to think through those types of things.
Senator Menendez. I hope, Professor, when you are listening
to the other side, there are 1.2 million comments on this rule,
more than any other rule in SEC history. There are a lot of
comments that have been made in this regard. I hope that as
Commissioners, you would not be rejecting 1.2 million voices in
the country.
Ms. Peirce.
Ms. Peirce. Again, I think the appropriations language is
clear. The Chairman has the agenda----
Senator Menendez. What do you mean by clear? Tell me, what
does that mean?
Ms. Peirce. In terms of directing the Commission that that
is not the priority for the Commission this year. Now, if the
Chairman has a different view of what that language means, I
would be open to hearing from her and from the General Counsel
to understand how we could work on something like that given
that language.
Senator Menendez. Well, I tell you something. I think I
have the same reservations that Senator Schumer has, and I have
other questions on diversity disclosure and other elements of
Dodd-Frank that I included in the law when it was written, but
my time has expired. I hope to be able to pursue those with you
individually and, as well, for the record.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Warren.
Senator Warren. Thank you, Mr. Chairman, and thank you all
for being here today, and thank you for your willingness to
serve.
The job of SEC Commissioner is largely to be a watchdog, to
make sure that the public is protected and the markets are
honest and fair. After the financial crash of 2008 showed us
that Wall Street was out of control, Congress passed Dodd-Frank
to try to rein them in. And the SEC was directed to write or
enforce dozens of rules to protect our financial systems.
Now, Ms. Peirce, in the past few years, you have attacked
many of those same rules. For example, you edited and
contributed to an entire book called, Dodd-Frank: What It Does
and Why It Is Flawed, which criticizes several SEC rules
required by law. You wrote that the Volcker Rule, one of the
key provisions to deal with too big to fail, quote, ``requires
regulators and industry to pour countless hours into an effort
that may end up impairing rather than shoring up our financial
institutions and our markets. It is nothing to celebrate.''
You wrote that Congress should, quote, ``perform major
surgery,'' close quote, on Dodd-Frank to reduce its directives
to agencies, and you argued that the SEC, quote, ``is a prime
candidate for mandate trimming.'' You have described the CEO
pay ratio disclosure rule and the conflict minerals disclosure
rule, two SEC rules that are required by Congress, as, quote,
``pointless Dodd-Frank mandates.''
What you propose, as best I can tell from your writings, is
less oversight of big banks, fewer efforts to rein them in,
more chances for them to take on big risks, boost their
profits, and if things go wrong, come crying to the Government
for another bailout.
Now, you are certainly entitled to your opinion and to
express it as loudly as you want. But, the question is whether
someone should be put in charge of enforcing laws that they
think are unnecessary or counterproductive. You know, no one
hires a watchdog who is not committed to enforcing the rules.
So, I want to ask, what kind of watchdog will you make if
you believe that parts of Dodd-Frank are, and I am quoting you,
``pointless,'' and you think that Congress should repeal much
of it?
Ms. Peirce. Senator, I certainly understand your concern,
but I wrote those comments not in the context of a regulator
charged with implementing the rules but in the context of an
academic researcher whose goal is to suggest a financial
regulatory architecture that will work better at protecting
investors and ensuring that people take responsibility for
their own behavior.
The reason I do not think you need to be concerned is that
I was a regulator. I was a regulator for 8 years and I was able
to do the job. And certainly in asking you to confirm me for
this job, I am not asking you to confirm me to not implement
rules, but to implement rules. And, in fact, the time that I
spent here on the staff was very useful in teaching me the
importance of regulators adhering to what Congress tells them
to do.
Now, I do not think there is anything wrong with a
regulator saying, we are going to do this as you asked us to
do. We do have concerns, but we are going to do this, and that
is what I would do if I were there. I would work on
implementing the rules as best as they could be implemented and
pointing out where I thought there might be issues that
Congress should look at again. But until Congress looks at
those again, the responsibility of the agency is to enforce the
rules.
Senator Warren. Well, I have to say, I assume anyone who
wants the watchdog job would say exactly that. But an SEC
Commissioner has a lot of tools that can be used to undermine
all of Congress' mandates. You can delay the rules. You can
water them down. You can look the other way when it is time to
enforce them.
And, frankly, there will not be much that Congress can do
about it once you are confirmed, and that is a real concern for
me, because in April 2014, the D.C. Circuit rejected a
challenge to the SEC's Congressionally required conflict
minerals rule, and shortly after the court's ruling that the
SEC could act and that Congress had required it to act, you
took a very different view. You tweeted, just because the court
is not stopping SEC from requiring immediate compliance with
conflict minerals rule does not mean the SEC should not stop
itself. Now, that sounds like you believe SEC Commissioners can
and should ignore the law, that the watchdog should look the
other way.
So, I want to be absolutely clear on this. If you are
confirmed as a Commissioner and a Congressionally mandated
Dodd-Frank rule does not fit with your personal view of the
SEC's mission, are you now saying that you will do everything
in your power to effectively implement and enforce that rule?
Ms. Peirce. Certainly, and sometimes effective
implementation requires delaying so that companies are able to
implement it properly.
Senator Warren. So, the way--it sounds like you have left
yourself a lot of room here.
Ms. Peirce. When the SEC crafts rules, one of the things it
does is it sets implementation periods, and it does that in a
way to make sure that industry is going to be able to get on
board in a way that is effective and achieves the objectives of
the rules. And if I were to be confirmed, my goal would be to
work with the staff of the Commission and the other
Commissioners to figure out the most effective way to implement
the statutory mandates given by Dodd-Frank and other statutes.
That would be my job as a Commissioner.
Senator Warren. Thank you.
Congress mandated that no more than three out of five of
the SEC Commissioners can be members of the same political
party, and so long as that is the case, we are going to have
Republican Commissioners and Democratic Commissioners and they
will invariably have different views about the job. But, there
is a big difference between disagreeing about how best to
implement a law and actively sabotaging the law. Advice and
consent is about making individualized good faith judgments,
and I think your record gives the American people reason to be
concerned about your nomination.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Cotton.
Senator Cotton. Thank you.
I apologize to our nominees. I have been presiding over the
Senate. It is a duty as much as it is an honor. The Chairman
remembers doing that in the Reagan administration.
[Laughter.]
Senator Cotton. Back before he came to the right side.
Chairman Shelby. That is right.
Senator Cotton. Ms. Peirce, I have some questions about the
Financial Industry Regulatory Authority, FINRA. Last year, you
wrote a paper analyzing the structure and operations of FINRA
with one theme being, quote, ``Although commonly perceived as a
self-regulator, FINRA is not accountable to the industry in the
way a self-regulator would be,'' end quote. Could you elaborate
on that theme.
Ms. Peirce. Certainly. FINRA has changed over time and is
something different than what its predecessor organization was,
and it right now has a board that has people that are not drawn
from the industry, and so that raises concerns about what
exactly the organization is. To whom is it accountable? Is it
accountable to the industry? Is it accountable to the SEC? Is
it accountable to investors? And, I think there have been
concerns raised from each of those areas, from each of those
constituencies, that it is not doing a good job.
Now, certainly, if I were to be confirmed as a
Commissioner, I would want to meet with and speak with folks
from FINRA as well as the people at the SEC who oversee FINRA
and see if there are areas where we can shore up the SEC's
oversight of FINRA and work together to make sure that
investors are being protected as they should be and that the
organization is working as it should be.
Senator Cotton. So, what are the implications for our
securities markets if the regulatory entity for broker-dealers
operators with only nominal oversight from the SEC, as you
pointed out in the paper, less SEC oversight than the Public
Company Accounting Oversight Board receives?
Ms. Peirce. The implications are that we are not getting
the kind of regulation of broker-dealers that we need, and so
perhaps there are concerns that innovation is being slowed by
the way FINRA is governed and that investors are not being
protected the way they should be and that there is no ability
for someone to say to FINRA, OK, we are going to hold you
accountable for this decision, because it is one step removed.
So, those are the nature of the concerns I have. Again, I
would want to get to the SEC and talk with the people who are
actually doing the monitoring of FINRA to better understand if
there is more that the SEC can do to watch more closely.
Senator Cotton. Over the last 7 years, in many industries,
to include the financial services industry, we have seen
considerable consolidation. Specifically among broker-dealers,
we have seen consolidation from 7,900 back 15 years ago to only
4,000 today. I would estimate that rising compliance costs from
multiple regulatory initiatives is a factor in this
consolidation. One, do you agree, and two, if so, what could
that trend imply for municipal issuers and investors,
particularly in small States like Arkansas?
Ms. Peirce. Yes. I think, certainly, that small financial
firms are feeling the press of regulation in a way that large
firms do not. In fact, I think it was once described--
regulation was once described as a moat around the larger
firms, protecting them. So, that is a concern that needs to be
taken into account.
In terms of the municipal space, certainly when you see
smaller financial firms disappearing, I think municipal issuers
have fewer options. So, that is a concern generally.
Senator Cotton. And then thinking about FINRA's future
going forward, it seems that it is kind of in this neither fish
nor fowl category now with its relationship to the SEC, but
also not maybe being purely a SRO anymore. Do you think it
needs to move in one direction or the other, it needs to
essentially be folded into the Commission or it needs to be
returned or reconceived as a true SRO, maybe with competing
SROs, as well?
Ms. Peirce. Yes. As I laid out in the paper, there are
multiple options. You could go to the route of folding it into
the SEC. You could go to the route of trying to encourage there
to be competing SROs. Or, you could go the route of just trying
to reform FINRA and put in some more accountability mechanisms
and make sure the SEC is doing its oversight properly.
I have not formed an opinion on what the right answer is.
To some degree, that lies with Congress and certainly not with
the SEC. But, it would be an area that, if I were to be
confirmed, I would want to speak with the staff who are day to
day involved with this oversight and understand from them what
they think the best course is and then speak with my fellow
Commissioners, as well.
Senator Cotton. Thank you. My time has expired, but
congratulations to you all on your nominations and your
willingness to serve. Mr. Jeppson, thank you in particular for
your past service in uniform to our country.
Chairman Shelby. Senator Donnelly.
Senator Donnelly. Thank you, Mr. Chairman.
Ms. Peirce, I want to tell you a little bit about what
happened in Indiana. I know you are from Ohio. We had 2,100
workers fired for a company that said, we are on the high end
of expectations for earnings, that is in the middle of a $16
billion stock buy-back, and they were fired so that the jobs
could be sent to Mexico for $3 an hour. Among the folks fired
were over 60 veterans who had put their lives on the line for
our country.
So, going a little bit more into this, the CEO from 2 years
ago, approximately, walked away with a golden parachute of over
$190 million in stocks and in others. The present CEO makes
over $10 million a year. And, the savings they are going to
have by firing all these workers who gave their heart and soul
to the company, they say it is going to be $60 million,
approximately. I think it is probably less. But, that is one-
third of 1 percent of the stock buy-back--one-third of 1
percent. So, we have 2,100 workers fired for the following
offenses: Earnings of 20 percent, great brand name, working
hard, doing everything they can for the company, and the jobs
sent to Mexico for $3 an hour.
Should the SEC allow this kind of thing? You have $16 in
stock buy-backs because they want to get the price of the stock
up. One-third of 1 percent of that $16 billion are the workers
who have been fired. The earnings of the company are over $7
billion, but the stock buy-back is more than twice their annual
earnings. Should the SEC allow this kind of thing to occur?
Ms. Peirce. First of all, my heart certainly goes out to
the employees who lost----
Senator Donnelly. I understand that, but what I want to
know is----
Ms. Peirce. ----their jobs, so----
Senator Donnelly. ----should the SEC allow over 60 veterans
to be fired who are making in a two-tier wage system maybe $14
with minimal benefits so that we can have a stock buy-back of
$16 billion, and their wages are one-third of 1 percent of
that?
Ms. Peirce. So, I cannot speak to the specifics of that
case because I only know what I just heard from you about it.
But, I will say that the SEC has rules regarding stock buy-
backs, and this concern that you express is one that I have
heard from others, as well----
Senator Donnelly. Well, as a potential SEC nominee, do you
think this should be allowed?
Ms. Peirce. Again, it is difficult for me to assess the
facts and circumstances of that particular case, but what I
would say----
Senator Donnelly. Assume they are true.
Ms. Peirce. What I would say is that if I were to be
confirmed as a Commissioner, I think it is an area that I would
think merits looking at, because the volume of stock buy-backs
is up, and so I would want to talk with the staff at the SEC
and with my fellow Commissioners about whether the rules that
are on the books now are working as they should.
Senator Donnelly. Well, what does it say about a system
where the driving factor is not your profits. The driving--
well, maybe it is, because maybe they are thinking instead of
one-third of 1 percent of the stock buy-back, they can go to
one-half of 1 percent of the stock buy-back. But, what does it
say when you leave 2,100 workers behind who have given their
heart and soul, many 20, 25 years, to that company and in
return they are all fired so they can get $3 an hour wages in
Mexico, and they tell you it is critical to save that $60
million, but they are giving a $16 billion stock buy-back. Is
not something wrong with that process?
Ms. Peirce. Again, the number of stock buy-backs is up and
I think it is an area that I would be interested in learning
more about from the staff who have been looking at that at
the----
Senator Donnelly. Well, do you see that as destructive of
our workers and of the people who have given their lives to
these companies? I mean, where does--I guess, where does--in
the SEC's mind, where do the employees, the workers, the people
who have given their heart and soul, fit in as well as the
stockholders? What is the balance on that?
Ms. Peirce. The SEC's mandate relates to investor
protection as opposed to employee protection. But, naturally,
any company that is trying to be an effective company has to
treat its employees well.
Senator Donnelly. Well, apparently, I think, part of the
stock buy-back craze has been that the workers get left behind.
Ms. Fairfax.
Ms. Fairfax. If you have seen some of my corporate
governance work, you have seen that I think corporations and
boards owe their duty to the entire corporate enterprise, and
that means that you should be thinking about everybody and
everything that is impacted by that enterprise, and I think,
then, that flows into this question of corporations and how we
think about them and what our mandate is with respect to them.
If you are asking me the question about the particulars,
again, I was just listening to it----
Senator Donnelly. Yes.
Ms. Fairfax. ----as you heard, and I would agree with Ms.
Peirce that I know share buy-backs are up. I know there is
significant concern about them and their impact on the
corporation and would certainly be interested in looking at
that issue, probing it more deeply, with an understanding that
it should not be a zero-sum game, that it----
Senator Donnelly. It is really breathtaking to me that
Carrier would fire these people, that United Technologies, who
has contracts with the U.S. Government, and what they are
asking me to do is to go back to fired veterans and tell them,
you have been fired, but we now want your tax dollars to be
used to buy products from the same company that fired you.
Something seems very, very wrong with that process, and I think
something needs to be looked at by the SEC in the way this is
going on.
How do you, as a veteran, give your heart and soul to a
company, see them make great earnings, the American promise. I
mentioned this the last time I was here. The American promise.
I will work hard. I will make sure this company does well. In
return, their shareholders are going to do awesome. And in
return, all I ask for is a halfway decent salary and a chance
to put a roof over my head. That is the American dream, and I
think the SEC ought to stand up for the American dream.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
I have a couple more questions, and I just--I appreciate
Senator Donnelly's bringing up his constituents who have been
so wronged by greedy management, pure and simple. And as--I
mean, there are lots of unhappy people in this country now.
People have a notice from election results, and I appreciate
his talking about this. And I appreciate Senator Schumer's
comments about money and campaigns and whether--I mean, I know
you both want to be confirmed. Whether you--regardless of your
personal feelings. You did not seem to want to share them very
much. I understand that.
But, I do hope that you listen to some of the outrage from
this Committee and in this country. Even though maybe you
cannot commit on things now, maybe you do not have all the
information you need, but there are--I would just hope you
would be more sensitive than your answers perhaps suggested,
and Ms. Peirce, in your case, than your writings suggest in
terms of listening to some of the inequities and injustices in
this society. I will leave it at that.
But, I have a couple of questions for both of you,
starting--well, for both of you. If we go back to 2009 and you
had a blank slate, where would you start with financial market
reform? Ms. Peirce, why do you not start.
