[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
A NEW DAY AT THE SEC: RESTORING
ACCOUNTABILITY, DUE PROCESS,
AND PUBLIC CONFIDENCE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CAPITAL MARKETS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 4, 2026
__________
Serial No. 119-55
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
63-862 PDF WASHINGTON : 2026
=======================================================================
HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
------
SUBCOMMITTEE ON CAPITAL MARKETS
ANN WAGNER, Missouri, Chairman
ANDREW R. GARBARINO, New York, BRAD SHERMAN, California,
Vice Chairman Ranking Member
FRANK D. LUCAS, Oklahoma DAVID SCOTT, Georgia
PETE SESSIONS, Texas GREGORY W. MEEKS, New York
WARREN DAVIDSON, Ohio JUAN VARGAS, California
BRYAN STEIL, Wisconsin JOSH GOTTHEIMER, New Jersey
MARLIN STUTZMAN, Indiana VICENTE GONZALEZ, Texas
MICHAEL LAWLER, New York SEAN CASTEN, Illinois
ANDREW OGLES, Tennessee EMANUEL CLEAVER II, Missouri
ZACHARY NUNN, Iowa STEPHEN F. LYNCH, Massachusetts
LISA McCLAIN, Michigan CLEO FIELDS, Louisiana
MARIA SALAZAR, Florida JANELLE BYNUM, Oregon
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
C O N T E N T S
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Wednesday, February 4, 2026
OPENING STATEMENTS
Page
Hon. Ann Wagner, Chairwoman of the Subcommittee on Capital
Markets, a U.S. Representative from Missouri................... 1
Hon. Brad Sherman, Ranking Member of the Subcommittee on Capital
Markets, a U.S. Representative from California................. 3
STATEMENTS
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 4
WITNESSES
Mr. Peter Chan, Partner, Baker Mckenzie.......................... 4
Prepared Statement........................................... 7
Mr. Alexander Cohen, Partner & Co-Chair of the National Office,
Latham & Watkins............................................... 25
Prepared Statement........................................... 26
Mr. Chris Iacovella, President and Chief Executive Officer,
American Securities Association (ASA).......................... 34
Prepared Statement........................................... 36
Mr. Ben Schiffrin, Director of Securities Policy, Better Markets. 47
Prepared Statement........................................... 49
APPENDIX
ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD
LEGISLATION
H.R. 3318, the SEC Modernization Act............................. 90
H.R. 216, the Securities Enforcement Clarity Act of 2025......... 93
H.R. ----, the SEC Reform and Restructuring Act.................. 99
H.R. ----, the SEC Regulatory Accountability Act................. 130
H.R. ----, the SEC Cybersecurity Act............................. 140
H.R. ----, the SEC Transparency Act.............................. 142
H.R. ----, the Review the Expansion of Government (REG) Act...... 144
H.R. ----, the SEC Regulatory Evaluation, Verification, and
Integrity of Effective Workflows (REVIEW) Act.................. 148
H.R. ----, the Streamlining Public Company Accounting Oversight
Act............................................................ 153
H.R. ----, a bill to amend the Securities and Exchange Act of
1934 with respect to the authority of the Securities and
Exchange Commission to seek disgorgement, and for other
purposes....................................................... 164
H.R. ----, a bill to amend the securities laws to codify certain
disqualification waiver processes, and for other purposes...... 167
H.R. ----, a bill to require the Comptroller General of the
United States to carry out a study regarding major rules issued
by the Securities and Exchange Commission...................... 173
H.R. ----, a bill to establish a minimum public comment period
with respect to proposed rules issued by the Securities and
Exchange Commission............................................ 176
H.R. ----, a bill to require the Director of the Office of
International Affairs of the Securities and Exchange Commission
to semiannually report to Congress with respect to discussions
with international securities standard setting bodies.......... 178
A NEW DAY AT THE SEC: RESTORING
ACCOUNTABILITY, DUE PROCESS,
AND PUBLIC CONFIDENCE
----------
Wednesday, February 4, 2026
U.S. House of Representatives,
Subcommittee on Capital Markets,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:03 p.m., in
room 2128, Rayburn House Office Building, Hon. Ann Wagner
[chairwoman of the subcommittee] presiding.
Present: Representatives Wagner, Garbarino, Lucas,
Davidson, Steil, Stutzman, Ogles, McClain, Downing,
Haridopolos, Hill, Sherman, Vargas, Casten, Waters, and Bynum.
Chairwoman Wagner. The Subcommittee on Capital Markets will
come to order. Without objection, the chair is authorized to
declare a recess of the committee at any time.
Today's hearing is titled: ``A New Day at the SEC:
Restoring Accountability, Due Process, and Public Confidence.''
Without objection, all members will have five legislative days
within which to submit extraneous materials to the chair for
inclusion in the record.
Before I recognize myself for an opening statement, I do
want to inform our witnesses, who so graciously appeared here
today, along with both majority and minority that we are going
to have a--this is going to go quickly here; a hard gavel. They
have moved up votes to around 3:30 or so, and then we are
recessed.
So this is going to be--it will not be possible for us to
come back. So, we are going to move through this as quickly as
we possibly can. So I appreciate everyone's indulgence and
certainly their valued time.
OPENING STATEMENT OF HON. ANN WAGNER, CHAIRWOMAN OF THE
SUBCOMMITTEE ON CAPITAL MARKETS, A U.S. REPRESENTATIVE FROM
MISSOURI
Good afternoon, and I want to thank our witnesses again for
all those in attendance for joining us here today. This hearing
is part of an ongoing effort by the subcommittee to examine how
effectively the Securities and Exchange Commission is executing
its congressional mandate and to ensure our regulatory
framework supports rather than stifles the world's strongest
capital markets.
For several years, the Securities and Exchange Commission
(SEC) drifted away from the principles that have long made our
capital markets work. Rulemaking accelerated without sufficient
economic analysis, enforcement actions increasingly replaced
clear rules, and decisions of enormous consequence were made
with too little transparency or accountability.
That period raised serious concerns among public companies,
Main Street investors, small businesses, and entrepreneurs
about whether the SEC was faithfully serving its statutory
mission.
This hearing is not about relitigating the past; it is
about ensuring the future of the SEC is grounded in the rule of
law and respect for due process. Under Chairman Paul Atkins,
the Commission has begun the hard work of righting the ship,
restoring internal discipline, and recentering the agency back
to its core statutory mission.
We welcome that progress but progress alone is not enough.
Lasting reform requires durable guardrails, and that is where
Congress must lead. First, we must restore integrity to the
SEC's rulemaking process. Rules should not be rushed, stacked
on top of one another, or justified by speculative benefits
with real costs are ignored.
Notice and comment is not a box to check; it is a
foundation of administrative law. Rigorous cost benefit
analysis is not optional or cut and paste. It is essential to
ensure that rules actually serve investors and markets rather
than undermine them.
Second, we must end regulation by enforcements. The SEC is
a civil enforcement agency, not a policymaking substitute for
Congress. Market participants deserve clear rules of the road
before they are punished for crossing them. Enforcement should
target fraud and clear violations of established rules, not
serve as a substitute for notice and comment rulemaking or
expand regulatory authority beyond what Congress has
authorized.
Third, we must address the SEC structure and internal
decisionmaking. Over time, authority has drifted away from the
commission itself toward staff-level actions that lack
transparency and accountability. Structural reform is necessary
to ensure major policy decisions are made by accountable
officials and subject to proper oversight.
That is why this subcommittee is examining targeted
legislative reforms, including proposals to strengthen economic
analyses requirements, reinforce meaningful public comment
periods, clarify enforcement standards, and modernize the
commission's structures so it operates efficiently and within
its statutory bounds.
Let me be clear, these reforms are not about weakening the
SEC, they are about making the agency stronger, more credible,
more predictable, and more faithful to the law.
Today's witnesses will bring deep experience from inside
and outside the commission. I look forward to restoring
accountability, due process, and public confidence in the
commission. Now the chair recognizes the ranking member of the
subcommittee, Mr. Sherman, for 4 minutes or--what are we--do
you want 4 minutes or 5 minutes, sir?
Mr. Sherman. I will take 5 minutes, unless she shows up.
Chairwoman Wagner. Mr. Sherman for 5 minutes for an opening
statement.
OPENING STATEMENT OF HON. BRAD SHERMAN, RANKING MEMBER OF THE
SUBCOMMITTEE ON CAPITAL MARKETS, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Mr. Sherman. The title of this hearing implies that things
at the SEC have gotten better over the last year. I would beg
to differ. I agree that we should not have regulation by
enforcement. Why? Because if you actually write irregulation,
it is clear, it reflects input, it applies to everyone, and it
is pretty stable. That is to say you get a new chair of the
SEC, those regulations are still on the books, and we should
both regulate and adjust regulation and deregulate by following
the Administrative Procedure Act. Instead of regulation by
enforcement, we have now deregulation by nonenforcement. We
also have deregulation by capitulation. What does that mean? It
means we are dealing here with regulations that affect billions
and hundreds of billions of dollars and so there is a lot of
money for a lot of lawyers to contest these regulations.
So, somebody brings a case challenging a regulation, and
instead of defending the regulation, the SEC erases the
regulation not by going through the Administrative Procedure
Act but simply tossing in the towel in a litigation. So, you
get deregulation by capitulation.
You then get deregulation by pardon, and this is certainly
the most troubling aspect. You have got Justin Sun who buys a
hundred million dollars worth of Trump coin, and then all of a
sudden the investigation ends, the trial is dropped. You have
got the Tyler and Cameron Winklevoss where the SEC terminates
its lawsuit because these folks are very close to Trump. You
get Ripple Labs.
Again, the SEC drops the appeal of the case after a multi-
million dollar donation to the Trump ballroom and the
inauguration committee.
Finally, you have Mr. Zhao over at Binance, actually
convicted of a crime, gets pardoned, and we will never know how
much Trump coin was purchased but keep in mind, every dollar
that you spend, quote, buying Trump coin can be secret. You can
disclose it to one or two aides to the President, and all the
money or a big, big chunk of it goes to the Trump family.
Now, I am going to be a bit facetious here, but this SEC is
demonstrating a hatred for Donald Trump. Because for this
process to work, it started with Gensler enforcing the laws and
then you have somebody who buys the Trump coin, and then the
investigation is dropped or the convict is pardoned. What has
happened here is that the SEC has cut its enforcement by staff
by about 20 percent.
Well, what that does is it cuts Trump's income by 20
percent. There are fewer people charged, fewer people who have
to buy Trump coin, fewer people that can get the pardon, or see
the investigation stopped. This also and more seriously has had
an adverse impact on our ability to police Wall Street.
Defunding the police is not a good idea, and that is what
we have defunded when we are going after crime in the suites.
In 2024, the SEC levied $8.2 billion in fines, returned 3.2
billion to investors. What we have seen in 2026 is that is one-
tenth of the fines, less than half the average amount of fines
looking at over the last 10 years. As I have mentioned, the
enforcement staff's been cut by 20 percent.
Finally, we have an unipartisan SEC because when a Democrat
leaves the SEC, no Democrat is replaced. For as long as I have
been here, which goes back to the days of Moses, we have always
had the minority party with two seats. We need genuine
Democrats, not just people who change their authority
affiliation a week before they were appointed, appointed to the
SEC.
If there is not going to be any Democrats on the SEC in the
Trump term, what is the next Democratic President going to do?
I yield back.
Chairwoman Wagner. The gentleman's time has expired. I now
recognize the chairman of the full committee, Mr. Hill, for 1
minute for an opening statement.
STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE ON
FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS
Chairman Hill. Thank you, Chair Wagner, and I appreciate
the panel being with us today. The SEC plays a critical role in
ensuring America's capital markets remain the envy of the
world. However, during the Biden Administration, many market
participants raised concerns about the bureaucratic overreach
of that administration, and particularly regulation by
enforcement at the commission.
Accountability must be restored at the SEC by ensuring the
commission follows the proper notice and comment procedures,
reduces rigorous cost-benefit analyses, and reexamines its
enforcement process. These actions will restore public
confidence, create transparency, and increase stakeholder
engagement.
Under Chairman Atkins, we have seen significant progress
and returning the SEC to its core mission of facilitating
capital formation, protecting investors, and maintaining fair,
orderly, and efficient markets. I look forward to the
discussion today, and I thank the chair for yielding. I yield
back.
Chairwoman Wagner. The gentleman yields back. Today we
welcome the testimony of Mr. Peter Chan, a partner at Baker
McKenzie; Mr. Alexander Cohen, co-chair of the National Office
of Latham & Watkins; Mr. Chris Iacovella, the president and CEO
of the American Securities Association and; Ben Schiffrin,
director of Securities Policy at Better Markets.
We thank each of you for taking the time to be here. Each
of you will be recognized for 5 minutes to give you oral
presentation of your testimony. Without objection, your written
statements will be made part of the record.
Mr. Chan, you are now recognized for 5 minutes for your
oral remarks.
STATEMENT OF PETER CHAN, PARTNER, BAKER McKENZIE
Mr. Chan. Thank you, Chair Wagner, Ranking Member Sherman,
and distinguished members on the Subcommittee on Capital
Markets. I am Peter Chan, and I am partner at the global law
firm of Baker McKenzie. The views I express in this testimony
are my own.
I testify today on how best to ensure a culture of fairness
at the SEC through concrete steps that will preserve the good
work already begun under the leadership of SEC Chairman Paul
Atkins. My perspective is informed by decades of experience as
a securities attorney, including close to 20 years at the SEC's
Division of Enforcement.
At the SEC, I had the privilege of working alongside
commissioned staff members who are a hardworking, intelligent,
and absolutely dedicated to the SEC's mission to protect the
investing public. Being fair has always been part of the ethos
of the staff I work with at the SEC but in recent years, the
commission has lost its way when it comes to fairness.
For example, the SEC has engaged in regulation by
enforcement by setting de facto rules through enforcement
actions without fair notice, as documented by a White Paper I
co-author with my friend and former colleague, Valerie Mirko,
for the Financial Services Institute.
A recent example is the SEC's off-channel communications
initiative involving the deployment of just about the entire
enforcement staff to pressure over 100 financial funds to
settle over $2 billion in penalties, even when there was no
evidence of bad faith. Ironically, the commission itself was
unable to comply with the same stringent standards that the SEC
is enforcing against industry, as evidenced by the avoidable
destruction of text messages of the then SEC Chairman Gensler.