Ms. Peirce. Umm----
Senator Brown. Forgetting Dodd-Frank, give us a real quick
outline of where you would start.
Ms. Peirce. Sure. I think that the key theme would be
trying to restore responsibility for mistakes to the people who
make them. And, so, part of that, for example, in the bank
realm, would be higher capital for banks to make sure that
there is a cushion when there is a problem at a bank. So, that
would be one example.
In the securities space, for example, I think some of the
reforms that are going on now in terms of making sure that
disclosures are appropriate, so that when someone is looking at
a financial firm, looking at the filings, someone can actually
understand what is going on inside that firm.
So, those would be a couple of the areas that I would
address.
Senator Brown. Do you tier capital requirements in terms of
percentages or leverage ratios? Do you tier them so that
JPMorgan Chase has higher capital standards than the First Bank
of Sycamore, and you are in my home State?
Ms. Peirce. I think simple capital ratios are appropriate.
Whether you tier it by the size of the bank is something that I
have not personally investigated. I mean, my inclination would
be to say that you have a standard across the board, but, I
would----
Senator Brown. So, a community----
Ms. Peirce. ----welcome the opportunity to think more about
that.
Senator Brown. Because that----
Ms. Peirce. You know, I----
Senator Brown. Does that suggest that the First Bank of
Sycamore is a threat--poses the same threat to the stability of
our financial system as does JPMorgan Chase or Goldman Sachs?
Ms. Peirce. Well-capitalized, well-managed banks do not
fail, and so I think across the board, even from the
perspective of that small bank, I think having a good capital
cushion is wise management. But, again, I mean----
Senator Brown. Ms. Fairfax, where would you start?
Ms. Fairfax. Where to start? I think, actually pulling back
for a second it is interesting that a lot of what happened
seemed to center around banks. So, I do think it was right to
think about reforms in that space. Whether or not it is capital
requirements, thinking through liquidity concerns and risk
assessments, I think you asked me a question about board
governance, et cetera. I think that would be linked to this
question about incentives.
And linked a little bit to Senator Donnelly's concern about
people and individuals who are operating in these entities, do
they have the appropriate incentives to think about long term
versus short term. I think that is a very important question,
and making sure that we have appropriate incentives, and
looking through the rules to think about what the rules say and
what kind of directions the rules may pull people in, I think
it is very important.
Transparency is critical. I think the crisis taught us that
there was a lot actually we did not know about what was going
on in the derivatives space, about the interconnectedness
between certain markets. And, so, I think it is right to shine
more light on that space and to get more information connected
with that.
The other thing I think we saw was that agencies and
industries were operating in their own separate spheres and
there was not a clear realization that what one market is doing
would clearly have an impact on what another market is doing.
And, so, I think thinking through collaboration and
coordination, or at least responding to ways that we can
collaborate and coordinate and recognize interconnectedness is
also really important.
Senator Brown. A real quick question, and I note Senator
Merkley has not had a round yet and I know Senator Warren had a
question, too.
There is notable representation--this is for both of you,
Ms. Peirce first--of women and minorities in management
positions in financial services and among financial regulators.
Tell me if you think it is important to have policies to
improve representation of women and minorities at the SEC, and
if you do not think so, why not. Ms. Peirce.
Ms. Peirce. Certainly, the SEC should take advantage of the
beautiful diversity that this country has, and I would hope
that it does. I think if we are confirmed, we will be able to
set an example as a board that is 80 percent female.
Senator Brown. But, you are not suggesting any kind of
actions to improve those numbers?
Ms. Peirce. Numbers at the SEC?
Senator Brown. And on regulators----
Ms. Peirce. I am not familiar----
Senator Brown. Regulators and staff and--at financial
institutions.
Ms. Peirce. Certainly----
Senator Brown. I will give you an example. In your
hometown, in my hometown, there is a female CEO of Key Bank.
She is the only female CEO among, I believe, the 25 largest
banks in the United States. Does the SEC have any--should they
have any thoughts about helping banks move in the direction of
better minority and women leadership position representation?
Ms. Peirce. Well, Dodd-Frank did put in an Office of
Minority and Women Inclusion, and so if I were to be confirmed,
I would want to speak with that office to find out what the
efforts are underway. I know that guidance was put out by
multiple agencies. I believe the SEC was one of those agencies.
Senator Brown. Ms. Fairfax.
Ms. Fairfax. My work clearly shows that I think diversity
inclusion is important and I think diversity inclusion matters
in every sector of our economy. When you think about what that
looks like on the ground, it is not clear, but certainly if I
am fortunate enough to be confirmed, I would work to make sure
that the SEC is a leader on this effort in terms of setting the
tone, as Ms. Peirce said, about what our structure would look
like, and, of course, setting the tone about the importance of
that work through the Diversity Office that was mandated by
Dodd-Frank and, thinking through ways in which we can set that
tone in other industries.
Chairman Shelby. Senator Merkley.
Senator Merkley. Thank you very much, Mr. Chairman.
And, just to jump right into it, I am very concerned that
of the rules required by Dodd-Frank, a third have not been
finalized and there is no clear timeframe. One of the rules
that I was specifically interested in was the conflict of
interest provision. This was the situation where, essentially,
firms were packaging securities to sell to clients and then
they were taking bets that those very securities they were
selling would collapse. In other words, they were selling
something they knew to be defective.
And, so, the conflict of interest is just about absolutely
stopping a predatory practice of designing a product designed
to fail and then selling it as if it is the best thing since
sliced bread, certainly not something a firm should be doing.
And, yet, the law as written says for this section, not later
than 270 days after the date of enactment, the Commission shall
issue rules.
Is it, Ms. Fairfax, appropriate that the SEC has failed to
address this fundamental conflict of interest and has failed to
follow the law written by Congress?
Ms. Fairfax. Thank you for your question. I absolutely
think it is important that we move to try to enact the mandates
under Dodd-Frank. I am not, obviously, at the SEC. If I am
fortunate to be confirmed, I will hopefully get some insights
into what the process around the rulemaking has been and how we
can work to get things done in a timely fashion----
Senator Merkley. That is all very diplomatic, but when
Congress says, you shall do something at the SEC, and you are
here to be a Commissioner at the SEC, do you take that
instruction in the law seriously and would you work hard to
say, yes? And, I realize the Chair sets the agenda, so you do
not have full power over this, but would you work hard as a
Commissioner to say, we here on the SEC should follow the law?
Ms. Fairfax. Absolutely. I think the Commission should
follow the law and the Commission should try to work to comply
with whatever time commitments are there within the law.
Senator Merkley. Ms. Peirce, do you think the SEC should
follow the law?
Ms. Peirce. Yes.
Senator Merkley. Do you find it somewhat embarrassing that
when the law says 270 days and we are now 6 years later, that
that is not just a--that is just not a little bit of a miss,
but that is a complete and utter systemic failure?
Ms. Peirce. I think that the SEC would agree that that is a
miss. They have had many rulemakings, and so I know that there
has been a lot of competition for the rulemaking resources, but
it is a miss.
Senator Merkley. So, you would use your position to say,
let us do what Congress asked, and sometimes that means, if you
will, that a rule is not going to go through 10,000
reiterations. It is going to get done and out and field tested,
and then we can all come back to it later and say, well, does
it need to be improved or not, but that when Congress says it
shall be done, you believe it should be done?
Ms. Peirce. Yes. I mean, the SEC does have to adhere to the
Administrative Procedure Act in proposing and adopting
regulations, which does sometimes take some time.
Senator Merkley. Thank you.
I am going to turn to the issue of whether owners of
companies have a right to know how that company is spending
their money, the owners' money, on political activity. Ms.
Fairfax, do the owners of companies have a right to know how
the company is spending their money on political activities?
Ms. Fairfax. Thank you so much for your question, and just
to get back, because I know Senator Brown was also concerned
about this issue, as are, I understand, many others. On the
issue of disclosure around political spending, I talked about
initially what I know were concerns on the other side. I
certainly am fully cognizant of the concerns that you are
raising, that this is something that investors have really
asked about, that certain investors absolutely believe it is
material, and certainly to the extent what they are saying is
that they believe it is material, both in terms of the type of
information they want to know, but also in terms of thinking
through whether or not spending is occurring in a way that is
consistent with the corporation's best interest, then I think
that is something that, obviously, we need to be taking into
account and thinking through how best to respond.
Senator Merkley. Ms. Peirce, is spending other people's
money and not informing them on political speech, is that still
on speech?
Ms. Peirce. A corporation has the ability to spend money
without checking every time it spends with its shareholders.
Obviously, its goal is to increase the value of the
corporation. And, the rules in terms of disclosure are rules
that apply across the board to all types of issues, including
the issue that you raise.
Senator Merkley. But, there is no rule for disclosure in
this area and the SEC has refused to do it. Is it not a valid
interest of an owner to know how political speech is being
conducted with their money?
Ms. Peirce. Again, as Professor Fairfax noted, there are a
lot of people who have expressed an interest in that, and if
that issue were to come up at the SEC, it is one that I would
certainly look at and listen to the concerns raised by folks
who have raised them.
Senator Merkley. You would listen to people, but you do not
have any opinion on whether a company spending your money--you
are a stockholder--on political speech without your permission
is OK? No opinion on that?
Ms. Peirce. In terms of the SEC's role, the SEC's role is
to get information to investors so that they can make their
investment decisions, and that is the lens through which I
would view this.
Senator Merkley. So, it has often been argued that an
individual who disagrees with the political spending of the
company can just sell their stock, that it is an easy exit.
But, how can that individual use that easy exit ramp if they
never get information about how that company is spending money
on political speech? Is it not essential to have that
information in order for the exit ramp, or the on ramp, to be
utilized?
Ms. Peirce. Again, I think that the issue of political
spending should be viewed through the same lens that other
disclosure issues are in terms of other things that the company
is spending its money on.
Senator Merkley. Thank you, Mr. Chairman.
Chairman Shelby. Senator Warren, do you have further
questions?
Senator Warren. I do. Thank you, Mr. Chairman.
So, I want to focus on this question about who makes
decisions. Ms. Peirce, your writings suggest that you believe
that the SEC's purpose is to empower investors to make their
own informed decisions. For example, in 2014, you wrote that,
quote, ``The SEC's approach too often entails making decisions
for investors rather than providing them a framework within
which to make their own choices.''
In 2013, SEC Chair White gave a speech in which she said
that the SEC should review corporate disclosure requirements
with an eye toward eliminating disclosures that the SEC did not
think were helpful to investors, and you praised that decision
in an article, writing that Chair White's speech, quote,
``recognizes that too much disclosure can harm the investors
for whom it is purportedly designed.''
So, I want to sort this out, because it looks like to me
your positions are directly contradictory. You want the SEC to
empower investors to make their own choices and you do not want
the SEC to make choices for them. So, why would you want the
SEC to be the one to decide that certain information is not
relevant to investors?
Ms. Peirce. I think often in the area of disclosure, we
want to look at the presentation and the balance and make sure
that information that is important to investors is not lost in
a mountain of information.
Senator Warren. Well, thank you, Ms. Peirce, but that is
not my question. My question is not whether or not you want to
get it organized in a way that makes sense for people. My
question is why you would want to cut out information if
investors think that it is important to them.
Ms. Peirce. I think the goal is, and certainly what my
understanding of what the SEC is doing through the Disclosure
Effectiveness Review, is to try to find out what users of
financial statements, what investors who are using financial
statements to make decisions, what information they need, how
investors----
Senator Warren. Wait, what information you think they need
or what information they think they need?
Ms. Peirce. What the SEC is trying to do is it is trying to
get information from all of the relevant investors and trying
to get as much feedback as it can in making those
determinations. It is actively reaching out----
Senator Warren. Well, good. Then, let me ask a question
that is a follow-up here. If the investor community wants fewer
disclosures, that makes perfect sense to me. I completely get
that. But, investors like getting those disclosures. That seems
like a pretty good indication that investors find that
information relevant to the decisions they make.
So, would you oppose eliminating any disclosures that the
investor community wants to keep?
Ms. Peirce. Yes. I would like to understand who the
investor community is and I would like to understand, you know,
that is important when you are trying to figure that out. You
are trying to figure out who has expressed the opinions that
they want the information, and certainly----
Senator Warren. But, ultimately, what you are driving for,
driving toward, is if the investors want the information, then
you would say, let us not eliminate it, is that right?
Ms. Peirce. SEC disclosure is intended to provide the
reasonable investor the information she needs to make her
investment decision.
Senator Warren. OK. But, you have said, let us let the
investors make the decisions. So, now, let me ask the question
the other way. If a million investors want the SEC to require
public companies to disclose corporate political contributions
because those investors believe that it is relevant information
for their investing, will you support them, assuming that the
contributions are material to the company's finances?
Ms. Peirce. Again, the company should be making disclosures
of material items.
Senator Warren. Well, but I am asking you the question
about who decides what is important to investors. So, if a
million investors, or, let us pick another number, exactly 1.2
million investors, say it is relevant to me as an investor to
have this piece of information, that is, what corporations are
spending in the political realm, would you support them in
that? After all, you said you thought it was important that the
SEC not make decisions for investors, but rather that you
provide a framework for which they could make their own
decisions.
Ms. Peirce. If a particular disclosure requirement comes up
while I am at the Commission, if I am confirmed, I would
certainly look at the letters that came in as well as other
people who----
Senator Warren. You are going to be there a long time,
because there is already, I think, 1.2 million letters. You
know, if the SEC wants to impose fewer restrictions on
investors' decisions, then those investors need robust
disclosures so they can make their own informed decisions, and
you just cannot have it both ways on this one.
I want to raise one other question, and I will be quick on
this one, Mr. Chairman. After the Enron accounting disaster,
Congress created the Public Company Accounting Oversight Board,
or PCAOB. The PCAOB oversees accounting firms to ensure that
they are not misleading investors and that the public have--not
misleading investors or the public about the financial
condition of the companies that they are auditing.
The SEC oversees the PCAOB and appoints its five members,
including the chairman. The term of the current chairman has
expired--it expired in October of last year--and SEC Chair
White recently announced the SEC will decide on the next chair
as soon as the two vacancies on the Commission are filled.
Now, when it created the PCAOB, Congress required that the
SEC select its members to serve on the board who are, quote--
and I want to read this--``prominent individuals of integrity
and reputation who have a demonstrated commitment to the
interests of investors and the public and an understanding of
the responsibilities for and nature of the financial
disclosures required of the issuers under the securities laws
and the obligations of accountants with respect to the
preparation and issuance of audit reports with respect to such
disclosures.'' Demonstrated commitment to the interests of
investors and the public.
So, my question is, Professor Fairfax, if you are confirmed
as an SEC Commissioner, will you oppose the appointment of a
PCAOB chairman who does not meet those legal requirements?
Ms. Fairfax. So, certainly, I think that my role, if I am
fortunate enough to be confirmed as Commissioner, is to follow
the law----
Senator Warren. So, you only need one word here.
Ms. Fairfax. [Laughter.] The answer is, to the extent that
I come to a reasoned judgment that it is the case that someone
before me may not be qualified by whatever the criteria within
the law is, then I do think it is my obligation to not confirm
that person.
Senator Warren. So, if they do not have a demonstrated
commitment to the interests of investors and the public, you
are a no?
Ms. Fairfax. Again, I will follow the law, and to the
extent that those----
Senator Warren. It is there.
Ms. Fairfax. ----are the things I am supposed to be looking
for, then that will----
Senator Warren. We already did our part.
Ms. Fairfax. ----impact my decision.
Senator Warren. All right. Ms. Peirce, how about you?
Ms. Peirce. If that issue comes up, I will follow the law
in applying it.
Senator Warren. Thank you. It is important for this board
to function as intended and I look forward to the SEC following
Congress' direction and appointing a highly qualified
individual to serve as the PCAOB's chairman.
Thank you, Mr. Chairman.
Chairman Shelby. Senator Merkley, you have another
question.
Senator Merkley. Yes. I think I have one last question, Mr.
Chairman. Thank you, Mr. Chairman.