There is also the well-documented attempt to use
enforcement actions to stifle innovations in digital assets and
block chain technology.
To pressure parties to settle cases where the SEC may not
prevail in court, the enforcement staff has also engaged in
unfair practices, such as threatening burdensome investigative
requests or unwarranted outreach to customers if parties do not
agree to settle.
Despite the searing lessons from Madoff, the enforcement
staff has been incentivized in recent years to pursue cases
involving esoteric theories and large penalties that generated
headlines, such as the off-channel communications initiative.
The staff has failed to focus limited SEC resources to
detect, prevent, or stop at inception, traditional intentional
fraud schemes, cases that would have garnered little publicity
but protected investors.
The SEC should be focusing on getting rid of burdensome
regulations that no longer make sense. Instead, the past
commission engaged at a break-neck pace to promulgate rules,
resulting in unfair process and bad rules.
Thankfully, Chairman Atkins is righting the ship and
returning fairness to the commission. He has issued key policy
statements to reform enforcement, he has launched initiatives
to reduce unnecessary regulatory burdens, but it is difficult
to correct the course of an aircraft carrier, and there is no
guarantee that future leadership will not deviate from the path
of fairness.
The commission should thus establish clear rules to hot-
wire fairness into the SEC's culture. An independent advisory
committee of outside experts, as well as 2.0 committee can help
the SEC further identify methods to align staff incentives to
revitalize the SEC's culture of fairness. Better yet,
legislation, including legislation currently proposed by
members of this subcommittee can ensure that fairness will
always be part of the SEC's DNA. Thank you, again, for the
opportunity to testify today. I am happy to answer any
questions.
[The prepared statement of Mr. Chan follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Wagner. Thank you, Mr. Chan, and thank you for
beating the clock.
Mr. Cohen, you are now recognized for 5 minutes for your
remarks.
STATEMENT OF ALEXANDER COHEN, PARTNER & CO-CHAIR OF THE
NATIONAL OFFICE, LATHAM & WATKINS
Mr. Cohen. Chair Wagner, Ranking Member Sherman, and
members of the committee, thank you for inviting me to appear
before you today.
I have been practicing as a securities lawyer for nearly 36
of my 38-year legal career. During this time, I had the honor
to serve as the SEC's Deputy General Counsel for Legal Policy
Administrative Practice--a fancy title that basically means I
was responsible for the regulatory program; later as the SEC's
Deputy Chief of Staff to then Chairman Christopher Cox.
This experience has led me to two overarching conclusions
about the U.S. securities laws. First, the U.S. securities laws
have been remarkably successful in making the United States a
gold standard of securities regulation.
Second, in the nearly 93 years since the passage of the
Securities Act of 1933, the securities regulatory system has
accumulated numerous features that like barnacles in the hull
of a ship serve only to slow down progress.
Congress now has the opportunity to sandblast some of these
regulatory impediments off and I am very grateful to the
subcommittee for the opportunity to add some sand to that
undertaking.
In the appendix of my testimony, I describe a package of
ten improvements that Congress can make to SEC functioning and
U.S. securities regulation organized into four broad
categories: Modernizing the SEC structure; improving the SEC's
regulation of public company accountants; reining in SEC
regulatory overreach; and eliminating regulatory inefficiencies
and failed initiatives.
I recognize that my proposals range from the far-reaching
to the quite technical, but I am convinced all would help
assure that the United States retains its position as the
leader of global securities regulation. I welcome your
questions.
[The prepared statement of Mr. Cohen follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Wagner. Wow. Well done, Mr. Cohen.
All right. You are pretty wordy, Iacovella. We will see,
Chris. You are recognized for 5 minutes for your remarks.
STATEMENT OF CHRIS IACOVELLA, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICAN SECURITIES ASSOCIATION (ASA)
Mr. Iacovella. Thank you, Chair Wagner, Ranking Member
Sherman, and members of the committee for the opportunity to
testify today. The ASA is a trade association of American
financial services firms whose mission is to promote investor
trust in confidence and support competitively balanced
financial markets. We strongly support the SEC return to the
mission that Congress gave it.
Congress created the SEC in the wake of the 1929 Stock
Market Crash to restore Americans' faith in our capital
markets. For much of its history, the SEC did just that,
becoming the world's preeminent securities regulator. However,
since the 2008 financial crisis, a concerning trend has
emerged. The SEC has increasingly acted outside the scope of
its authority to pursue partisan political policies.
The pendulum on the hot-button political and cultural
issues has swung from administration to administration and this
has turned the historically apolitical and technocratic agency
into an unelected political actor. This injection of politics
into our capital markets has created uncertainty for companies
and their shareholders, and it has led to a multi-year transfer
of wealth from American investors to a professional class that
profits from unauthorized regulation.
The SEC needs to be an objective regulator focused solely
on its statutory mission, not one that caters to special
interests regardless of where they sit on the political
spectrum. Congress can end the SEC's mission drift by
reasserting its policymaking prerogative over the agency. By
that I mean, if Congress cannot agree on the details of a
policy issue, then language about that policy should not be in
the legislation, and a legislation should not include broad,
opaque, or public interest language that allows unelected
individuals to make policy decisions.
Congress' delegation of its power to the administrative
State has gone too far for too long, and it is the central
reason the agency has become so politicized. If Congress does
not reclaim its power now, then it risks sending letters that
go unanswered and complaining about policies it did not
authorize and that is certainly not what the Framers envisioned
when they gave you the power to make law. Now I will briefly
summarize the rest of my testimony.
First, the commission's delegation of policymaking
authority to career staff must end. This is appropriate solely
for administrative matters but not policy decisions.
Second, career staff must obtain commission approval to
initiate industry-wide sweeps. This power is too great to be
delegated to unaccountable career staff.
Third, the public deserves a minimum 60-day comment period
for rule proposals and at least 90 for complex rules.
Fourth, the SEC needs to publish a transparent fine
schedule for administrative rule violations, such as
recordkeeping so the public understands how fines are
calculated.
Fifth, enforcement staff must be held to the same ethical
standard as every other licensed attorney. Having staff
sanctioned for lying to Federal courts and having to dismiss
dozens of cases because staff enacted improperly erodes the
public trust in the agency. To change this, senior leadership
and the enforcement division should have securities experience,
not just prosecutor experience.
Sixth, SEC rules must respect cost-benefit analysis that
Congress required. Using random unjustified costs and saying
quote, We are unable to reliably quantify the potential
benefits and cost of a rule, end quote, is unacceptable. This
disregards a congressional directive specifically designed to
stop unjustified rules from harming the economy.
Seventh, SEC rules must be authorized by Congress. The
public should not be subject to a comply or sue scenario.
Lawsuits are costly, and repeated court losses damage the
agency's credibility.
Eighth, rule filings from the Financial Industry Regulatory
Authority (FINRA) and the Municipal Securities Rulemaking Board
(MSRB) should be sent directly to the commission. They should
not be subject to pre-negotiated signoffs by career staff
before going to the commissioners.
Ninth, the SEC's unauthorized delegation of its core
functions to self-regulatory organizations (SROs) must end.
These delegations circumvent the appropriations process, and
they impose open-ended costs on the industry that should be on
the agency's budget. An example of this is the SEC's delegation
of Consolidated Audit Trail (CAT) to the SROs which require the
industry to fund a million-billion dollar regulatory
surveillance scheme that illegally collects the personal and
financial information of every American investor.
Tenth, Congress should revisit the current structure of the
agency to insulate it from partisan political pressure and
while there are many ideas one might be that the commission
should be evenly divided with permanent co-chairs, one from
each party.
Thank you again for the privilege of testifying today, and
I look forward to taking your questions.
[The prepared statement of Mr. Iacovella follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Wagner. I thank you, Mr. Iacovella.
Mr. Schiffrin, you are now recognized for 5 minutes for
your remarks.
STATEMENT OF BEN SCHIFFRIN, DIRECTOR OF SECURITIES POLICY,
BETTER MARKETS
Mr. Schiffrin. Good afternoon, Chairman Hill, Chairman
Wagner, Ranking Member Sherman, and members of the
subcommittee. Thank you for the invitation to testify today. My
name is Ben Schiffrin, and I am the director of Securities
Policy at Better Markets.
Better Markets is a nonprofit, non-partisan and independent
organization founded in the wake of the 2008 final crisis to
promote the public interest in the financial markets, support
reforms at Wall Street, and make the financial system work for
all Americans.
For 90 years since its creation in 1934, the mission of the
Securities and Exchange Commission was to protect investors and
it has done so by acting as an independent agency but in 2025,
under current SEC Chair Paul Atkins, the SEC's mission changed.
Chair Atkins views the SEC as an arm with the
administration and his SEC exists to protect the financial
industry. Chair Atkins may be ushering in a new day at the SEC,
but he is not returning the SEC to its roots. Chair Atkins is
turning his back on the SEC's historic mission of investigator
protection.
The SEC has spent the last year curtailing the rights of
investors in public companies, endorsing the sale of risky and
expensive private market acts to return investors, promoting
the crypto industry relentlessly, reducing enforcements to its
lowest levels in a decade. Dismantling the data base it uses to
catch crooks and revisiting the lane or abandoning rules to
protect investors.
These actions have profound consequences for investors,
markets, and our economy. The SEC's determination to prioritize
the interest of Wall Street and corporate management comes with
the expense of investor protection. It is fundamentally altered
relationships between public companies and investors.
The SEC has limited the ability of the investors to have a
say in how the company is own or run, such as the small group
of nuns in Kansas, who according to the National Public Radio
(NPR), estimated they had filed over 350 shareholder
resolutions over 20 years because they want to advocate for
change at the companies in which they invest.
The SEC has also made it harder for such investors to seek
redress for corporate misconduct, and it has poised to
significantly reduce the information investors receive about
the companies they own.
This transformation of the SEC's priorities and its broad-
based attack on disclosures, rights, and remedies will hurt all
investors, including institutional investors, State and local
pension funds, private retirement funds, and individual
retirement accounts will all suffer as they get less
disclosure, less protection, and fewer remedies and chances to
recover also losses.
At the same time as the SEC is making it harder to invest
in public companies, it is making it easier for private market
funds to solicit retail investors. Private market assets have
long been considered risky for retired investors, because they
lack the disclosure that a company publicly offered securities.
The recent bankruptcy of the investment platform at Lido
highlights the perils for retail investors in the private
markets--with Bloomberg reporting that bankruptcy has left
thousands of retail investors with frozen savings. Even the so-
called accredited investors doing private market threshold
complain about the lack of transparency in the private markets
and the reason private markets do not now want to access to
these investors is that due to problems in the private markets,
money from institutional investors is drying up.
For example, The New York Times recently reported that Yale
University's endowment and New York City's public worker
pensions recently sold their stakes in some private equity
funds at discounted prices to get cash back.
Under the guise of Democratizing access to these
securities, the SEC is trying to steer return investors into
the private markets. At the same time, institutional investors
are pulling back from assets that offer greater risk and lesser
returns. These actions will not only hurt investors but also
harm our markets and our economy.
Our capital markets are the envy of the world, but that is
because they are well-regulated and well-policed. Investors
have faith and confidence in them. This has been our
competitive advantage for almost a century and has thrown
trillions of dollars worldwide into the U.S. markets. That will
change as the U.S. retreats from protecting investors and
enforcing the law to exploiting investors and protecting the
industry.
As investors' rights and protections are stripped away,
investors look elsewhere to invest their money. That will hurt
the economy, because it will be less money invested in the
U.S., leading to fewer jobs and the businesses. So under this
SEC, Wall Street and management win, but investors markets and
our economy lose. Thank you, and I look forward to your
questions.
[The prepared statement of Mr. Schiffrin follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairwoman Wagner. Thank you, Mr. Schiffrin. We will now
turn to member questions, and I recognize myself for 5 minutes
of questioning.
Mr. Cohen. Members of this committee have repeatedly warned
that 30-day comment periods are inadequate for understanding
and providing meaningful replies or proposals that are hundreds
of pages in length sometimes. This is not just a partisan
concern. In October in 2022, 12 Senate Democrats wrote to the
commission warning that these compressed windows were
undermining the Democratic process.
How would a statutory 60-day minimum comment period shift
to process from a check-the-box exercise to a genuine dialog
fulfilling the original intent of the Administrative Procedure
Act?
Mr. Cohen. Oh, well, thank you, Chair Wagner. I think that
would be very helpful. The comment progress, as anyone who has
been involved in it from the SEC side can tell you yields a lot
of really interesting, important feedback. Sometimes very
critical, but that of itself is often very useful.
Just to cite an example that I was involved in, the SEC's
de-special purpose acquisition companies (SPAC) rules, in
particular, proposed Rule 140(a) were the subject of
considerable amount of criticism and that is really complicated
stuff. You just could not do it in 30 days. So I think 60 days
is a very good idea.
Chairwoman Wagner. Thank you. Mr. Chan, this committee will
work to ensure that the progress made to restore a materiality-
based approach to SEC regulation and enforcement is permanent
and cannot be reversed.
In your view, would codifying the SEC regulatory
Accountability Act, for instance, which requires definitive
problem identification before rulemaking provide the necessary
guardrails to prevent a future administration from reverting to
regulation by enforcement?
Mr. Chan. Chair Wagner, your question very astutely
identifies the age-old problem of the phenomenon of solution
looking for a problem. I do think that having statutory
guardrails to make sure that there is actually a material
problem or an issue that needs fixing would very much assist
the SEC in focusing on fairness and going after fraud.
I think in terms of the answer on regulation by
enforcement, it will help. I note one of the problems is that
when there are guardrails on rulemaking, that is when
temptation regulated by enforcement is the greatest. So, I do
think that combined with policies and rules that will limit
regulation by enforcement, I think, is the key.
Chairwoman Wagner. Thank you. Mr. Iacovella, in your
testimony you suggest that Congress itself may bear some
responsibility for the SEC drift, particularly, when statutes
delegate broad discretion or rely on open-ended public interest
standards.
From your perspective, how can Congress write clear, more
durable securities law that constrain regulatory overreach
while still giving the SEC enough authority to respond to real
market risks?