So, it has been 3 years since the Volcker Rule was
finalized, and last year, the rule went into effect. The
challenge is that it--the Volcker Rule sought to distinguish
between proprietary trading, which was banned, and market
making, which is not. The basic common explanation of the
difference is between when you bet on a warehouse full of
something, that is proprietary trading. When you have a retail
outlet with a few loaves of bread for the customer, that is
market making.
And, so, there is a boundary necessary to distinguish
between the two for both the benefit of the companies and the
benefit of the regulators. However, the final rule did not
include specific parameters for enforcement and compliance and
this lack of clear guidance makes it difficult, not for just
those in Congress or the public to understand, but for those in
the industry and for the regulators. What are the metrics that
are going to be applied? What are the quantitative thresholds
that would determine whether or not a bank is engaged in
proprietary trading, or even what are the proper steps that
must be initiated if a bank is to be found noncompliant?
For enforcement of this boundary, this boundary must be
absolutely clear. Would you, Ms. Fairfax, do everything
possible in your role as an SEC Commissioner to make that
boundary between proprietary trading and market making clear?
Ms. Fairfax. It is a very good question. Obviously in order
to enforce the laws about something, you have got to know
exactly what they apply to. Volcker obviously just took effect,
and so thinking about what its impact is is important and how
we manage its impact. I do think, if I am fortunate enough to
be confirmed as Commissioner, I will work with the staff and
other parties to try to make sure that we are clear on that
line, and you are right, it is important both for purposes of
the industry to understand where that line is and also for
purposes of regulators to understand, how best to monitor
whether or not people are stepping over that line.
Senator Merkley. Ms. Peirce this concern, which is
important to the financial firms and to the regulators so that
they all know the rules of the game, do you support a clear
definition, understanding, boundary, between market making and
proprietary trading?
Ms. Peirce. Yes. I think it's important to write clear
rules that enable people to behave, knowing that they are in
compliance with the law, and then for the enforcers to know how
to enforce the rule.
Senator Merkley. Do you anticipate that you would
contribute to the conversation about how to make this boundary
clearer for the sake of all involved?
Ms. Peirce. Yes. I certainly would welcome the opportunity
to work with the staff, who have been looking at this in
detail, and with my fellow Commissioners if I were to be
confirmed.
Senator Merkley. Thank you.
Chairman Shelby. We thank all of you for your appearance
here today. We will try to get the Committee together as soon
as we can and try to move you to the floor and go from there,
your nominations.
There has been a lot said here today about following the
law. That is important. But, I hope that the President will
follow the law, the Dodd-Frank Act, which Senator Warren had a
lot of influence in. It has been nearly 6 years, and he could
appoint a member of the Board of Governors to be the Vice Chair
of the Fed that we could have some interaction and some dialog
with on regulatory affairs, both ways. He has not done that
yet. I hope he will follow the law, and I hope you will follow
the law.
Thank you very much.
[Whereupon, at 12:04 p.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of nominees,
responses to written questions, and additional material
supplied for the record follow:]
PREPARED STATEMENT OF MATTHEW RHETT JEPPSON
To Be Director of the U.S. Mint
March 15, 2016
Thank you, Mr. Chairman, Senator Brown, and distinguished Members
of the Committee. I am honored to appear before you today. Thank you
for your time--and I would like to thank President Obama for the trust
he has placed in me by nominating me to serve as the United States
Mint's 39th Director.
Although they were not able to be here with me today, I want to
acknowledge my wife Renee and our children--Holly, Heidi, Hayden, and
Hans.
Before I outline some of the initiatives I would prioritize if I
have the privilege of being confirmed as the next Director of the
United States Mint, I would like to share with the Members of the
Committee a little about my background and how my professional
experiences have prepared me for the position.
My life and career have not always followed a conventional,
predictable path. I moved to Florida from Utah when I was 16 and
graduated from the University of Florida with a degree in history.
After college I was commissioned in the United States Marine Corps,
where I served as an infantry officer.
My service as a Marine--from those early days leading Marines in
combat, breaching into Kuwait during Desert Storm, to my service as the
Deputy Director of Operations for United States Forces in Afghanistan--
developed in me a profound love of the Corps and its Marines. They are
truly are my brothers and sisters. In January, I retired from the
Marine Corps with nearly 28 years of combined active and reserve
service. These years of service have influenced who I am, shaped how I
interact with my colleagues, and imbued in me an approach to leadership
and management that I believe will be an asset to the United States
Mint if I am confirmed. A constant thread throughout my career has been
a focus on, and commitment to, individuals and how they fit into the
larger organization--from the Marine on the ground to the Mint employee
on the manufacturing floor making coins.
During my last deployment to Afghanistan, I served as Deputy
Director of Operations for United States forces leading up to and
during the troop surge in 2009 and 2010. These were enormous, complex
military operations that gave me valuable skills for leading the United
States Mint's workforce of approximately 1,700 dedicated men and women
here in Washington and at five facilities across the country--
Philadelphia, West Point, Fort Knox, Denver, and San Francisco.
Mr. Chairman, in the early 1990s, my life and career took an
unexpected turn when my father, who was running a small construction
business, became seriously ill and I assumed responsibility for running
the business for a number of years. I was young at the time and faced a
steep learning curve. But I felt like it was my duty to my family to
see it through while my Dad recovered. The experience gave me valuable
skills that help me relate to employees at the United States Mint
across our facilities, who range from marketing specialists to graphic
designers, sculptors, die setters, press operators, IT specialists,
financial analysts, engineers, police officers, human resources
specialists, and other functions.
Later, I served as Florida's Director of State Purchasing. While
overseeing $12 billion in State contracts, we developed a new
electronic procurement system and modified the way we bought goods and
services, saving the State millions of dollars by leveraging technology
to make the State more efficient and accountable.
Before coming to the United States Mint, I was the Acting Chief
Operating Officer at the United States Small Business Administration
(SBA), overseeing all aspects of the agency's disaster relief and risk
management efforts, personnel, facilities, information technology, and
equal opportunity programs.
I was also proud to serve as the Associate Administrator for
Veterans' Business Development at SBA for 2 years, helping Veterans
conceive, fund, start, build, and grow their own businesses. I assumed
responsibility for an office that was facing major challenges at the
time. With the help of my team, we transformed the office, making it a
model of cooperation for SBA by using public-private partnerships
between educational institutions and corporations to leverage scarce
resources and make enormous strides for Veterans seeking to start small
businesses.
Mr. Chairman, since January 2015, I have had the honor of serving
as the Principal Deputy Director of one of our country's oldest and
most venerable public institutions. Congress established the United
States Mint early in the life of our republic in 1792; making coins is
one of the explicit powers given to Congress by Article I of the
Constitution. We have a rich history and important role in the
financial and commercial fabric of our country.
David Rittenhouse--renowned American astronomer, inventor,
clockmaker and close friend of George Washington--was the first Mint
director. Rittenhouse believed that coin design was a form of art. And
President Theodore Roosevelt, who personally commissioned the redesign
of American coinage early in the 20th century, believed that coin
design should reflect our history, values, and heritage. The beliefs of
Rittenhouse and President Roosevelt live on today in our employees and
in the products we offer.
Nearly 225 years after its founding, the modern United States Mint
is a vibrant, efficient, and lean organization. General and
administrative costs in fiscal year 2015 decreased by 9 percent
compared to fiscal year 2014 and 46 percent compared to fiscal year
2009. And although circulating coinage operations grew to meet
increased Federal Reserve Bank demand, we decreased the overhead costs
at our manufacturing facilities by 4 percent compared to fiscal year
2009.
In fiscal year 2015, the United States Mint returned $550 million
in circulating seigniorage--the difference between the face value and
cost of producing circulating coins--to the Treasury General Fund. In
fact, the Federal Reserve's demand for circulating coinage is at its
highest level since 2006. This tells us that coins are still very
relevant and that our mission at the United States Mint is as important
as ever.
To meet the public demand, we are recruiting more talented and
hard-working professionals to join our ranks, including military
Veterans, and investing more in their training, development, and
advancement. Veterans currently make up 35 percent of our workforce
across the Mint. Since I became the Mint's Principal Deputy Director,
we are continuing to exceed our goal that 40 percent of all new hires
be Veterans.
All of this progress over the last 5 years is a testament to the
commitment of our employees, as well as the leadership of Secretary Lew
and Treasurer of the United States Rosie Rios. I assure you that I
intend to remain on this sound financial path if confirmed as the
Mint's next Director.
Mr. Chairman, when I came to the agency in January 2015, the first
thing I wanted to do was to hear from our employees about their jobs--
what they appreciate, what they would like to change about the
organization, and how I could help. I set out to visit each facility
and meet face-to-face with as many employees as I could. Their advice
and ideas helped me set priorities for the bureau, such as helping all
our employees get the training they need to advance their careers. This
investment in human capital will not only address the demographic
challenges associated with an aging workforce but will also help us to
continue to meet the increased demand for coinage.
Soon after I came to the Mint, it became apparent that our
employees would be better served if all our human resources functions
were aligned under the Workforce Solutions Department at headquarters,
allowing the sharing of resources and development of technical
expertise. This realignment led to benefits such as HR Solution
Centers--small teams of experts who foster knowledge management and
create consistency across the organization.
Mr. Chairman, to satisfy the Nation's demand for numismatic coins,
it is important that we take advantage of every opportunity to improve
the experience of the American consumers who buy our products while
exercising prudent stewardship of the public resources that are
entrusted to us. As a part of our commitment to embracing a culture of
continuous improvement in all aspects of our operations, we have
invested in two significant technological innovations that are already
showing positive results for our customers and our mission. First, in
July 2015, we launched a new mobile app--MyUSMint--a first for the
bureau. It allows smart phone users to learn about Mint history and
order our products from their phones. The app provides an important new
method for the public to interact with the Mint. It netted nearly
$550,000 in sales within its first few weeks of operation and has
received a very high user rating.
The new online catalog and order management system deployed in the
fall of 2014 was a much-anticipated overhaul of a 14-year-old legacy
system. This new system includes:
an enhanced customer experience with advanced
functionality;
a more responsive Web site;
improved order tracking and issue resolution;
better order status transparency; and
improved access to the product catalog from all types of
devices
This new, end-to-end solution offers cost and processing
efficiencies and greater opportunities to capitalize on retail and e-
commerce industry best practices. As of March 7, the new system had
processed more than $548 million in sales and shipped approximately 6.8
million products to customers.
Both of these technological innovations have presented unique
opportunities to better engage with our customers and the general
public. We are changing as an organization to better serve our
customers and using modern technology such as sophisticated robotics
for packaging and enhanced manufacturing processes at the plants to
improve our operations and invest in our employees and their safety.
Mr. Chairman, the United States Mint is a lean, cost-effective,
transparent organization. We accomplish our core mission to produce
circulating coins, precious metal bullion coins, and collector coins
and medals to meet the needs of the Nation and protect our national
precious metals reserves. If I am confirmed as the Mint's next
Director, I pledge to continue meeting that core mission.
I believe the United States Mint reflects the very best of our
Nation. Our motto--Connecting America Through Coins--has real meaning,
since the designs, themes, and subjects depicted on our coinage
represent our shared values, history, and culture--who we are and what
we believe to be important as a country.
If I have the privilege of earning the Senate's confirmation as the
next Director of the United States Mint, I pledge to all of you that I
will fulfill my responsibilities with pride and integrity. I will never
forget that I serve the public and will always strive to uphold the
trust placed in me by the President of the United States and the
Members of this Committee. I also look forward to working with this
Committee, the Senate as a whole, and the House of Representatives to
serve the American people.
It has truly been an honor to serve with my colleagues at the
United States Mint for the past 14 months. I thank you all, once again,
for your time, interest, and consideration. I appreciate the
opportunity to speak with you today and look forward to your questions.
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PREPARED STATEMENT OF LISA M. FAIRFAX
To Be a Member of the Securities and Exchange Commission
March 15, 2016
Chairman Shelby, Ranking Member Brown, and Members of the
Committee, thank you so much for giving me the opportunity to speak
with you today. It is an incredible honor and privilege to appear
before you as one of the President's nominees to be a Commissioner of
the Securities and Exchange Commission.
Before I begin my remarks, I would like to briefly introduce my
family members who are here with me. I am grateful to be joined today
by my husband, Roger Fairfax, my three daughters, Fatima, Regina, and
Nadia, my mother Elizabeth White, my mother-in-law Charlene Fairfax, my
brother-in-law Justin Fairfax, and my sister-in-law Jennifer Fairfax. I
have a large extended family and want to thank all of them, as well as
all of my friends, for their incredible and continued support. I also
would like to congratulate Hester Peirce who, like me, is here today as
a nominee to serve on the Commission.
I sit before you today because I believe deeply in the importance
of robust and healthy securities markets. I also believe deeply in the
SEC's three part mission to protect investors, maintain fair, orderly,
and efficient markets, and facilitate capital formation. I am honored
and humbled by the prospect of potentially serving the Nation and its
investors alongside the Chair, the other Commissioners, and the many
staff members who work tirelessly to support the vital work of the SEC.
As a law professor, over the last 15 years I have had the privilege
of teaching Corporations and Securities Law to the next generation of
practitioners, judges, and regulators, so that they can understand the
increasingly complex world in which companies must operate, markets
must perform, and regulators must monitor. My teaching, along with my
research and writing in these areas, have given me a deep understanding
of the issues confronting the SEC, as well as a strong desire to help
tackle those issues head on. My research and work with organizations
such as the American Bar Association and FINRA have taught me the
importance of engaging a variety of diverse perspectives when seeking
to develop solutions to complex problems. I look forward to such
engagement if I am fortunate enough to be confirmed.
Importantly, I believe that the SEC's three-part mission statement
is more than a statement; it is a set of guiding principles that should
shape every aspect of the agency's activities. It is also a set of
principles that must work together.
I believe the SEC's work must be aimed at ensuring that investors
are protected at all times, and that investors have confidence in the
markets and the financial system.
The SEC also has a responsibility to facilitate access to needed
capital for all participants in the market, from the corporation and
small business owner in need of cash and credit, to the individual
investing to support a family, finance a child's education, or ensure a
comfortable retirement.
And all of these participants need assurances that their capital is
safe and secure, which is why the SEC has a responsibility to maintain
markets that are orderly, efficient, and fair. Everyone needs to play
by the same rules, and there must be strong repercussions for those who
break them.
Thank you again for the opportunity to appear before you today. If
I am confirmed, I will work tirelessly to maintain the confidence that
the President, this Committee, and the Senate will have shown in me. I
look forward to answering any questions you may have.
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PREPARED STATEMENT OF HESTER MARIA PEIRCE
To Be a Member of the Securities and Exchange Commission
March 15, 2016
Chairman Shelby, Ranking Member Brown, and Members of the
Committee, I am honored to appear before you today as one of the
President's nominees to serve as a member of the U.S. Securities and
Exchange Commission. It is a particular privilege to be considered for
the SEC together with Professor Lisa Fairfax.
My desire to serve at the SEC is motivated by the conviction that
the capital markets help unlock people's potential. Investors build
their retirement nest eggs, their downpayments, and their children's
college funds. Vibrant capital markets find and fund individuals and
companies with brilliant ideas that can enhance people's lives and the
Nation's prosperity.
My belief in the capital markets' ability to enrich our communities
is built on lessons I have learned at the Peirce family dinner table,
in classrooms at Case Western Reserve and Yale, and from mentors and
colleagues throughout my career.
In the field of securities law, I found a natural way to combine my
undergraduate degree in economics, my law degree, and my elementary
school hobby of plotting stock prices. I wrote rules for investment
companies and investment advisers as a staff attorney in the SEC's
Division of Investment Management. I then worked for Commissioner Paul
Atkins. Following my time at the Commission, I had the honor of working
for then Ranking Member Shelby on the staff of this Committee. In all
of these roles, I learned the importance of carefully crafted and well
enforced laws and regulations in maintaining strong capital markets.
At the Mercatus Center at George Mason University, my colleagues
share my passion for high-quality regulation and sound regulatory
process. I have learned much from their careful scholarship.
Another set of lessons--this time about how to use regulation
effectively to educate, protect, and empower investors--has come from
my fellow members of the SEC's Investor Advisory Committee.
I would welcome the opportunity to apply these lessons to protect
America's investors, preserve the integrity of our financial markets,
and facilitate innovation and economic growth.