Mr. Iacovella. Thank you for the question. I think this
body did just that with the Jobs Act. In Title 1, you made it
self-effectuating and as soon as it was passed, companies
started the initial public offering (IPO) using that. What did
not happen in the rest of the Jobs Act where the other titles,
general solicitation and crowd funding, those took a lot of
time with SEC comment, and they were watered down in way that
was not negotiated in a bipartisan way in this body at the
time.
So, having language that takes effect immediately upon
being signed by the President is very important because it
bypassed the rulemaking process and you can give them some time
to review that after a two-to 3-year period to see if the
correction--if there are corrections that are necessary to
improve processes.
Chairwoman Wagner. Would you like to expand on any of the--
how many do you have--ten, 12 different recommendations for
this esteemed committee to consider legislatively?
Mr. Iacovella. I would add one point on the comment
period--and I think you were noting it--it really harms small
businesses who do not----
Chairwoman Wagner. Yes.
Mr. Iacovella [continuing]. who do not have an Army of
lawyers or a lot of legal budget to be able to outsource to
comment on a complex rule in a 30-day time span and that is why
it is necessary to be at least 60.
Chairwoman Wagner. I am tired of cut and paste cost
benefits where we do not hear the truth about the cost and/or
the benefits. So, thank you very much for the testimony. I now
recognize the ranking member of the subcommittee, Mr. Sherman,
for 5 minutes for questions,
Mr. Sherman. Thank you. I kind of made the mistake in my
opening statement because I mentioned deregulation by
nonenforcement, deregulation by capitulation, and deregulation
by pardon, and I forgot deregulation by Tweet.
We have seen the President of the United States say that
shareholders should not be able to put forward proposals to
committees, and that you should not be able to hire an adviser
as to how to vote your shares. Although, companies are free to
hire five or ten law firms on their side.
Then we see--and this is I think the most extreme thing--
the President say we should get rid of quarterly financial
reports. What an insane idea. Obviously, rumor mills are
going--whoever picks up the rumor is going to be in a stronger
position and those who are relying on official reviewed or
audited financial statements are going to be in a worse
position.
There are two areas where I think the SEC should be acting
and just refuses to act. One of these is the Small Business
Investor Capital Act which is there to correct how they
calculate expenses so that small business--so that business
development corporations can be, as a practical matter,
included in mutual funds. This committee has passed this bill
over and over again, and the SEC sits and does nothing.
In addition, this committee has done much to try to save
some trees by providing for e-delivery. As I have commented
here before, e-delivery is sometimes better because if you get
it on paper, you tend to throw it away--I mean it is--whereas,
if you get it on electronically and you happen to have some
extra time, perhaps you are at a hearing and looking for
something to read, you can go back and find it and read it but
this committee has acted again and again. It is time for the
SEC to do its job.
I agree with our chairwoman about the need for more than
30-day comment period on major regulations but I disagree with
what she mentioned and what others have mentioned and that is
materiality having nothing to do with anything other than an
expert share.
Mr. Schiffrin, is there something illegitimate about an
investor who thinks that greenhouse gases or conflict diamonds
are material to their decision as to where they want to invest?
Mr. Schiffrin. Thank you for the question. No, I think
there is a lot of information besides financial information
that is material that can form the investment decision that
investors want to make, and certainly things like the effective
climate change on a company's operations would be one of those
things.
Mr. Sherman. Now, I think one of our witnesses had
suggested the idea that we permanently have an evenly split
SEC. I find that intriguing. It is probably a good idea but at
least we have had a situation where there would be two from the
minority party. Congress structured the SEC to be an
independent bipartisan irregulator. Yet, we were down to one
Democratic commission for 12 months, and now we are down to
zero and there is no end in sight.
Mr. Schiffrin, why is it important to have two Democrats on
the SEC in a bipartisan board?
Mr. Schiffrin. Well, because you need a diversity of
viewpoints on the commission that is going to not only make the
commission's rules better in the long run, but also more
durable in the long run. I think Congress is kind of a good
example right. My perception is that Congress tries to do
everything on a bipartisan basis, and I think it would be
better for the SEC to do that as well. That way, you know if
another administration comes in, it is going to be way harder
to undue something that was passed 5-0 versus 3-0 or 3-2.
Mr. Sherman. Then we had this with the Consumer Financial
Protection Bureau (CFPB) and discussions as top whether to have
a board or an individual. Those who wanted the most extreme
actions went with the single Member and so we had a single
person making the decisions. Now, we have a single person
erasing all the--well, actually, they have erased the board
altogether and there is something to be said for moving the
pendulum less in one direction and less than the another, and I
yield back.
Chairwoman Wagner. The gentleman yields back.
The chair now recognizes the gentleman from Arkansas, the
chairman of the full Financial Services Committee, Mr. Hill,
for 5 minutes.
Chairman Hill. Thanks, Chair Wagner. Again, I appreciate
the panel being here. I have spent really almost three decades
as a registered person. The last 10 years not registered but I
will reflect back on that. I was National Association of
Securities Dealers (NASD) FINRA registered since 1986. I was
chairman of the District Business Conduct Committee in New
Orleans, District Six. I was on the Small Firms Advisory Board.
I have been a corporate director for a public company. So, I
spent a lot of my life with the 33 and 34 acts and all the
great work all of you have advocated for.
One of the things as a CEO, a managing general principal
with three different firms, it just irritated the absolute tar
out of me is this idea that we are going to start with
enforcement before we inform anybody of what it is that we are
trying to solve.
I want to visit with Mr. Iacovella, because this one really
burns me up because it is a classic example where people assert
that if they do not correct this immediately, our world will
come to an end. It will cease spinning on its axis.
So the government decides to shut down the economy during
coronavirus disease 2019 (COVID-19). None of us knew what was
going to be the--we were here. We did not know what the real
result of all this was. We were dealing with the crisis in real
time just like the private sector was. But--so, people who were
financial advisers, registered broker dealer employees were
sent home, and I do not think they were told not to ever talk
to their customers again. So they were sent home, and they
probably had a virtual private network (VPN) to dial into a
laptop that maybe was company-owned, maybe it was not. A lot of
people in the modern world do not have a landline, so they were
talking on their cell phone.
Well, that is the case for everyone here. All the Members
of Congress. Exactly the same situation. Not ideal but here
comes the commission suddenly in 2021, and suddenly dreams up
this idea that, oh, my God, there are people with off-channel
communications. These registered broker dealers are not storing
every text message. Clearly, this is a violation of
communications rules, the correspondence rules, the approval by
a principal of anything you say to a client rule, and they
began to enforce that.
I do not think my friends on either side of the aisle
really appreciate how outrageous this was. Starting with C-
suite, we want all your texts, we are going to write you a
letter, our lawyer is going to contact you. If you do not give
us all your texts and access to your phone, we are going to
then, I guess, take action against the firm. It resulted in
billions and billions and billions of dollars of fines for
these firms for something that all you had to do was say in a
notice to members under FINRA or under a proper rulemaking from
the SEC, we believe now in the modern age that we want to
collect and treat as correspondence, treat as principle-
approved communication, texting, or emails, or even a telephone
call on your personal phone because you were sent home from
your office. So, no, we are not recording it and there is
nobody here that would dispute that but instead of publishing a
notice to members, we just start fining people.
Yet, we have a chairman of the SEC who has lost his text
messages that we have subpoenaed from this committee for. So
the hypocrisy is not lost on me or on an Inspector General at
the SEC.
So, Mr. Iacovella, how do we get this back on track? Firms
want to do good-faith compliance. All you have to do is tell a
firm, here is our expectation, here is the timeframe, and we
want you to comply.
How did the scale and structure of these penalties affect
perceptions of fairness and credibility at the SEC?
Mr. Iacovella. Thank you, Congressman. I think what you
said is exactly what should have been done. There should have
been a notice to the industry that said, we understand there
were extenuating circumstances during COVID, and that people
communicated through texting. We would expect you before the
next examination to collect all of that information and have it
ready. If you do not, then there better be a good reason why
and you could be subject to fines as a result of that but that
is not what happened.
Chairman Hill. Right.
Mr. Iacovella. What happened was----
Chairman Hill. I would go into the details, but there is a
perfectly good case study about exactly what we are talking
about today under the leadership of Ann Wagner. I would say
what hypocrisy that the chairman of the SEC cannot produce and
retain his own text messages for review by this committee. I
yield back.
Chairwoman Wagner. The chairman yields back and the chair
now recognizes the gentleman from California, Mr. Vargas, for 5
minutes.
Mr. Vargas. Thank you very much, Madam Chair, and ranking
member, and especially I want to thank the witnesses today.
Mr. Cohen, you set up a very provocative analogy. You set
up this analogy of a ship that has barnacles on it. It has been
sailing for 93 years, and it has collected these in such a way
that it has caused the ship not to be very efficient in its
movement. So they should be--and I want to quote you--
sandblasted off, so then it could move more efficiently.
The analogy is a good one. However, I am from San Diego,
and I worked in the shipyard. We normally do not sandblast. It
depends on the hull. You would not sandblast the barnacles
because you would actually damage the ship. If it was
fiberglass, you would water blast them and if it was a steel
ship, would you sandblast?
The reason I say that is because sandblast is much harsher
than water blasting. Although, there are some water blasters,
of course, that are very profound. The reason I say that is I
think that there probably are some rules and regulations that
should be taken off this ship. By the way, if I had to hire an
attorney, I would hire you. You are very capable, I see and you
are also very precise. I know you would not churn my case. Your
testimony was fantastic.
Mr. Sherman. I do not think you could afford him.
Mr. Vargas. I could not afford him either. That is true,
too.
So, Mr. Schiffrin, how would you confront that reality that
there are barnacles on the ship? Instead of sandblasting, how
would you water blast them off? Now I do want to give you a
chance to come back, Mr. Cohen.
Mr. Schiffrin, why do you not start with that. If we are
going to blast, are we not blasting too hard? If he is going to
use sand, I mean, is it not the problem that we then erase a
lot of these investor protections?
Mr. Schiffrin. Thank you for the question. I think that is
exactly right. We have to be careful not to throw the baby out
with the bathwater, so to speak. It is one thing for the SEC to
go back and look at its rules and say, well, this particular
rule that was passed 50 years ago maybe no longer makes any
sense. Right now what the SEC is doing is seemingly eliminating
core investor protections. Chair Atkins has talked about
revising Regulation S-K, which is core disclosures, not
financial disclosures, but other material information that
investors rely on. Disclosure is the bedrock of securities
regulation in this country, and we cannot just be doing away
with that.
Mr. Vargas. Mr. Cohen, I do want to give you an opportunity
to discuss that.
Mr. Cohen. Well, thank you, Congressman. You are quite
right, I did make the assumption that the SEC is whole with
steel rather than fiberglass and having had the experience as a
teenager having to hand clean fiberglass hulls, I would not
wish it on Congress or anyone else.
I think the point that I was really trying to make is that
the success of U.S. securities regulation does not mean that we
have to regard the system as static, and that, in fact, we
should be open to making changes.
For example, one of the proposals that I made in my
appendix was to add a vice chairman to the position of the
chairman. My observation from being in the chairman's office is
that the chairman of the SEC has too many direct reports, too
many statutory responsibilities, and it impedes his or her
ability to be effective in the job. I think we all would like
the SEC to be run on an effective basis.
Mr. Vargas. Right, but you do have a vice chair at the Fed,
and I do not think that necessarily makes it more efficiently.
How would that protect really investors' rights?
Mr. Cohen. Well, I think the issue is that it is very
difficult when a chairman has--and I think from the last time I
looked at the org chart--something like 26 direct reports, plus
statutory responsibilities at the Financial Stability Oversight
Council (FSOC), at Federal Housing Financial Agency at the
International Organization of Securities Commissions (IOSCO).
It is just difficult to spend time doing the kind of strategic
thinking that you would really want an SEC chair to do to
really drive forward regulation in the right way. You risk
being bogged down in too much detail. Again, I think from all
of our perspective, effectiveness is really what we would like
to see of regulation.
Mr. Vargas. Mr. Schiffrin, would you like to comment on
that? The last comment you made that really what they are
looking at is effectiveness, trying to move more efficient.
Mr. Schiffrin. Well, what I really want the SEC to be is
effective as possible. I do not know that it has been in the
last year. I am not sure if adding a vice chair position is
what it needs to do so much as recognize that its mission is
investor protection. I think it seemed to lose track of that in
the last year.
Mr. Vargas. I guess, with my last 20 seconds, I say it is
obvious that in one administration goes one way a little bit
more than the other way, but when there is no representation at
all, I think there is the danger that it swings too far one
way, and I do think there should be Democratic representation
from the SEC. With that, I thank the chair, and I yield back.
Chairwoman Wagner. The gentleman yields back. The chair
recognizes the gentlewoman from Michigan, Mrs. McClain, for 5
minutes.
Mrs. McClain. Thank you, Madam Chair, and thank you for
holding this hearing. I thank you all for being here. I
appreciate it.
I spent a little time in the financial services industry
myself, about 35 years, and I saw the evolution, especially
around FINRA. When I started, FINRA used to be an agency. It
was really concerned with overseeing the educational arm,
right, our continuing education (CE) credits, making sure we
are properly licensed, et cetera, et cetera.
It seems that FINRA has just grown out of that a little
bit. I am not really sure how it got there.
So, Mr. Iacovella, I was wondering if you could enlighten
us a little bit on how FINRA has evolved from more a licensing
and educational organization, which is what it originally was
set out to do into its current form of really an unaccountable
regulatory agency. Can you explain how that happened?
Mr. Iacovella. Well, I mean, what it does now is regulating
broker dealers and SEC delegates what it does not want to do in
relation to broker dealers and oversight of the security
markets to FINRA and to other SROs. I think that is the concern
that you are trying to raise here is that delegation has not
been authorized by Congress, and it has happened by virtue of
the agency doing it on its own accord.
Mrs. McClain. Yes, and that is extremely concerning to me
because it seems like we have one more layer of bureaucracy out
there. Even more concerning with that is the lack of
transparency. Right?
I am curious to get your information or your opinion on--
what threats do you think FINRA poses to capital markets?
Because they write the rules, they enforce the rules, and they
really keep a lot of those proceeds from the plaintiffs.