Thank you for allowing me to appear before you today. I look
forward to answering your questions.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM MATTHEW RHETT JEPPSON
Q.1. For more than 30 years, Congress has required that the
Mint use only gold or silver mined within the U.S. in the past
12 months in any gold or silver coins, medals, or bullion. I
support sourcing materials from U.S. companies, but I am
concerned that the arbitrary time window and limitation to
newly mined metals unnecessarily restricts the Mint's
acquisition processes and undermines the Mint's efforts to
produce the highest quality products in the most cost-effective
way.
As Director of the Mint, would you consider acquiring metal
for bullion from mines and other U.S. sources, including
recycled metal facilities, if permitted by Congress, provided
quality was maintained?
A.1. Yes. Currently, provisions in sections 5112 and 5116 of
title 31, United States Code, require that any gold and silver
purchased by the United States Mint (Mint) be from domestic
natural deposits and that it be acquired within 1 year after
the month in which the ore from which it was derived was mined.
The Mint's Office of Procurement, working in close
collaboration with our Manufacturing Department, ensures that
all of the gold and silver that the Mint purchases meets the
Mint's stringent quality requirements, which cover such factors
as purity and the grain size of the metal. If the law were
changed to allow the Mint to purchase gold and silver from
other U.S. sources, the Mint would consider all possible
bullion blank sources permitted by law, including those from
recycled metal facilities that would meet the Mint's quality
requirements.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
FROM LISA M. FAIRFAX
Q.1. I am interested in learning more about the policy issues
raised in the amicus brief you signed in the Trinity Wall
Street v. Walmart case. It is my understanding that the
Trinity's shareholder proposal sought to have the Walmart board
of directors address policies that could shape what products
are sold at Walmart, such as high capacity rifles.
Where do you draw the line on shareholder proposals that
seek to shape social policy and the ordinary business
operations of a company?
A.1. My signing of the amicus brief in this case did not signal
my taking any position on the underlying issue, or on a
particular company or industry. Instead, my signing reflected
my belief in the broader corporate governance principle that
shareholder proposals must continue to strike a careful balance
between boards and shareholders. Consistent with this balance,
I believe that the appropriate line for shareholder proposals
is one that allows boards and managers the discretion to
oversee corporate affairs and implement day-to-day policies,
but that also gives shareholders the ability they have been
granted under Rule 14a-8 of the Securities and Exchange Act to
communicate with the board regarding issues of significance.
Q.2. In its decision in 2015 the Third Court used a two-part
test: (1) whether the proposal focuses on a significant policy;
and (2) if so, whether that policy transcends the company's
ordinary business operations.
What is the practical effect of this two-part test on the
SEC ordinary business exclusion?
A.2. I have not had the opportunity to assess the practical
impact of the Third Circuit's test on the ordinary business
exclusion. However, in a 1988 Release, the SEC explained that
proposals under Rule 14a-8(i)(7) relating to ordinary business
matters that focus on ``significant social policy issues . . .
would not be considered to be excludable because the proposal
would transcend the day to day business matters.'' As a general
matter, therefore, a test examining whether a proposal focuses
on significant policy issues, and whether such issues transcend
ordinary business matters, appears consistent with SEC guidance
on this matter. I also understand that, following the Third
Circuit's opinion, the SEC staff has reaffirmed its view that
shareholder proposals focusing on significant policy issues are
not excludable under Rule 14a-8(i)(7) because such proposals
would transcend day-to-day business matters. The SEC staff also
has reiterated that it would continue to apply the SEC's prior
interpretative approach under Rule 14a-8(i)(7) when considering
whether proposals are excludable.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORKER
FROM LISA M. FAIRFAX
Q.1. If you are confirmed as a Commissioner and the SEC Chair
presents a rule being developed for your consideration, how
would you go about forming a position on the rule? If the rule
presented addresses a regulatory principle you fundamentally
disagree with, would that change your approach?
A.1. If confirmed, and a rule is presented for my
consideration, I would form my position by gathering as much
information as I could to learn about the issues in the rule. I
also would form my position by listening to the views of
investors, corporations and their advisors, my fellow
Commissioners and the SEC staff, and others with expertise and
experience relevant to the rulemaking effort. My approach would
remain the same for any rulemaking effort, and thus would not
change based on the regulatory principle addressed by the rule.
Q.2. Can you envision an instance in which you would vote in
favor of a rule that does not comport with your ideology but
fits with the SEC's mission?
A.2. Yes, if I am confirmed as Commissioner, my rulemaking
efforts will not be dictated by my personal preferences or
interests, but instead by the extent to which a rule is
mandated by Congress and is otherwise consistent with the SEC's
three-part mission.
Q.3. Do you believe there are circumstances in which the SEC
should not implement and enforce statutorily required rules? If
so, what are those circumstances?
A.3. I believe the SEC has an obligation to follow the law, and
that the SEC must do its best to implement and enforce mandated
rules in a manner that is responsible and consistent with the
SEC's mission. While it may be appropriate for the SEC to voice
concerns when it appears that a particular rule may be
inconsistent with the SEC's mission or otherwise unworkable, I
do not believe this negates the SEC's obligation to follow the
law.
Q.4. What role do you believe the SEC should play in increasing
corporate board diversity?
A.4. I believe the SEC has a responsibility to ensure that
shareholders receive material information about a company and
its operations. I understand that there are competing views
about the impact of board diversity, including evidence
indicating that diverse boards may behave similarly to
nondiverse boards. However, I also understand that there are
investors who believe that board diversity has a material
impact on a corporation's governance, decision making, and
bottom line. For such investors, disclosure about a
corporation's diversity practices and current status enables
them to make more informed voting and investment decisions.
Thus, I support SEC efforts to provide shareholders with
sufficient information on this issue.
Q.5. How do you view the SEC's role in overseeing the U.S.
equity market structure? What changes, if any, do you believe
should be made?
A.5. I believe maintaining and enhancing the high quality of
the U.S. equity markets is critical to the SEC's mission.
Markets have undergone sweeping changes from manual markets to
the current environment in which trades occur at high
frequencies in a diversity of trading venues. While these
changes may be beneficial, they also raise important questions.
I believe it is imperative that the SEC have a deep
appreciation for the current structure of our equity markets so
that it is in the best position to oversee those markets. If
confirmed, it would be a top priority for me to continue the
SEC's engagement in efforts that comprehensively review the
equity markets. It also would be a priority for me to monitor
and work on the process for developing and implementing a
consolidated audit trail. I believe that establishing a
consolidated audit trail will significantly enhance the ability
to oversee and analyze trading activity, and enforce the rules.
While there is potential for reform in a variety of other
areas, I believe the results of the SEC's review will provide
important insights about how such reform efforts should take
shape. If confirmed, I would look forward to those results, and
to working diligently toward needed reforms with the SEC staff
and other interested parties.
Q.6. How would you approach consideration of a rule brought up
by the Chair that attempts to increase capital formation?
A.6. If confirmed, my approach for consideration of any rule
would be to gather as much information as I could about the
issues in the rule, and to listen to the perspectives and
concerns of those interested in, and impacted by, the rule.
Facilitating capital formation is one of the three components
of the SEC's mission. Therefore, if I am confirmed, I believe
an essential aspect of my work would be to actively consider
ways in which the SEC can facilitate access to capital for all
market participants. I also believe that the SEC should work to
advance each aspect of its three-part mission. Thus, if I am
asked to consider a rule related to capital formation, I also
would carefully consider how the rule impacts investors and the
markets.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR KIRK
FROM LISA M. FAIRFAX
Q.1. There is no question that in the decade since Regulation
NMS was adopted, U.S. trading markets have evolved
considerably. I am pleased to see the Commission considering
alternatives to the current structure, such as the
implementation of the Tick Size Pilot program for smaller
companies that is anticipated this fall. However, there are
many structural items in need of review or consideration:
access fees, market fragmentation, market data, and trade-at
proposals to name a few. Should you join the Commission, will
you commit to follow through on Chair White's pledge to look
holistically at the equity markets and move toward needed
reforms?
A.1. I believe maintaining and enhancing the high quality of
the U.S. equity markets is critical to the SEC's mission. If
confirmed, it would be a top priority for me to continue the
SEC's engagement in efforts that comprehensively review the
equity markets, and to work diligently toward needed reforms.
Q.2. Each of the current SEC Commissioners, in addition to
former Commissioners Gallagher and Aguilar, have publicly
called for the Commission to focus on completion of rules
governing the security-based swap market, as mandated by Title
VII of the Dodd-Frank Act. While I share concerns about the
structure and benefits of Title VII, I also agree that
continuing to delay these rulemakings only perpetuates market
uncertainty. Given that the CFTC completed its rules 2 years
ago, do you view the completion of Title VII rulemakings as a
priority for the Commission?
A.2. Yes, I believe completing the rulemaking mandates under
Dodd-Frank or otherwise mandated by Congress should be a top
priority for the Commission.
Q.3. When questioned about the Department of Labor's fiduciary
proposal, you indicated that protecting access to quality and
appropriate advice is important, particularly for middle and
lower income investors. Given that investor protection is
paramount to the SEC's mission, how should the SEC act to
preserve access to quality, affordable investment advice if the
DOL's final rule results in the crowding out of such access for
low- and middle-income investors? Do you believe that the rule
as currently proposed would affect these investors' ability to
access advice?
A.3. I believe that an appropriate fiduciary duty rule for
broker-dealers rule is essential for ensuring that investors
are protected. I also believe that any rule in this area must
ensure that investors have access to quality, affordable
investment advice that adequately considers their needs. It is
also important that investment advice is transparent and free
from inappropriate conflicts of interests. I have not seen the
final version of the Department of Labor rule and thus I cannot
speak to the impact it may have on investors' ability to access
advice. However, I understand that concerns have been raised
about the extent to which the DOL rule would limit access to
quality investment advice, particularly for lower- and middle-
income investors. I also understand that the SEC consulted with
the DOL staff about these and other concerns. I believe this
kind of consultation and coordination is critical, and will
help to ensure that issues involving investor access and
protection are considered. I also believe that if a DOL rule is
finalized and implemented, the SEC should continue to
coordinate with the DOL to monitor the rule's impact, and that
the agencies should work together to determine appropriate
responses if concerns emerge. I also recognize that, consistent
with Section 913(f) of the Dodd-Frank Act, the SEC staff has
studied this issue, and the SEC has begun its own rulemaking
efforts in this area. I believe that the SEC's efforts must be
mindful of any DOL rule, and that the SEC must attempt to
minimize any conflicts, confusion, or inconsistencies, while
also ensuring that any rule it develops is consistent with the
goals of protecting investors and ensuring their ability to
access appropriate investment advice. If confirmed, I look
forward to engaging on this effort at the SEC, coordinating
with DOL on their efforts, and working to make certain that
unnecessary costs or burdens are not imposed on investors or
other market participants.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
FROM LISA M. FAIRFAX
Q.1. In your opinion, under what circumstances might it be
appropriate for national securities regulations to preempt blue
sky laws? Why?
A.1. As an initial matter, determining the appropriateness of a
regulation seeking to preempt blue sky laws requires
consideration of whether such preemption is consistent with
governing legal and statutory principles. Beyond such
consideration, I believe whether any SEC regulation (including
a regulation aimed at preempting blue sky laws) is appropriate
depends upon whether such regulation is consistent with the
SEC's three-part mission. Thus, if a regulation calling for
preemption is not consistent with investor protection, the
maintenance of fair, orderly, and efficient markets, and the
responsibility to facilitate capital formation, then such
preemption is not warranted.
Q.2. Does anything need to be done to improve the use of cost-
benefit analysis at the SEC? If so, will you commit to
advocating for taking these steps?
A.2. Consistent with SEC guidance on this issue, I believe that
carefully analyzing the potential economic consequences of a
proposed rule (including its costs and benefits) is a critical
aspect of sound rulemaking. I understand that the SEC has made
efforts to enhance its economic analysis of rulemaking,
including reviewing its cost-benefit approach, hiring
economists, and engaging in more expanded economic analysis
when necessary. I believe it is important to continually
monitor this effort to ensure that economic analysis is
appropriately tailored to each rulemaking effort. If confirmed,
I will commit to working with the SEC staff, particularly the
Division of Economic and Risk Analysis, to ensure that SEC
guidance in this area is appropriate, and that adjustments are
made when necessary.
Q.3. I'd like to ask you more about the SEC's mission ``protect
investors, maintain fair, orderly, and efficient markets, and
facilitate capital formation.''
What factors should dictate the SEC's rulemaking schedule?
Does the SEC's rulemaking schedule reflect the right
balance between focusing on these three missions? If not, how
would you change it?
A.3. I believe that the SEC's three-part mission should
represent a set of guiding principles that shape every aspect
of the SEC's work, including its rulemaking schedule. I also
believe that those principles must work together, and that
every effort should be made to focus on all three of those
principles when engaging in rulemaking. I understand that much
of the SEC's recent rulemaking agenda has been dictated by the
need to comply with the Congressional mandates under the Dodd-
Frank Act. If confirmed, I would work to ensure that the SEC
diligently and responsibly completes these mandates as well as
work to ensure that rulemaking reflects an appropriate balance
of its three-part mission.
Q.4. Former SEC Commissioner Dan Gallagher has said that
``issues specific to small business capital formation too often
remain on the proverbial back burner. This lack of attention
doesn't just harm small business; it also harms investors and
the public at large.'' Do you agree?
A.4. Because I am not employed at the SEC, I am not privy to
the manner in which specific issues have been prioritized.
However, I do agree that small businesses are important to
investors and play a critical role in our economy. I also agree
that the SEC must pay appropriate attention to the capital
formation needs of small businesses.
Q.5. Will you commit to actively pursuing the ``capital
formation'' mission as a Commissioner? If so, how? For example,
should the SEC do more to encourage public IPOs? Should the SEC
do more to scale regulations for smaller firms?
A.5. Facilitating capital formation is one of the three
components of the SEC's mission. Therefore, if confirmed, I
will commit to actively considering ways in which the SEC can
facilitate access to capital for all participants in the
market, including smaller firms which play a critical role in
job growth. I believe that considering ways in which the SEC
can bolster the public IPO market is important. I also believe
it is important to consider ways to facilitate responsible
capital formation through private placements and other innovate
sources.
I believe the SEC must consider how any rule impacts
different market participants, and make appropriate
adjustments. This means that the SEC must consider whether and
to what extent regulations should be adjusted in order to take
into account their impact on smaller firms. Prior SEC rules
have been adjusted to accommodate the special concerns of
smaller firms and, if confirmed, I would expect the SEC to
continue making such adjustments when appropriate.
Q.6. I'd like to ask about the SEC's use of Administrative Law
Judges:
Under what circumstances is it appropriate for the SEC to
send cases to Administrative Law Judges?
Do you have constitutional concerns with ALJs?
Is there a risk that ALJs have an improper pro-SEC bias?
A.6. I believe that enforcement is essential to the SEC's
mission, and is necessary to protect investors, maintain
investor confidence, and ensure that capital formation occurs
under market conditions that are fair. It, therefore, is
important that investors have confidence that the SEC is fairly
enforcing the laws. On the one hand, I understand that process
and fairness concerns have been raised about the SEC's use of
Administrative Law Judges. I believe that the SEC must be
mindful of those concerns and find appropriate ways to respond
to them. The SEC must be especially mindful of the issue of
bias, both real and perceived. Thus, I support the decision to
make a careful determination about the kind of cases being sent
to ALJs as well as the decision to reiterate the process and
rationale for sending cases to ALJs. I also support the
decision to enhance the evidentiary rules for ALJs. Each of
these actions brings greater transparency to the process and,
if confirmed, I would continue the effort to do so. On the
other hand, I do believe it is appropriate to make use of ALJs.
Many agencies use ALJs for reasons of efficiency, greater
expertise, and shorter timelines for resolution. Moreover, ALJ
decisions can be appealed to Federal courts. In light of these
benefits and Federal court review, it makes sense for the SEC
to use ALJs in appropriate circumstances so long as the SEC is
mindful of the concerns and risks associated with such use and
takes steps to appropriately address them.