Mr. Iacovella. You are touching on a very important topic
right now, and I think it has been the subject of multiple
lawsuits by individuals against FINRA, and I think it is
something that this body should really take up, which is what
is FINRA? Is it a private institution that is member-driven, or
is it a governmental entity? What powers does it have that it
should be using? Should it be an enforcement agency? That is an
open question that this body should answer. Should it be an
adjudicatory agency for arbitration. I mean, these are
functions that were set out in three different branches in our
Constitution, and they have been rolled up into one entity that
is not accountable to anybody but the SEC and to hopefully this
body.
Mrs. McClain. Yes, I would agree with you. I think I would
encourage Congress to really take a look at the role of FINRA
and get some definition of what their job and what their
responsibilities truly are because I think the problem people
have with FINRA is they do not know what they do not know. When
you are the judge, the jury and the executioner, people kind of
get a little weary of that.
Just curious, when FINRA comes in and assesses a fine to a
firm, what happens to those fines? Do those fines get back to
the plaintiff? What happens to those fines?
Mr. Iacovella. I believe that when FINRA assesses a broker
dealer with a fine, that the money goes into its general fund.
Mrs. McClain. Into FINRA's general fund?
Mr. Iacovella. Yes, ma'am.
Mrs. McClain. Any idea what that general fund is worth?
Mr. Iacovella. There were previous reports that FINRA has
over $2 billion in its funds.
Mrs. McClain. $2 billion? Do they use that for educational
training for helping firms do a better job--maybe as Chairman
Hill was talking about earlier, helping people get out of the
State of uncertainty that they may be in? What do they use that
$2 billion for?
Mr. Iacovella. Salaries. They----
Mrs. McClain. Salaries to go back and collect more fines?
Mr. Iacovella. Yes, yes.
Mrs. McClain. Just out of curiosity, what does the
President of FINRA make? Do you know?
Mr. Iacovella. I am not sure of the exact figure, but I
understand----
Mrs. McClain. Would you call me a liar if it was around 4
million?
Mr. Iacovella. That sounds about right.
Mrs. McClain. Just curious. Can you explain a little bit of
a lack of accountability that FINRA has and how that results in
higher fees, fewer investment choices, and lower returns?
The because the biggest concern I have is with all the
rules and regulations right now, it would be really tough to
start a new firm. So, I am curious if you could touch on that.
Mr. Iacovella. I think it is extremely difficult to start a
new firm, and compliance costs are overwhelming for small
firms. That is why a lot of them are going away. They are
either being bought out, merging, or they just go out of
business.
Mrs. McClain. Yes, FINRA is sitting on about $2 billion.
With that, Madam Chair, I yield back. Thank you.
Chairwoman Wagner. The gentlewoman's time has expired.
The chair now recognizes the gentleman from Illinois, Mr.
Casten, for 5 minutes.
Mr. Casten. Thank you, Madam Chair. Thanks all of you for
being here. So I want to lay my biases up first. I had some
real concerns with Chair Atkins' leadership and particularly
for the way that he has weakened investor protections and in so
doing weakened confidence in U.S. markets.
I want to get specifically--and there is no way to say this
without getting political, but SEC's recent decision to stop
reviewing no action decisions per shareholder proposals is
going to allow firms to exclude various environmental, social,
and governance (ESG) requests. You cannot say the word ``ESG''
without getting in some nonsense culture war fight now.
The debate as I understood capitalism. Most of my adult
life was between Milton Friedman's view of shareholder
capitalism and some broader view of stakeholder capitalism.
If the owners of a company have things they want to know
about the risk exposure of that company, and management
disagrees, if you believe Milton Friedman, the shareholders
here will have the final say. Yet, these no-action rules say,
well, if you are doing things that affect environmental issues
or government issues or employment issues, somehow that is off
the table.
So, basically, we are just going say, forget about
shareholders, forget about stakeholders. I am just going to
elevate the C-suite.
I want to, specifically, give a recent example. Last year,
the SEC granted no action related to Exxon Mobile over their
problem which would enable retail investor to automatically
cast their votes on shareholder proposals in favor of
management, at few future meetings, before they even know what
they are voting on.
Mr. Iacovella, you issued a statement in support of that
saying that the SEC's decision prioritizes the interest of
working families, savers, and retirees.
I guess what I am wondering is how does that meaningfully
prioritize individual investors' preferences if they have to
vote before they know what they are voting on?
Mr. Iacovella. Well that particular program that you just
described I think that there are some issues with it. I was not
aware of it exactly.
Mr. Casten. But you would put a statement in support of
this. I mean, I sort of think, like in Illinois--respect, Mr.
Chan, Illinois--we have a primary on March 17, which means my
voters will know who my opponent is on the Republican side of
the ticket on March 18. If I went and asked them to vote for me
now before they know who my opponent is, I am hard pressed to
say how that enhances democracy. Yet, that is essentially what
the SEC has allowed Exxon to do.
Let me move on. Mr. Cohen, Exxon's stated purpose was they
said to enhance retail participation at shareholder meetings.
Is it your understanding that is why Exxon created that
program.
Mr. Cohen. Well, I cannot comment specifically to it.
Mr. Casten. Because there was a client alert from your firm
saying that retail voting is an effective tool to help defeat
an activist investor in a proxy fight but I think in practical
reality, as we all know, there are large sophisticated
investors--he pension funds, mutual funds--what have you and
there is a lot of small retail folks. If you basically bake
them in, I go back to my example, if I get everybody to vote
for me before, why do forums? I have already baked in the win,
right? Are you not effectively just disenfranchising the most
sophisticated participants in your capital structure.
Mr. Cohen. Well, thank you very much for the question.
There was a speech that the general counsel for whom I worked
with, Brian Cartwright, gave in 2007 talking about the notion
of its an ugly word deretailization, but he was making a point
that because of the enormous concentration of money in funds,
it is very difficult to actually for retail investors to have
any particular say at least on fraud. So it is a phenomenon
of----
Mr. Casten. Look, I take--I mean, look, we can go into our
history. Our Founders were not really wild about Joe Rubin of J
Street either, that is why we have the senate but structurally
either we like democracy or we do not.
I want to shift just quickly to tokenization. Last week the
SEC issued a statement confirming that a tokenized stock is
still a security regardless of whether it is representing a
blockchain or a derivative. Mr. Iacovella, do you share the
SEC's view.
Mr. Iacovella. Yes, I think it should take the form of
whatever it tokenizes from a regular tourist standpoint. So it
is subject to the National Market System (NMS) if it is
inequity.
Mr. Casten. I appreciate that. So would you oppose
legislation that would create a loophole that would allow
companies to get out of SEC jurisdiction just because they had
a tokenized security?
Mr. Iacovella. No, I would not oppose that. Oh, we would
oppose that, yes. Sorry, I am sorry.
Mr. Casten. Okay, okay. Well, that was why I posed the
CLARITY Act last year that passed out of this committee because
what the CLARITY Act said is if you tokenize your securities,
you can get away from those sorts of protections.
I leave that to come back to where I started, either this
SEC is going to protect investor rights and investor
disclosures and not pretend something that something is not a
security. If it walks and talks and quacks like a security or
it is not. I think it behooves us to fix----
Chairwoman Wagner. The gentleman's time has expired.