On the issue of constitutional concerns, I am not a
constitutional law scholar, but I am mindful that such concerns
have been raised and that courts have resolved the issue in
different ways. Because this is an issue that is still being
resolved in court, I do not think it is appropriate for me to
comment further.
Q.7. I'd like to obtain more information about your approach to
securities regulations.
Is there a risk that regulations can give large incumbent
firms a competitive advantage over smaller farms? If so, what
can be done to mitigate this risk?
A.7. I believe regulations can impact different market
participants differently, and thus there is a risk that
regulations can impact smaller firms differently. The SEC
should take steps to understand any potential differences in
order to account for them in the rulemaking process. I believe
the best way to account for these differences, including with
respect to smaller firms, is to carefully consider the
potential impact of a regulation by getting input from firms,
their advisors, and other interested parties. In addition, the
SEC must be willing to make adjustments to account for any
problematic impacts. Prior SEC rulemaking efforts have sought
to assess the impact on smaller firms. Moreover, the SEC has
made adjustments to rules in order to accommodate the special
concerns of smaller firms. If confirmed, I would expect the SEC
to continue making such adjustments when appropriate.
Q.8. Is it ever appropriate for the SEC to engage in ``merit
review'' of investment choices, where the SEC would elevate its
evaluation of a particular investment over the evaluation of a
private investor?
A.8. The Federal securities laws are not based on merit review,
but rather are based on the notion that investors are best
protected when they are provided with clear and effective
disclosure, and can make informed investment choices. From this
perspective, the SEC should focus on ensuring that investors
have access to appropriate information so that they can make
their own evaluations.
Q.9. Is it appropriate--in the words of Chair White--to
``effectuate social policy or political change through the
SEC's powers of mandatory disclosure''?
A.9. While I recognize that disclosure can and does have an
impact on market participants, I believe that the purpose of
disclosure is to provide shareholders with information
necessary to make informed voting and investment choices.
Q.10. Is there a danger that disclosure requirements become so
voluminous that they become unhelpful to investors? If so, what
can be done to avoid this problem?
A.10. Disclosure should be clear and aimed at ensuring that
investors have sufficient information to make informed
decisions. One challenge for disclosure requirements is
determining what constitutes ``sufficient'' information,
particularly given the potential for too little information as
well as the potential that information may be too voluminous
for investors to appropriately digest. I understand that the
Chair has asked for a comprehensive review of existing
disclosure rules, and I believe that insights gained from that
review will help determine areas of concern and how best to
respond.
Q.11. I'd like to explore your views on ``accredited
investors.''
Should the SEC consider expanding the definition of
``accredited investor'' beyond mere investor income and assets
to also include investor expertise, such as possessing a
graduate degree in a related field?
How should the SEC strike the balance between investor
protection and investor freedom when it comes to the definition
of accredited investor?
A.11. I believe that the SEC should consider changes to the
current accredited investor definition. The definition is
essential for investor protection because it seeks to determine
which investors can best fend for themselves, and thus which
investors should be subject to different regulatory approaches.
I understand that, consistent with the Dodd-Frank Act, the SEC
staff has issued a report reviewing the definition of
accredited investor and analyzing various approaches for
modifying that definition. I also understand that the SEC has
issued a request for public comments on the report. If
confirmed, I would welcome the opportunity to review the report
with the Chair, my fellow Commissioners, and the SEC staff to
gain a better appreciation for the recommended approaches. I
also would look forward to reviewing the comments of
shareholders, companies, and other market participants on this
critical issue. Such input will be important for determining
how best to respond to the report, and how best to fashion an
accredited investor definition that strikes the appropriate
balance between protection and flexibility by helping to
identify investors who have sufficient sophistication and
experience to assess whether an investment is appropriate for
them.
Q.12. The marketplace online lending ecosystem has grown
significantly as of late. Would you recommend changes to how
the SEC approaches this field? For example, should the SEC
contemplate creating a broad safe harbor for marketplace online
lenders, which scales registration requirements to reflect
their unique business model?
A.12. Marketplace online lending has grown in significance and
has become increasingly complex. Such lending has the laudable
goal of facilitating a more efficient and cost-effective
borrowing process, and thus has the potential to significantly
expand access to capital, particularly to underserved segments
of the market. I believe it is important for the SEC to
consider how best to approach the marketplace in order to
balance the goal of facilitating innovative methods of
accessing capital with the goal of investor protection. I
believe it would be premature to recommend changes related to
the marketplace without first ensuring that the SEC has an
appropriate understanding of the current status and impact of
the marketplace. To this end, it makes sense for the SEC to
engage with participants in the marketplace and other
interested parties to gain insight about the impact and
efficiency of different approaches to the field.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM LISA M. FAIRFAX
Q.1. The New York City Public Advocate recently wrote the SEC
asking that it examine publicly traded gun manufacturers with
an eye towards charging them with fraud for not disclosing
information about gun-related deaths.
Similar questions have been raised about oil companies and
climate change. In fact, Attorney General Lynch recently said
that the Department of Justice considered prosecuting climate
change skeptics.
The idea that the Government would consider prosecuting
political opponents is chilling and has no place in our
political system.
The SEC should be about safeguarding markets, protecting
investors, and helping to foster capital formation.
Attempts to settle political scores that should be decided
at the ballot box have no place on the SEC's agenda.
Can you assure me that you will not pursue or support any
attempts to politicize corporate disclosure rules--whether for
gun control, climate change or any other issue which should be
properly decided by Congress?
A.1. I believe that effective disclosure is fundamental to our
Federal securities laws and is critical to the SEC's three-part
mission. If confirmed, I can assure you that my work related to
disclosure will not be guided by any political agenda, but by
the goal of complying with the law and ensuring that disclosure
is consistent with the SEC's three-part mission.
Q.2. One of the best tools we have to make sure that
regulations are fair and make sense is cost-benefit analysis.
A cost-benefit analysis allows regulators to clearly
examine the benefits of a rule and weigh them against the
damages caused by the proposed rule.
If a statute is silent on the use of cost-benefit analysis,
do you believe the Commission can conduct a cost-benefit
analysis or can it only conduct an analysis if the statute
explicitly includes that requirement?
A.2. I believe that carefully analyzing the potential economic
consequences of a proposed rule is a critical aspect of sound
rulemaking. Therefore, I believe that even without any
statutory requirement, the SEC's rulemaking efforts should
involve consideration of potential economic consequences,
including the potential costs and benefits of any rule. I
appreciate that it may be difficult to sufficiently measure the
costs and benefits of a rule. However, I do believe that the
Commission should make reasonable efforts to determine the
probable costs and benefits of a proposed rule, or explain why
such a determination cannot be made.
Q.3. Rather than creating punitive rules which increase
compliance costs, what can you do, if you are confirmed, to
incentivize regulated entities and investors to make better
decisions?
A.3. I believe that regulation works best when it relies on a
range of approaches when seeking to encourage entities and
investors to make appropriate decisions. Thus, I also believe
that in addition to relying on enforcement, the SEC also should
consider approaches (including market-based policies) that are
aimed at incentivizing market participants. If confirmed, I
would be interested in assessing current incentives and their
impact. I also would be interested in exploring ways to develop
incentives that would encourage market participants to act in
the best interests of companies and their shareholders.
Q.4. Last year, the New York City pension system issued
numerous shareholder proposals on proxy access. Many of these
proposals were centered on energy companies and their purpose
was not to improve governance but to push an agenda on climate
change.
Two recent reports by the Manhattan Institute have shown
that public pension funds that engage in politically motivated
corporate governance fights have lower returns forcing tax
payers to foot the bill, while union sponsored shareholder
proposals are concentrated in industries or businesses targeted
in organizing campaigns.
What role should the SEC undertake as a gate-keeper to make
certain that shareholder proposals and director elections are
correlated to the interests of a corporation and its investors,
rather than a political or social agenda?
A.4. I do believe that the SEC has a responsibility to be a
gatekeeper and monitor activity related to both shareholder
proposals and director elections. On the one hand, the SEC
should take efforts to ensure that parties do not abuse the
shareholder proposal process. The Federal securities laws
already have a system in place under the no-action process that
enables the SEC to monitor the shareholder proposal process and
intervene where appropriate. I understand that there have been
concerns about the workability of that system. If confirmed, I
would be interested in working with the SEC staff and other
interested parties to assess the shareholder proposal process
and determine if reforms are needed. On the other hand, the SEC
should pay close attention to director elections because such
elections have a significant impact on the corporation and its
investors. I understand that there have been a number of
changes to the election process at public companies, such as an
increase in declassified boards and an increase in the number
of companies adopting majority voting. I also understand that
there has been an increase in the number of proxy fights within
the last few years. The SEC should monitor these and other
developments related to director elections to understand their
impact, and to make certain that the election process is fair,
and that parties are not engaging in actions that negatively
impact the corporation and its investors.
Q.5. The Labor Department's proposed Fiduciary rulemaking will
radically alter the market for individual retirement savings.
Many commentators believe that rather than protecting
investors, it will price many middle class retirement savers
out of the market for investment advice.
Can you envision circumstances in which a retirement saver
of more modest means could benefit from the personalized advice
of someone who knows them and their circumstances but who is
not qualified as a fiduciary?
A.5. I understand that the Labor Department has proposed a
fiduciary duty rule for broker-dealers. I also understand that,
consistent with the study required by Section 913(f) of the
Dodd-Frank Act, the Chair has asked the SEC staff to develop a
uniform fiduciary rule for brokers-dealers and investment
advisors. I believe that the goal of any rulemaking effort in
this area should be to ensure that investors, particularly
lower- and middle-income investors, have access to quality
affordable investment advice, and that such advice considers an
investor's particular needs and circumstances.
Q.6. In December 2015, the SEC voted to propose rule 18f-4,
which would regulate the use of derivatives by registered
investment companies. This rule attempts to regulate the use of
derivatives to protect investors and reduce systemic risk, but
I am concerned that it goes farther than intended and will
alter the commodities futures market by setting arbitrary
portfolio limitations for derivatives.
The rule appears to incentivize funds to overweight
portfolios with stocks and bonds and move away from trading
commodities.
What is your view on the regulation of simple, diversifying
derivatives?
A.6. I understand that proposed rule 18f-4 has three main
elements--limitations on portfolio leverage, asset segregation
requirements, and derivatives risk oversight. I also understand
that the purpose of the proposed rule is to reduce leverage
risks associated with derivatives and achieve a more standard
treatment of derivatives transactions. I believe that the
financial crisis revealed the need to enhance transparency with
respect to derivatives, and pay closer attention to risks
associated with derivatives transactions. I also believe that
derivatives pose both benefits and risks for investors and the
market. Any regulatory effort in this area must carefully
consider how best to account for risks without disadvantaging
investors and other market participants. If confirmed, I look
forward to reviewing the comments to the proposed rule,
engaging market participants to better understand the potential
risks and benefits of the rule, and working with the SEC staff
and other interested parties on the most appropriate path
forward.
Q.7. Do you believe that proposed rule 18f-4, will limit the
average investor's ability to access diversifying assets? If
so, why? If not, why not?
A.7. In proposing rule 18f-4, the SEC acknowledged that the
proposed rule could have a significant impact on certain funds,
potentially requiring them to significantly alter their
investment strategies. This raises the possibility that the
proposed rule also could impact investors' access to certain
funds and their assets. If confirmed, I look forward to
reviewing the comments on this proposed rule in order to work
with the SEC staff and other interested parties on determining
the most appropriate path forward.
Q.8. Are you concerned that this rule could harm rather than
protect investors because it incentivizes registered investment
companies to concentrate their assets in equities rather than
derivatives?
A.8. The proposed rule raises several questions and concerns. I
believe the goal of public comments is to address those
questions and concerns so that any final rulemaking can
appropriately account for them. If confirmed, I would work with
my fellow Commissioners and the SEC staff to ensure that any
final rule appropriately considers and addresses concerns
related to investor protection, as well as any other concerns
raised by the commentators or other interested parties.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHUMER
FROM LISA M. FAIRFAX
Q.1. Ms. Fairfax, do you believe that information related to a
company's corporate political spending should be considered
material to prospective investors and/or shareholders?
A.1. I understand that there have been an extraordinary number
of commentators to the rulemaking petitions submitted to the
SEC, as well as a significant number of shareholder proposals
on this issue, expressing the belief that such information is
material. Several corporations also have voluntarily agreed to
provide shareholders with corporate political spending
information based, at least in part, on the belief that the
information is material. I believe many of these commentators,
shareholders, and corporations advance strong arguments that
the information is material because it allows investors to
assess whether such spending is beneficial and consistent with
the corporation's best interests. However, I also understand
that many others question whether information related to
corporate political spending is material not only because the
amount of money spent may be small in comparison to the
corporation's total assets or expenditures, but also because
shareholders have rejected the vast majority of shareholder
proposals on this issue. I also recognize that many have
concerns about such disclosure that extend beyond the question
of materiality.
Although I do believe that corporate political spending
disclosure is an important issue that deserves thoughtful
consideration, I do not believe I should prejudge any issue
without the benefit of full engagement. However, if confirmed,
and so long as it is not prohibited by law, I would engage with
shareholders, corporations and their advisors, the SEC staff,
and interested stakeholders so that I can thoughtfully and
fully consider this issue. My consideration would focus on
assessing the various views expressed during this engagement to
determine if such information should be deemed material in
light of prevailing understandings of materiality. As part of
this assessment, I would examine whether such information
aligns with the materiality test articulated by the Supreme
Court in TSC Industries v. Northway, which focuses on whether
there is a substantial likelihood that a reasonable investor
would consider information important, and whether information
would alter the investor's ``total mix'' of information. I also
would consider whether the information is consistent with SEC
guidance on materiality, which relies on the Supreme Court's
formulation, and assesses both quantitative and qualitative
factors to determine if the information would influence the
investment decision of a reasonable investor.
Q.2. Do you believe that the SEC should consider whether
investors should be entitled to information disclosing a
company's corporate political spending?
A.2. Given the overwhelming amount of comments and attention to
the rulemaking petitions on this issue, and so long as it is
not prohibited by Congressional mandate, I believe the SEC
should continue to engage investors and other interested
stakeholders to determine whether, and to what extent,
investors should be entitled to information about a company's
corporate political spending.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM LISA M. FAIRFAX
Q.1. What actions will you take as Commissioner to bring much-
needed accountability and transparency for shareholders to
ensure that public companies disclose how they use corporate
resources for political activities?
A.1. As an initial matter, I believe in the importance of the
SEC following the law and to the extent that the law prevents
the SEC from finalizing, issuing, or implementing rules,
regulations, or orders on this issue, the SEC must comply.
However, given the overwhelming amount of comments and
attention to the rulemaking petitions on this issue, and so
long as it is not prohibited by the law, I also believe the SEC
should continue to engage investors and other interested
stakeholders to determine whether, and to what extent,
investors should be entitled to information about a company's
corporate political spending.
Q.2. Given the record input from securities experts,
institutional and individual investors, and members of the
public on this rulemaking petition--more than 1.2 million
comments, more comments submitted than any other rulemaking in
the SEC's history--where would this rulemaking fall in your
list of priorities, and how will you advocate that the
Commission prioritize its development and proposal?
A.2. Although it is the Chair's responsibility to set the SEC's
agenda, in light of the input from investors and stakeholders
on this issue, and so long as it is not prohibited by the law,
if confirmed, I believe it would be appropriate for me to
engage the Chair and my fellow Commissioners on this issue to
ensure that such input has been fully considered in the process
of setting the SEC's priorities.
Q.3. Can I have your commitment that if confirmed as
Commissioner, you will do everything within your power to move
this rulemaking forward?
A.3. As noted above, I intend to comply with the law. To the
extent the SEC is permitted to engage in rulemaking on this
issue, I will certainly do everything that I can to move any
rulemaking effort forward.
Q.4. The fiscal year 2016 omnibus appropriations law
unfortunately included a 1-year provision to block the SEC from
issuing, implementing, or finalizing a rule to require public
companies to disclose their political spending to shareholders.
Immediately following the enactment of this law, I sent a
letter to SEC Chair White, along with 96 of my colleagues in
the Senate and House, pushing the Commission to move forward
notwithstanding the language contained in the end-of-year
spending bill. It is our analysis and understanding, which is
notably shared by Harvard Securities Law Professor John Coates,
that the provision in the omnibus does not bar the SEC from
moving forward to prepare, propose, or develop a rulemaking on
corporate political spending. To that end, I fully expect the
SEC to host public roundtables, solicit additional stakeholder
feedback, and do everything within its power to develop a
proposal on this issue. If confirmed as Commissioner, what
immediate steps will you take to set in motion the development,
preparation, and proposal of this critical rulemaking?
A.4. I understand that the omnibus law limits the SEC on this
issue. If confirmed, I would be interested in engaging with the
SEC staff, including the Office of the General Counsel, to
understand their analysis of the Congressional mandate, to work
with the Chair, my fellow Commissioners and the SEC staff to
make an assessment regarding what is allowed by the mandate,
and to ensure that SEC actions are consistent with that
mandate. So long as it is not prohibited, I believe the SEC
should continue to engage investors and other interested
stakeholders to determine whether, and to what extent,
investors should be entitled to information about a company's
corporate political spending. If it is determined that the law
allows for other actions, I certainly would be open to
exploring those actions, carefully considering the range of
concerns being raised, and working with the Chair, my fellow
Commissioners, the SEC staff and other interested parties to
determine the best path forward.
Q.5. On the issue of corporate board diversity, to what extent
is having a wide range of perspectives represented in the
boardroom critical to effective corporate governance?
A.5. I believe the composition of the corporate board has an
impact on effective corporate governance. I understand that
there are differing views about the connection between board
diversity and corporate governance. Some have questioned such a
connection, maintaining that the available data is mixed.
Others believe that diversity in the boardroom can enhance the
quality of a board's decision making and monitoring roles,
thereby impacting corporate governance and the corporation's
bottom line. This belief is based on the view that diverse
groups may have a wider variety of approaches to analyzing and
assessing information, increasing the potential for broader
perspective and a broader range of solutions to complex
problems.
Q.6. In your opinion, does corporate board diversity allow for
boards to better anticipate and consider the concerns and
perspectives of all of their key constituencies?
A.6. I understand that there are competing views about the
impact of board diversity, including evidence indicating that
diverse boards may behave similarly to nondiverse boards.
However, such evidence also suggests that under appropriate
circumstances, a diverse board with a range of experiences may
have an enhanced ability to anticipate and consider the
concerns and perspectives of a diverse group of investors,
clients, customers, and other key constituencies.
Q.7. As you know, the SEC adopted a rule change in 2009 to
require publicly traded companies to disclose more information
on director selection and diversity. However, many, including
myself, have expressed concerns that the current rule is
inadequate, and that investment advisors and shareholders need
more comprehensive information to make informed investment and
voting decisions. An enhanced diversity disclosure, in my view,
would be one step to help promote sociodemographic diversity on
corporate boards.
In your view, how does the disclosure of specific details
about the diversity of corporate boards assist shareholders in
making informed investment and voting decisions?
A.7. For shareholders who believe that board diversity has an
impact on a corporation's governance, decision making, and
bottom line, disclosure about a corporation's diversity
practices and current status helps such shareholders assess the
corporation and make more informed voting and investment
decisions.
Q.8. Can you explain how the SEC's decision not to define
diversity in its 2009 rule undermines the value of the
information provided by the current disclosure?
A.8. I understand that the SEC's diversity disclosure rule did
not define diversity in order to allow companies the ability to
define diversity in ways they consider appropriate. I also
understand that there were different views on the benefit of
such an approach. Some commentators agreed that corporations
should have the discretion to define diversity based on their
own business model and specific needs. In contrast, others
expressed concern that the failure to define diversity would
undermine the utility of disclosure, particularly if the
disclosed information did not indicate the factors a company
considered in assessing diversity. While there are competing
views about the impact of board diversity, there are investors
who believe that board diversity has a material impact on a
corporation's governance, decision making, and bottom line. For
such investors, disclosure on this issue enables them to make
more informed voting and investment decisions. Existing
evidence about the current diversity rule suggests that while
some companies provide information about how they define
diversity, other companies do not. Based on that evidence, I
believe that there may be reason for concern about the rule's
approach, and its ability to provide the type of information
investors need to make informed decisions. If confirmed, I
would be interested in working with the SEC staff and other
interested parties to explore this issue and determine how best
to proceed.
Q.9. If confirmed as Commissioner, will you commit to
strengthening the quality of required disclosures on the
consideration of diversity in the board selection process?
A.9. I understand that the Chair has expressed concern that the
existing diversity rule may not provide investors with
sufficient information. In light of those concerns, the Chair
has instructed the staff to review existing company disclosures
in order to determine whether the SEC should require companies
to provide more specific details about their diversity
practices. If confirmed, I look forward to learning about the
status of that review, and I will certainly commit to working
with the SEC staff and other interested parties to determine
how best to ensure that investors receive sufficient
information on this issue.
Q.10. In the aftermath of the Great Recession, many reported
that excessive executive compensation schemes provided some of
the fuel for the crash. I worked to include a provision in the
Wall Street Reform Act to require publicly listed companies to
disclose in their annual SEC filing the ratio of their CEO's
total compensation to their median worker's compensation. In
August, after 5 years of delays, I was pleased to see the SEC
finally took the step to clear the way for the CEO-to-Worker
Pay Ratio. This information is especially important in a day
and age in which executive compensation has skyrocketed. A 2014
study by the Economic Policy Institute found that chief
executive pay, as a multiple of a typical worker's pay,
increased exponentially from an average of 20 times in 1965 to
almost 300 in 2013.
In your opinion, how will this information inject
transparency and promote fairness in corporate America?
A.10. I believe that the Federal securities laws should promote
clear, concise, and understandable disclosure on executive
compensation. Such disclosure allows investors to evaluate
whether a company's pay practices are consistent with corporate
objectives, provide appropriate incentives for executives, and
have a positive impact on corporate performance and the
corporate enterprise. I understand that opinions differ on the
value of the pay ratio rule. I also recognize that many believe
the rule may enhance compensation disclosure by providing more
transparency about pay structure, providing shareholders with a
different metric for analyzing compensation, and increasing
shareholder's ability to engage with companies about the nature
and impact of pay packages.
Q.11. If confirmed as Commissioner, will you commit to ensuring
this rule is properly implemented? Will you work to ensure that
provisions included by the Commission to facilitate compliance
do not inadvertently open up loopholes for companies looking to
evade this requirement?
A.11. If confirmed as Commissioner, it would be a priority for
me to ensure the appropriate implementation of all the
Commission's rules and to monitor that implementation to
determine whether such rules are having their intended effect.
If confirmed, I also commit to working with the Chair, my
fellow Commissioners, the SEC staff, and other interested
parties to develop appropriate responses when issues of concern
emerge. I understand that, in response to costs and other
concerns, the pay ratio rule provides companies with
significant flexibility. If confirmed, I would work with the
Chair, my fellow Commissioners, the SEC staff, and other
interested parties to ensure that such flexibility achieves its
desired result.
Q.12. Another critical provision included in the Wall Street
Reform Act is the ``say on pay'' requirement to give
shareholders the right to an advisory vote on companies'
executive pay policies. Please discuss the value of this
requirement, and to what extent you believe it enhances
shareholders' ability to influence corporate pay practices?
A.12. It is my understanding that ``say on pay'' was designed
to give shareholders the ability to have a voice in company pay
practices. Like other proposals, ``say on pay'' sparked
differing opinions about its benefits and drawbacks. However, I
do believe that existing evidence suggests that under the
appropriate circumstances such a vote adds value. To be sure,
some questioned the ability of an advisory vote to impact pay
practices. Others questioned the benefit of enabling
shareholders to influence pay practices because shareholders
may have limited information, or shareholders might encourage
companies to adopt ``one-size-fits-all'' pay packages that
might not be appropriate for every company. My understanding is
that some of these concerns persist.
Nevertheless, many investors believe that ``say on pay''
has been valuable, particularly to the extent that it has
focused corporate attention on better aligning pay practices
with corporate objectives, and has increased engagement between
corporations and shareholders about compensation issues.
Q.13. What additional steps should the SEC take to address
excessive executive compensation structures?
A.13. I believe that executive compensation issues are
important, and that providing shareholders with information
about such issues allows them to assess whether a company's pay
practices are aligned with corporate objectives. There have
been a number of changes with respect to executive compensation
practices over the last few years, including the SEC's most
recent rulemaking on pay ratios. I believe that the SEC should
assess the impact of these rules to determine whether they are
individually and collectively having their desired impact. I
also believe it is important for the SEC to complete the
rulemaking mandates under the Dodd-Frank Act, including those
related to executive compensation. If confirmed, I would work
diligently on this effort, and would welcome the opportunity to
work with the Chair, my fellow Commissioners, the SEC staff and
interested parties to monitor developments in this area, and
determine if additional reforms or changes are needed.
Q.14. As a member of the SEC's Investor Advisory Committee, can
you speak to the value of a broker-dealer fiduciary duty, and
explain what exactly needs to be done to eliminate the
regulatory gap that allows broker-dealers to offer investment
advice without being subject to the same fiduciary duty as
other investment advisers?
A.14. I believe that an appropriate fiduciary duty rule for
broker-dealers is essential for ensuring that investors are
protected, that investors have access to advice that adequately
considers their needs, and that such advice is transparent and
free from inappropriate conflicts of interests. I understand
that, historically, broker-dealers and investment advisers have
been regulated differently. I also understand that concerns
have emerged about the impact of this difference on investors,
particularly as lines have begun to blur between services
provided by broker-dealers and those provided by investment
advisers. I believe that those concerns deserve a thoughtful
attention and an appropriate response. As required by Section
913(f) of the Dodd-Frank Act, the SEC staff studied this issue
and made recommendations designed to better protect investors
and decrease investor confusion. The SEC staff's two primary
recommendations were that the SEC engage in rulemaking to
develop a uniform fiduciary rule for brokers-dealers and
investment advisors, and that the SEC consider harmonizing
certain regulatory requirements of broker-dealers and
investment advisers. Consistent with this recommendation, the
Chair has asked the SEC staff to begin work on developing a
uniform fiduciary duty rule. If confirmed, I look forward to
learning about the status of this effort and working with the
Chair, my fellow Commissioners, the SEC staff, and other
interested parties to ensure that it moves forward in a
diligent and responsible manner.
Q.15. If confirmed as Commissioner, will you commit to
prioritizing this rulemaking?
A.15. If confirmed, it would be a priority for me to ensure
that SEC efforts in this area move forward in a diligent and
responsible manner.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
FROM LISA M. FAIRFAX
Q.1. Unelected Directors: The Committee on Capital Markets
Regulation recently conducted a study examining the frequency
with which corporate directors resign or decline to stand for
re-election after failing to receive a majority of shareholder
votes. The study finds that 85 percent of directors who
received less than a majority of votes were still board members
2 years after the vote--so called ``unelected directors.'' To
protect the integrity of the shareholder vote in the face of
the unelected directors problem, would you be supportive of a
Commission regulation requiring, at a very minimum, that
corporate boards disclose the specific reasons that an
unelected director remain on the board despite the failure to
receive a majority of shareholder votes?
A.1. I believe that voting in director elections is a
fundamental shareholder right, and that such voting serves an
important accountability function. I understand that there are
studies indicating many instances in which directors have
failed to receive a majority vote, but nevertheless remain in
their positions. I also recognize that there may be appropriate
reasons for maintaining a director (for example when the
underlying reason for targeting a director has been
appropriately addressed). However, shareholders may not know
those reasons. It would be premature for me to support a rule
without fully exploring an issue with the SEC staff and other
interested parties. It also would be premature for me to
support a rule without knowing the specific details, and
potential impact, of the rule. However, if confirmed, I not
only would be open to becoming more fully informed about this
issue, but I also would welcome the opportunity to work with
the Chair, my fellow Commissioners, the SEC staff and other
interested parties to determine the most appropriate response
to this issue, including rulemaking if necessary. If confirmed,
my goal on this issue would be to determine how best to ensure
that the shareholder vote is meaningful and appropriately
impacts director elections and board composition.
Q.2. Standardized Data Formats: The SEC has adopted
standardized data formats for some corporate filings, such as
the financial statements contained within quarterly and annual
Exchange Act reports, but most filings are still expressed as
outdated paper documents. In 2013, the Investor Advisory
Committee called on the SEC to adopt standardized formats for
all corporate filings. The Investor Advisory Committee said the
Commission should prioritize forms that would improve the
transparency of corporate governance if they were expressed as
standardized data, instead of documents. The Investor Advisory
Committee specifically cited the portions of the proxy
statement on Schedule 14A that relate to executive compensation
and shareholder votes, and voting results disclosed by mutual
funds in Form N-PX. Do you agree that such filings should be
transformed from documents into standardized data?
A.2. I believe the SEC has a responsibility to ensure that
disclosures are as clear and effective as possible. I
understand that the SEC is making efforts to determine how best
to adopt standardized data formats. On the one hand, I believe
that standardized data formats have the potential to positively
impact disclosure, particularly by making disclosed information
easier to review, retrieve, and analyze. On the other hand, I
understand that concerns have been raised about the usage,
costs, and quality of data stemming from such formats. If
confirmed, I would welcome the opportunity to learn more about
the status of SEC efforts in this area in order to find the
best path forward.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR CORKER
FROM HESTER MARIA PEIRCE
Q.1. If you are confirmed as a Commissioner and the SEC Chair
presents a rule being developed for your consideration, how
would you go about forming a position on the rule? If the rule
presented addresses a regulatory principle you fundamentally
disagree with, would that change your approach?
A.1. I would seek to understand the problem Chair White was
trying to solve, speak with the staff developing the proposal
and the economists conducting the economic analysis of the
proposal, and discuss the matter with my fellow Commissioners.
I would also work with my own staff to review available data,
relevant academic articles, and white papers. As appropriate, I
also would seek input from experts, including investors, people
in the regulated community, and academics. If the rule embodies
a regulatory principle with which I disagree, I would follow
the same course, but also would work with others at the
Commission to identify alternative, more effective approaches
to achieving the proposed rule's objectives. The key with any
rule is to identify the problem that needs to be solved and
figure out the best way to solve it.
Q.2. Can you envision an instance in which you would vote in
favor of a rule that does not comport with your ideology but
fits with the SEC's mission?
A.2. If I am confirmed, my job will be to implement the SEC's
mission of protecting investors, facilitating capital
formation, and maintaining fair, orderly, and efficient
markets. There are different approaches to fulfilling that
mission, and I will strive to work with my colleagues on the
Commission and on the staff to best fulfill that mission. In a
multi-member body, compromise is often necessary to reach
consensus. Therefore, I can envision voting for a rule that is
consistent with the SEC's mission, but is not the approach I
would take if I were solely responsible for crafting the rule.
Q.3. Do you believe there are circumstances in which the SEC
should not implement and enforce statutorily required rules? If
so, what are those circumstances?
A.3. As an administrative agency, the SEC is charged with
implementing and enforcing the laws that Congress writes.
Recognizing that there may be circumstances in which a
particular law is not appropriately applied, Congress has
granted the SEC broad exemptive authority in its key statutes
when such relief is necessary or appropriate in the public
interest and is consistent with the protection of investors.
The SEC may, for example, employ its general exemptive
authority to respond to the unique challenges faced by small
companies, changes in technology, or innovations.
Q.4. How would you approach consideration of a final rule
dealing with Section 956 of Dodd-Frank, regarding the
disclosure and prohibition of certain executive compensation
structures at financial institutions?
A.4. With respect to the final rule implementing Section 956 of
Dodd-Frank, which is a multi-agency rule, among other things,
if confirmed, I would speak with colleagues at the other
regulatory agencies and would review the comment letters. I
would also consult the relevant staff at the Commission,
including the staff of the Division of Economic and Risk
Analysis, and my fellow Commissioners and seek feedback from
outside experts, as appropriate. A rule that deals with
compensation requires extreme care, as compensation is highly
fact-and-circumstance specific. A properly designed
compensation arrangement is an appropriate and effective way to
encourage employee excellence, but improperly crafted
compensation can harm employees, shareholders, companies, and
the broader economy. Regulators need to achieve the statutory
objective of ending the use of harmful compensation
arrangements, while being mindful of the difficulty of
establishing one-size-fits-all requirements with respect to
compensation arrangements across a range of different types of
firms.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR KIRK
FROM HESTER MARIA PEIRCE
Q.1. In your testimony, you indicated that retrospective review
is particularly important with respect to regulations governing
equity market structure. There is no question that in the
decade since Regulation NMS was adopted, U.S. trading markets
have evolved considerably. I am pleased to see the Commission
considering alternatives to the current structure, such as the
implementation of the Tick Size Pilot program for smaller
companies that is anticipated this fall. However, there are
many structural items in need of review or consideration:
access fees, market fragmentation, market data, and trade-at
proposals to name a few. Should you join the Commission, will
you commit to follow through on Chair White's pledge to look
holistically at the equity markets and move toward needed
reforms?
A.1. If I were to join the Commission, I would welcome the
opportunity to work with Chair White and the rest of the
Commission on a holistic review of equity market structure.
Based on the results of that review and consistent with the
Commission's mission and other Commission priorities, I would
work toward crafting, testing, and implementing any needed
reforms.
Q.2. Each of the current SEC Commissioners, in addition to
former Commissioners Gallagher and Aguilar, have publicly
called for the Commission to focus on completion of rules
governing the security-based swap market, as mandated by Title
VII of the Dodd-Frank Act. While I share concerns about the
structure and benefits of Title VII, I also agree that
continuing to delay these rulemakings only perpetuates market
uncertainty. Given that the CFTC completed its rules 2 years
ago, do you view the completion of Title VII rulemakings as a
priority for the Commission?
A.2. I view the completion of Title VII rules as a priority for
the Commission. The impetus to complete these rules
expeditiously to fulfill the statutory mandate and provide the
market with needed certainty should be paired with a careful
approach to the design and implementation of the rules.
Q.3. The Department of Labor is expected to finalize its
proposed rule amending the definition of ``fiduciary'' under
the Employee Retirement Income Security Act (ERISA) any day
now. I am deeply concerned about the potential consequences
this rule may have on investors, particularly of low and
moderate incomes. As has been widely reported, the United
Kingdom's similarly intentioned Retail Distribution Review
(RDR) resulted in as many as 11 million consumers losing access
to ongoing investment advice, as firms moved to minimum account
thresholds of $50,000 or more. \1\ This effect would directly
harm those investors that the rule purports to help. Are you
concerned that the implementation of the rule as currently
proposed will result in decreased investor options?
---------------------------------------------------------------------------
\1\ Wall, Emma, ``10 Million Find Advice Too Expensive'',
Morningstar, Aug. 28, 2014, http://www.morningstar.co.uk/uk/news/
128424/10-million-find-advice-too-expensive.aspx.
---------------------------------------------------------------------------
Additionally, at the heart of the debate surrounding the
DOL's proposed rule is the question of jurisdiction. Do you
believe that any such rule amending the definition of fiduciary
investment advice should originate at the SEC as directed by
Section 913 of the Dodd-Frank Act?
A.3. I am concerned by the claims of some commenters that the
Department of Labor's proposed rule--although seeking to
protect investors--could have unintended adverse consequences
on investors' access to financial services. Ensuring that
investors have access to the financial services they need is
one component of investor protection, which, in turn, is a key
part of the SEC's mission. If confirmed, I will work with the
SEC staff to understand how DOL's rule would affect the
investors the SEC is charged with protecting.
As your question notes, Section 913 of the Dodd-Frank Act
authorizes the SEC to establish and define a standard of
conduct for financial professionals providing personalized
investment advice. Section 913 reflects Congressional
recognition of the need for careful regulation to guard against
unintended consequences and the SEC's long experience and
expertise in this area. The Department of Labor, in exercising
its authority under the Employee Retirement Income Security Act
to finalize its fiduciary rule, should draw on the SEC's
expertise and coordinate its actions with those of the SEC.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SASSE
FROM HESTER MARIA PEIRCE
Q.1. In your opinion, under what circumstances might it be
appropriate for national securities regulations to preempt blue
sky laws? Why?
A.1. The blue-sky laws have played an important role in the
development of our securities markets and continue to serve
investors. Nevertheless, as our markets become more national in
scope, preemption may be appropriate in some circumstances.
Specifically, preemption may be warranted if it is authorized
by statute, appropriate Federal investor protections are in
place, and State blue sky protection would be duplicative. The
SEC, for example, recently determined to preempt State
securities registration (but not antifraud) laws in connection
with the subset of newly permitted so-called Regulation A+
offerings that the Commission predicted would be ``national in
character.'' In doing so, the SEC cited a concern that the cost
of complying with multiple State laws ``may deter issuers from
using amended Regulation A, which could significantly limit the
impact of the exemption as a tool for capital formation.'' The
SEC and State regulators should work closely with one another
on investor protection and capital access issues. If I were to
be confirmed, I would consult the North American Securities
Administrators Association, along with my fellow Commissioners
and Commission staff, in considering whether preemption is
appropriate in specific circumstances.
Q.2. Does anything need to be done to improve the use of cost-
benefit analysis at the SEC? If so, will you commit to
advocating for taking these steps?
A.2. Since the SEC staff issued its March 2012 guidance on the
use of economic analysis, the SEC appears to have placed a
greater emphasis on both generating high-quality economic
analysis and using it to help shape its rules. If I were
confirmed, I would have a better view of how the SEC is
conducting economic analysis, whether that analysis is being
used, and whether the problems identified by courts and
academics in the past have been resolved. Among other things, I
would work to ensure that the agency is using economic analysis
to clearly identify the problem a regulation is intended to
solve, assess the benefits and costs of alternative solutions
against a common baseline, and identify metrics in advance for
retrospectively assessing the success of a regulation at
solving the problem.
Q.3. I'd like to ask you more about the SEC's mission ``protect
investors, maintain fair, orderly, and efficient markets, and
facilitate capital formation.''
What factors should dictate the SEC's rulemaking schedule?
A.3. The SEC's rulemaking schedule should be dictated by
statutory mandates, market and regulatory developments, and
resource constraints. To the extent possible, the Commission
should adopt rules in conformance with the timelines set by
Congress. The Commission also must seek to ensure that its
rulemaking agenda is responsive to new developments in
technology, emerging threats to investors, innovations,
economic growth, disruptive market events, and regulatory
changes that might necessitate companion changes in SEC rules.
Although the Chair sets the rulemaking schedule, if confirmed,
I would be pleased to work with her on balancing the SEC's need
to be responsive to statutory mandates with the imperative of
keeping pace with developments in the markets.
Q.4. Does the SEC's rulemaking schedule reflect the right
balance between focusing on these three missions? If not, how
would you change it?
A.4. Without being at the Commission and having access to
relevant nonpublic information, it is difficult to know whether
the rulemaking schedule properly balances the three missions.
That said, I am concerned that the heavy statutorily mandated
rulemaking schedule of the last several years has distracted
the agency from bread-and-butter rulemakings in each of the
SEC's three mission areas. Ensuring that SEC and market
infrastructures are working effectively, modernizing corporate
disclosure, and streamlining access to capital are some of
these issues. If I were to be confirmed, I would not be able to
control the agenda, as the SEC Chair exercises that authority.
However, I would work with Chair White and my fellow
Commissioners to identify issues that warrant space on the
rulemaking agenda.
Q.5. Former SEC Commissioner Dan Gallagher has said that
``issues specific to small business capital formation too often
remain on the proverbial back burner. This lack of attention
doesn't just harm small business; it also harms investors and
the public at large.'' Do you agree?
A.5. Commissioner Gallagher correctly identified small business
capital formation as an area that could benefit from greater
SEC attention. The JOBS Act helped to change that by directing
the SEC to prioritize capital formation, including small
business capital formation. The SEC responded with a number of
changes that are likely to ease small companies' ability to
raise capital. The SEC should monitor those changes to see
whether they are working as intended and pursue additional
rulemaking that enables investors to safely participate in
funding the growth of small companies and benefits investors,
companies, and the economy as a whole.
Q.6. Will you commit to actively pursuing the ``capital
formation'' mission as a Commissioner? If so, how? For example,
should the SEC do more to encourage public IPOs? Should the SEC
do more to scale regulations for smaller firms?
A.6. If I were confirmed, I would pursue all elements of the
SEC's mission, including facilitating capital formation. Before
committing to specific avenues, I would want to consult with
investors, small companies, my fellow Commissioners, the staff,
the SEC's Advisory Committee on Small and Emerging Companies,
and others with interest, experience, and expertise in small
business capital formation. The Advisory Committee and the
annual Government-Business Forum on Small Business Capital
Formation have made a number of recommendations, which warrant
consideration. Among the areas the SEC should consider for
further reform are identifying and removing unwarranted
obstacles to IPOs and appropriately scaling regulation for
small firms, while continuing to maintain investor protection.
Q.7. I'd like to ask about the SEC's use of Administrative Law
Judges:
Under what circumstances is it appropriate for the SEC to
send cases to Administrative Law Judges?
A.7. Congress has authorized the SEC to use administrative law
judges (ALJs) in a number of circumstances, but has allowed the
SEC considerable discretion in forum selection. In exercising
this discretion, the SEC should follow a consistent set of
guidelines that provides a clear, predictable framework for
agency staff, potential subjects of enforcement actions, and
the general public and ensures appropriate accountability. The
SEC's existing guidance looks at factors such as the types of
relief available and the relative costs of bringing actions. If
I were to be confirmed, I would like to work with my fellow
Commissioners and the enforcement staff to determine whether
the factors outlined in the staff guidance are appropriate and
whether additional guidance from the Commission is warranted.
Q.8. Do you have constitutional concerns with ALJs?
A.8. Congress has authorized the SEC to use ALJs. In a number
of ongoing challenges, respondents have raised constitutional
concerns. These concerns are best considered and decided by
Article III judges. If I am confirmed, I will work to ensure
that the SEC responds appropriately to any constitutional
issues identified by courts.
Q.9. Is there a risk that ALJs have an improper pro-SEC bias?
A.9. An ALJ, like any other arbiter, is responsible for
assessing in each matter whether she is able to be objective or
should recuse herself. If an ALJ fails to behave properly, a
respondent can raise these concerns during the appeals process.
If I were confirmed, I would take allegations of bias
seriously. There are avenues to investigate such allegations.
For example, the SEC's Office of Inspector General recently
looked into some specific allegations of ALJ bias and ``did not
develop any evidence to support the allegations of improper
influence.'' \1\ If future bias allegations arise, the OIG
could be called on to assess their validity. More generally,
the Commission is currently revisiting the rules applicable to
administrative proceedings. This is an important initiative to
ensure that administrative proceedings are fair and effectively
test the validity of the facts and legal violations identified
by the staff. If confirmed, I will be very interested to review
the comments the Commission has received in response to the
proposed changes.
---------------------------------------------------------------------------
\1\ Office of Inspector General, SEC, Report of Investigation Case
#15-ALJ-0482-I, 21 (Jan. 21, 2016), available at https://www.sec.gov/
oig/reportspubs/Final-Report-of-Investigation.pdf.
Q.10. I'd like to obtain more information about your approach
to securities regulations.
Is there a risk that regulations can give large incumbent
firms a competitive advantage over smaller farms? If so, what
can be done to mitigate this risk?
A.10. Regulators must be mindful of the risk that regulations
can give incumbent firms a competitive advantage over smaller
firms. The notice-and-comment rulemaking process under the
Administrative Procedure Act helps to mitigate this risk by
ensuring that all interested members of the public have an
opportunity to identify potential unintended consequences of
the regulation. By issuing a concept release prior to drafting
a proposed rule, the agency can spot potential harm to small
firms early. Economic analysis and Regulatory Flexibility Act
analysis--both of which can help the agency identify
competitive harm and craft solutions that are sensitive to the
impact on small entities--are important mitigating tools. The
SEC also can use its exemptive authority to ease
disproportionate burdens on small firms.
Q.11. Is it ever appropriate for the SEC to engage in ``merit
review'' of investment choices, where the SEC would elevate its
evaluation of a particular investment over the evaluation of a
private investor?
A.11. Absent a contrary directive from Congress, the SEC's role
is to provide the investor with the information she needs to
make a careful decision, rather than to override her evaluation
of an investment through regulatory merit review.
Q.12. Is it appropriate--in the words of Chair White--to
``effectuate social policy or political change through the
SEC's powers of mandatory disclosure''?
A.12. The role of SEC-mandated disclosure is to ensure that
investors have the information they need to evaluate investment
opportunities. Under the securities laws, the purpose of SEC
disclosure is not to achieve social or political ends.
Q.13. Is there a danger that disclosure requirements become so
voluminous that they become unhelpful to investors? If so, what
can be done to avoid this problem?
A.13. Properly designed disclosure requirements benefit
investors by getting them the information they need to make
investment decisions. It is important to remember that
investors also bear the cost of disclosure mandates. First,
company (and thus shareholder) resources are devoted to making
legally compliant disclosures. Second, the disclosure of
immaterial items can obscure material ones. Accordingly, the
SEC needs to carefully craft and periodically revisit
disclosure mandates. The SEC's ongoing Disclosure Effectiveness
initiative is a useful undertaking to answer the question of
whether the SEC's disclosure mandates are getting the
information to investors that they need in the form they need
it. If I am confirmed, I look forward to working with
colleagues at the SEC to further this initiative and, in
conjunction with each potential new disclosure mandate, to
consider whether and how investors will use the information.
Q.14. I'd like to explore your views on ``accredited
investors.''
Should the SEC consider expanding the definition of
``accredited investor'' beyond mere investor income and assets
to also include investor expertise, such as possessing a
graduate degree in a related field?
A.14. The SEC is undertaking a statutorily mandated review of
the scope of the accredited investor standard, and the staff
recently issued a report on the review. One of the issues
covered by the report is the feasibility of assessing an
investor's sophistication using metrics other than wealth or
income. If confirmed, I look forward to reviewing the report,
comments collected by the SEC in its review of the definition,
and other relevant materials such as the Government
Accountability Office's report on ``Alternative Criteria for
Qualifying as an Accredited Investor''. I also look forward to
working with SEC staff and my fellow Commissioners in
revisiting the accredited investor definition and considering
whether it should be expanded beyond income and net worth.
Among the considerations that will inform my view are how
investors would be affected by any changes and whether a
particular change would help to open capital formation to
groups and regions of the country that have previously been
excluded by the existing income and net worth metrics. The
ultimate goal is to ensure that investors are adequately
protected, while facilitating capital formation and allowing
investors access to a range of investment opportunities.
Q.15. How should the SEC strike the balance between investor
protection and investor freedom when it comes to the definition
of accredited investor?
A.15. Investor protection and investor freedom go hand-in-hand.
Precluding an investor from an investment may protect the
investor from losses in that particular investment, but may
harm the investor's ability to build her portfolio in the
manner she judges best. Economic analysis of any changes can
help the SEC to strike the proper balance. In the context of
accredited investors, for example, the SEC needs to assess how
any change in the definition will affect the size and
composition of the pool of accredited investors. To help to
strike the balance, the SEC also should seek input from
investor groups and continue its efforts to collect and analyze
relevant data.
Q.16. The marketplace online lending ecosystem has grown
significantly as of late. Would you recommend changes to how
the SEC approaches this field? For example, should the SEC
contemplate creating a broad safe harbor for marketplace online
lenders, which scales registration requirements to reflect
their unique business model?
A.16. If I am confirmed, I look forward to working with my
colleagues to look at how well jurisdictional divisions and SEC
registration requirements have worked in this context,
particularly as the industry has grown and changed over the
years since its inception. If the current regulatory framework
is not working, is imposing costs without proportionate
benefits, or is uncertain in its application, the SEC should
consider a range of alternatives, including a safe harbor or a
rule specifically designed for these types of offerings. The
SEC should work with other regulators active in this space to
ensure that rules are effective, but not duplicative. As with
other areas, the key is ensuring that investors are protected
and able to obtain the information they need without imposing
an undue burden on capital formation.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
FROM HESTER MARIA PEIRCE
Q.1. The New York City Public Advocate recently wrote the SEC
asking that it examine publicly traded gun manufacturers with
an eye towards charging them with fraud for not disclosing
information about gun-related deaths.
Similar questions have been raised about oil companies and
climate change. In fact, Attorney General Lynch recently said
that the Department of Justice considered prosecuting climate
change skeptics.
The idea that the Government would consider prosecuting
political opponents is chilling and has no place in our
political system.
The SEC should be about safeguarding markets, protecting
investors, and helping to foster capital formation.
Attempts to settle political scores that should be decided
at the ballot box have no place on the SEC's agenda.
Can you assure me that you will not pursue or support any
attempts to politicize corporate disclosure rules--whether for
gun control, climate change or any other issue which should be
properly decided by Congress?
A.1. The SEC's mission is to protect investors, facilitate
capital formation, and maintain fair, orderly, and efficient
markets. If I were to be confirmed, I would be committed to
ensuring that the SEC focuses exclusively on this mission. In
fulfilling this mission, a key role of the SEC is making sure
that investors have the information they need to make
investment decisions. I would work to ensure that corporate
disclosure is designed for this purpose, not for political
ends.
Q.2. One of the best tools we have to make sure that
regulations are fair and make sense is cost-benefit analysis.
A cost-benefit analysis allows regulators to clearly
examine the benefits of a rule and weigh them against the
damages caused by the proposed rule.
If a statute is silent on the use of cost-benefit analysis,
do you believe the Commission can conduct a cost-benefit
analysis or can it only conduct an analysis if the statute
explicitly includes that requirement?
A.2. A cost-benefit analysis is an essential tool for the SEC
as it seeks to identify the problem it is trying to solve,
alternate solutions to the problem, and the costs and benefits
associated with each potential solution. If a statute is silent
with respect to cost-benefit analysis, the SEC--in furtherance
of sound rulemaking and the Commission's commitment to identify
real problems and solve them effectively--can and should
perform such an analysis.
Q.3. Rather than creating punitive rules which increase
compliance costs, what can you do, if you are confirmed, to
incentivize regulated entities and investors to make better
decisions?
A.3. An important function of the SEC, as a regulatory agency,
is to assist regulated persons that want to comply with the law
in doing so. The SEC's large compliance program works with
regulated entities to help them identify problems and implement
effective solutions. When well-intentioned registrants know
that they can come to the SEC for guidance in getting things
right, they will make better decisions and investors will be
better protected. With respect to investor decision making, the
SEC's Office of Investor Education and Advocacy works with
investors to educate them and encourage them to ask question
and receive satisfactory, credible answers before investing.
Investor education thus serves to empower investors to make
better decisions. Another way to aid investors is to ensure
that they have access to accurate ongoing disclosures about
their investments and comprehensive, current information about
the financial professionals with whom they work.
Q.4. Last year, the New York City pension system issued
numerous shareholder proposals on proxy access. Many of these
proposals were centered on energy companies and their purpose
was not to improve governance but to push an agenda on climate
change.
Two recent reports by the Manhattan Institute have shown
that public pension funds that engage in politically motivated
corporate governance fights have lower returns forcing
taxpayers to foot the bill, while union-sponsored shareholder
proposals are concentrated in industries or businesses targeted
in organizing campaigns.
What role should the SEC undertake as a gate-keeper to make
certain that shareholder proposals and director elections are
correlated to the interests of a corporation and its investors,
rather than a political or social agenda?
A.4. The SEC staff reviews shareholder proposals when companies
ask whether they can exclude them from their proxies without
facing an SEC enforcement action. In making such a no-action
request, the company identifies a reason for the exclusion that
corresponds with one of the bases for exclusion in SEC rule
14a-8, which otherwise requires that proposals be included in
the proxy. If I were to be confirmed, I would welcome the
opportunity to work with the SEC staff and my fellow
Commissioners to take a close look at the shareholder proposal
process and determine whether adjustments to the rule or
additional guidance are needed in light of the changing volume
and nature of such proposals.
Q.5. The Labor Department's proposed Fiduciary rulemaking will
radically alter the market for individual retirement savings.
Many commentators believe that rather than protecting
investors, it will price many middle class retirement savers
out of the market for investment advice.
Can you envision circumstances in which a retirement saver
of more modest means could benefit from the personalized advice
of someone who knows them and their circumstances but who is
not qualified as a fiduciary?
A.5. Over the years, investors have worked with financial
professionals subject to a variety of conduct standards. Many
of these investors have been served well by financial
professionals who are not fiduciaries.
Q.6. In December 2015, the SEC voted to propose rule 18f-4,
which would regulate the use of derivatives by registered
investment companies. This rule attempts to regulate the use of
derivatives to protect investors and reduce systemic risk, but
I am concerned that it goes farther than intended and will
alter the commodities futures market by setting arbitrary
portfolio limitations for derivatives.
The rule appears to incentivize funds to overweight
portfolios with stocks and bonds and move away from trading
commodities.
What is your view on the regulation of simple, diversifying
derivatives?
A.6. The SEC's recently proposed rule 18f-4 under the
Investment Company Act would change the way registered
investment companies can use derivatives. If confirmed, I would
discuss the proposal with my fellow Commissioners and relevant
staff and review the comments, the white paper prepared by the
Division of Economic and Risk Analysis, and other relevant
materials before formulating a position on the rule. An
appropriate regulation will balance the important role that
derivatives can play in a portfolio with other investor
protection concerns.
Q.7. Do you believe that proposed rule 18f-4 will limit the
average investor's ability to access diversifying assets? If
so, why? If not, why not?
A.7. For the stated purpose of protecting investors, proposed
rule 18f-4 would limit the ability of registered investment
companies to use diversifying assets, which in turn would
affect investors' investment options. In finalizing the rule,
the Commission will have to consider whether the proposed
restrictions are appropriately calibrated to achieve the
intended objectives without undue adverse consequences for
investors. As part of that consideration, the SEC should
consider the comment letters it has received and economic
analyses conducted by the Division of Economic and Risk
Analysis and submitted to the SEC as part of the notice-and-
comment process. Economic analysis will be key in understanding
how average investors would be affected by such a rule.
Q.8. Are you concerned that this rule could harm rather than
protect investors because it incentivizes registered investment
companies to concentrate their assets in equities rather than
derivatives?
A.8. In connection with any rule that places limitations on
investment company holdings, it is important to understand how
investors will be affected. In addition to exploring the
potential benefits of the rule, if I were confirmed, one
question I would ask in connection with this rule is whether
and to what degree it could harm investors by limiting the
flexibility of registered investment companies to select and
pursue investment strategies. The proposing release asks
commenters to respond to many questions that are potentially
relevant in this context, such as ``To what extent do
commenters anticipate that proposed rule 18f-4 could lead funds
to modify their investment strategies or decrease their use of
derivatives?'' and ``If funds would have to restructure their
portfolios to comply with the risk-based portfolio limit, how
would they do so?'' If confirmed, I look forward to reviewing
comments as I seek to understand how registered investment
companies would respond to the rule and thus how investors
would be affected.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHUMER
FROM HESTER MARIA PEIRCE
Q.1. Ms. Peirce, do you believe that information related to a
company's corporate political spending should be considered
material to prospective investors and/or shareholders?
A.1. The materiality of information related to an issuer's
corporate political spending depends heavily on the facts and
circumstances. An analysis of materiality needs to consider
both quantitative and qualitative factors, such as the size of
the expenditure, the size of the corporation, and the
corporation's other disclosures. As the Supreme Court has
stated, for information to be material, ``there must be a
substantial likelihood that the disclosure of the omitted fact
would have been viewed by the reasonable investor as having
significantly altered the `total mix' of information made
available.'' \1\ Securities law has developed standard metrics
for assessing quantitative and qualitative materiality, which I
would use in assessing materiality with respect to corporate
political spending.
---------------------------------------------------------------------------
\1\ TSC Industries v. Northway, 426 U.S. 438, 449 (1976).
Q.2. Do you believe that the SEC should consider whether
investors should be entitled to information disclosing a
---------------------------------------------------------------------------
company's corporate political spending?
A.2. Broad SEC consideration of this issue might occur in
response to rulemaking petitions the SEC has received on the
issue. Section 707 of the Consolidated Appropriations Act of
2016, however, includes the following limitation on the use of
SEC funds:
None of the funds made available by any division of
this Act shall be used by the Securities and Exchange
Commission to finalize, issue, or implement any rule,
regulation, or order regarding the disclosure of
political contributions, contributions to tax exempt
organizations, or dues paid to trade associations.
By including this language, Congress seems to have
foreclosed the issue for this year. If I am confirmed and if
the Chair places the issue on the agenda after this
Congressional limitation has expired, I would consider the
issue. My consideration would include reviewing relevant
rulemaking requests and comment letters and discussing the
issue with the Chair, my fellow Commissioners, and SEC staff
with expertise in corporate disclosure.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM HESTER MARIA PEIRCE
Q.1. The issue of corporate political spending is quite simply
about materiality and transparency for investors. Demand for
this information by public investors has increased steadily in
recent years, as has support for such a rulemaking from former
SEC Chairs and Commissioners. In fact, former SEC Chairs
William Donaldson and Arthur Leavitt wrote to Chair White in
May of last year, and said that the Commission's failure to
act, ``flies in the face of the primary mission of the
Commission, which has since 1934 been the protection of
investors.''
Do you agree with former SEC Chairs Donaldson and Leavitt
that shareholders--those that actually own the wealth of
corporations--should be informed of political spending
decisions made with their money?
A.1. Your question highlights transparency and materiality--two
considerations that drive the SEC as it works to ensure that
investors have the information they need to make investment
decisions. An analysis of materiality needs to consider both
quantitative and qualitative factors such as the size of the
expenditure, the size of the corporation, and the corporation's
other disclosures. As the Supreme Court has stated, for
information to be material, ``there must be a substantial
likelihood that the disclosure of the omitted fact would have
been viewed by the reasonable investor as having significantly
altered the `total mix' of information made available.'' \1\
Securities law has developed standard metrics for assessing
quantitative and qualitative materiality, which, if confirmed
and if the issue is raised, I would use in assessing
materiality with respect to corporate political spending.
---------------------------------------------------------------------------
\1\ TSC Industries v. Northway, 426 U.S. 438, 449 (1976).
Q.2. In your opinion, do diverse boards have the ability to
engage in richer and ultimately more effective discussion and
---------------------------------------------------------------------------
debate than those boards that are less diverse?
A.2. Diversity on boards allows people of different
backgrounds, expertise, and experience to contribute to
decision making. Entities in the public and private sector have
benefited from drawing on diverse talent who bring to the table
different ways of analyzing and solving problems.
Q.3. Do you agree that a boardroom composed of directors of
diverse backgrounds is less likely to practice what can be
dangerous ``groupthink''?
A.3. Boards that are made up of inquisitive individuals with a
diversity of backgrounds, expertise, and experience have the
advantage of being able to consider decisions from multiple
perspectives. An environment that welcomes people of diverse
mindsets is therefore likely to be more resistant to
``groupthink.''
Q.4. In your opinion, what value do directors of diverse
backgrounds bring to board discussions?
A.4. There is an academic literature (some of which is written
by my fellow nominee, Professor Lisa Fairfax \2\) that delves
deeply into the nuances of this topic. In my opinion, directors
of diverse backgrounds bring to bear on decisions their unique
personal, academic, intellectual, and professional experiences
and distinctive approaches to problem-solving. As noted above,
considering issues from multiple perspectives makes it more
likely that the full range of challenges and opportunities will
be identified and addressed timely and effectively.
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\2\ See, e.g., Lisa M. Fairfax, ``Board Diversity and Corporate
Performance: Filling in the Gaps: Board Diversity Revisited: New
Rationale, Same Old Story?'', 89 N.C.L. REV. 855 (2011).
Q.5. In your opinion, do investors have the tools necessary to
make an informed choice about whether they prefer to work with
a broker-dealer operating under a suitability standard or an
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investment adviser who is a fiduciary?
A.5. It is important that investors understand the nature of
their relationship with their financial professionals. The SEC
should continue working to eliminate investor confusion in this
area. To answer the question of whether investors currently
have the tools they need to make an informed choice about
working with a broker-dealer operating under a suitability
standard or an investment adviser who is a fiduciary, I would
want to review the latest relevant work of the SEC's Divisions
of Investment Management and Trading and Markets, Office of
Investor Education and Advocacy, and Investor Advocate. If
confirmed, I also would want to consult with the staff who have
been studying the issue, seek feedback from the Investor
Advisory Committee, review relevant outside studies by investor
groups, academics, and others, and discuss these issues with my
fellow Commissioners. If I am confirmed and I find that
investors do not have enough information to make informed
decisions about their financial professionals, I would work
with my fellow Commissioners and the staff to devise an
appropriate solution.
Q.6. Do you see any reason why we should not have a uniform
standard that includes broker-dealers? If confirmed as
Commissioner, will you support such a rulemaking?
A.6. Before developing a position on the propriety of a
rulemaking that imposed a uniform standard, I would need to see
what the specific proposed standard is and analyze it in the
context of the existing standards applicable to investment
advisers and broker-dealers. Investor protection--including
ensuring access to financial professionals for investors at all
levels--is an essential consideration in any such analysis. If
confirmed and presented with a proposed uniform standard, I
would want to discuss this with my fellow Commissioners and
consult the staff--including those who work directly with
investors--to understand how the rulemaking would affect
investors.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
FROM HESTER MARIA PEIRCE
Q.1. Unelected Directors: The Committee on Capital Markets
Regulation recently conducted a study examining the frequency
with which corporate directors resign or decline to stand for
re-election after failing to receive a majority of shareholder
votes. The study finds that 85 percent of directors who
received less than a majority of votes were still board members
2 years after the vote--so called ``unelected directors.'' To
protect the integrity of the shareholder vote in the face of
the unelected directors problem, would you be supportive of a
Commission regulation requiring, at a very minimum, that
corporate boards disclose the specific reasons that an
unelected director remain on the board despite the failure to
receive a majority of shareholder votes?
A.1. The Committee on Capital Markets Regulation and at least
one investor group have made recommendations to the SEC
regarding directors remaining on boards after failing to
receive a majority vote. If confirmed, I would welcome the
opportunity to review these recommendations, the Committee on
Capital Markets Regulation study, and other relevant studies
and data to understand--along with my fellow Commissioners and
informed by the SEC staff--whether there is a need for a
Commission regulation and, if so, whether a disclosure approach
is appropriate. As with other issues in this area, an important
consideration is the roles that State corporate law and SEC
regulation play in building effective corporate governance that
enables companies to operate efficiently and ensures
accountability to shareholders.
Q.2. Corporate Disclosures: The SEC uses outdated documents,
instead of standardized data, to collect most corporate
disclosures. This means companies must file the same
information multiple times, and investors must hunt through
documents for relevant information (or pay aggregators to do it
for them). The U.S. Chamber of Commerce has called on the SEC
to consider a ``company file'' approach, in which companies
would electronically update material information, rather than
filing redundant documents. Last summer, Senator Crapo and I
asked the SEC to work toward transforming its whole corporate
disclosure system from documents to standardized data, which is
a necessary first step for the ``company file'' to be possible.
Do you believe that the SEC should modernize the corporate
disclosure system in this manner?
A.2. An important undertaking for the SEC is to eliminate
redundant disclosures by companies and ensure that investors
have ready access in a usable format to the information they
need to make informed investment decisions. The SEC's ongoing
Disclosure Effectiveness initiative is a valuable step in
identifying what the SEC can do to achieve these objectives. If
confirmed, I look forward to working with my fellow
Commissioners and the SEC staff on this initiative and related
efforts to improve corporate disclosure. Discussions within the
SEC and with people who prepare and use corporate disclosures
will help me to determine how the SEC should modernize
disclosure. As you have emphasized, any such approach should
incorporate technology as a tool for maximizing the value of
corporate disclosures. If carefully undertaken, the continuing
move toward standardized data offers great promise for
companies and investors.
Additional Material Supplied for the Record
CHARTS SUBMITTED BY SENATOR BROWN
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]