Mr. Casten. I yield back.
Chairwoman Wagner. The chair now recognizes the gentleman
from Oklahoma, Mr. Lucas, who is the chair of the Task Force on
Monetary Policy, Treasury Market Resilience, and Economic
Prosperity. You are recognized for 5 minutes.
Mr. Lucas. That is a mouthful, chairman. Thank you and
thank you to our witnesses here today. I think one of the
things we would all agree on so far in course of this hearing
is that the SEC looks dramatically different from the SEC 2
years ago. It is truly a new day at the commission.
Mr. Chan, can you speak to the enforcement side of the
commission? How would you characterize the change in it capital
markets under Chairman Atkins' leadership.
Mr. Chan. It has been traumatic and it is going back to
commonsense. If you take a quick look at the enforcement cases
since Chairman Atkins appointed Judge Ryan to be the director
of enforcement, you will notice the majority of the cases
involve going after intentional fraud. I think that is
something that sitting here in this room we all agree that is
what the SEC should be doing. As someone who has gone after
fraudsters, Ponzi schemers, executives who have lied, cheat and
stolen, it is tough to go after fraudsters who tried to avoid
detection.
I think if you think about what the SEC did in the previous
administration where they spent the entire resources of the SEC
going after people who might have used an emoji on a text
message or might have gone by an interpretation crushed a
little yellow sticky that is considered a violation of the law.
I worry about how much was missed in terms of failure to
detect intentional fraud. So I really applaud the chairman in
terms of returning the SEC going back to its core, which is
going after intentional fraud with an enforcement perspective.
Mr. Lucas. Mr. Cohen, this committee reported out my
bipartisan bill last month, it would establish a public company
advisory committee within the SEC. That seems to align with the
progress Chairman Atkins has already made increasing
transparency with the commission and seeking broad industrial
feedback on potential regulatory changes. What is your view,
does the commission benefit from thoughtful rulemaking that
takes into account the impacts to market participants.
Mr. Cohen. Absolutely. There is no question that makes
regulation better when you have that kind of feedback.
Mr. Lucas. Continuing with you, Mr. Cohen, can you describe
the benefits of using the process established under the
Administrative Procedures Act to regulate our market behavior
rather staff bulletins that previous administration relied on?
Mr. Cohen. Well, notice and comment rulemaking is an
extremely effective tool because of the complexity of all the
financial markets it is simply very difficult, even for a very
knowledgeable regulators to actually be able to get the full
understanding of what the import of the actions that they are
taking are.
There is of course always a room for interpretation, there
is always a room for staff action, you need that also as a
safety valve but certainly notice and comment ought to be the
preferable way to go.
Mr. Lucas. Absolutely. Mr. Iacovella, the commission has
begun right size regulation, restoring progrowth opportunities
capital markets. How does the Incentivizing New Ventures and
Economic Strength Through Capital Formation (INVEST) Act build
on that work and make these policies durable for future
administrations?
Mr. Iacovella. There are a few ways, section 301, title 3,
allowing EGCs to do 2 years of financial statements instead of
3. That is very important and that it is going to be taken up
immediately once the INVEST Act passes the Senate.
Also, you are directing the SEC to expand the test the
waters provision. That is a very useful provision that provides
good feedback between the companies and the SEC so that they
know and they have a fully prepared statement when it is time
to go IPO and I think lowering the well-known seasoned dish or
a requirement from 700 to 400 was very important as well.
I mean, it allows the ease of follow-on offerings for small
and mid-cap companies and that is what allows them to become
large cap companies.
Mr. Lucas. Absolutely. I thank the panel for your
observations and your insights. I yield back, Madam Chair.
Chairwoman Wagner. The gentleman yields back and the chair
now recognizes the gentlewoman from California, Ms. Waters, who
is also the ranking member.
Ms. Waters. Thank you very much. Thank you.
Mr. Schiffrin, in this and prior Congresses I have offered
proposals to increase transparency and accountability in our
private markets. Your testimony echoes many of the concerns my
proposal would remedy and paints a troubling picture of the
SEC's agenda to undermine our public markets.
You say that Chairman Atkins prioritized the needs of
private equity firms over the safety of everyday American
investors. You also argue that the private markets are
inherently riskier, less transparent, more expensive and less
liquid than our public markets.
I am going to ask you a series of questions about private
markets and would appreciate to the extent possible a brief yes
or no answer. Is it true that private markets have performed
worse than the S&P 500 over the past 5 years?
Mr. Schiffrin. Yes.
Ms. Waters. Is it true that institutional investors like
private equity and pension funds are currently fleeing private
markets due to under performance?
Mr. Schiffrin. Yes.
Ms. Waters. Is the SEC now attempting to steer retail
investors into these private markets at the exact moment that
large institutional investors are pulling back from them?
Mr. Schiffrin. Yes.
Ms. Waters. Is it also true that Chairman Atkins recently
permitted an exchange graded fund to invest in private credit
despite SEC career staff concerns regarding the liquidity and
valuation of those assets?
Mr. Schiffrin. Yes.
Ms. Waters. Well, does not the expansion of private
offerings without the same kinds of disclosures require for
public companies increase the risk of fraud for retail
investors?
Mr. Schiffrin. Yes.
Ms. Waters. Is it your opinion that pushing mom and pop
investors to add these unregistered securities to their nest
egg will likely lead to significant financial losses for them
and millions of American families?
Mr. Schiffrin. Yes, I think it is very risky for retail
investors to enter the private markets.
Ms. Waters. Finally, what advice would you have for both
Congress and the SEC as it contemplates allowing companies and
their Wall Street brokers to sell private assets to everyday
investors?
Mr. Schiffrin. Well, I think you have to bear in mind that
is kind of antithetical to the Federal securities laws. If you
are talking about selling private market assets to retail
investors, you are talking about selling them to the general
public.
If you are making a public offering of securities, you are
supposed to register that with the SEC and provide all the
disclosures that a public offering entails and those
disclosures they like to protect investors. If you are talking
about offering private market securities to retail investors,
you are talking about doing something that really the law does
not provide for without detailed disclosures under the
securities laws.
Ms. Waters. Do you consider that the SEC is independent?
Mr. Schiffrin. Can you repeat the question?
Ms. Waters. The SEC, who controls it? Is it independent or
the President involved, who----
Mr. Schiffrin. It should be an independent agency and that
is historically what it has been. I think Chair Atkins seems to
view it more as an arm of the administration.
Ms. Waters. Well, let me just tell you this, we have fought
very hard and we have to keep fighting to fund and make sure
that the SEC has what it needs to be the cop on the block. So
all you have to do is not help them get any resources, no money
to do the job and they get to do what they want to do, and
nothing gets done. Is that an issue that is a concern to you
and others.
Mr. Schiffrin. Yes, I think I SEC needs resources in terms
of funding and in terms of staff so that it can do its main
job, which is to be the cop on the Wall Street beat and ensure
that financial fraudsters are not taking advantage of everyday
Americans.
Ms. Waters. Has it traditionally been understaffed?
Mr. Schiffrin. I think that the SEC has to regulate $100
trillion capital markets and it has always been underfunded and
understaffed. In that respect, I think that the reason staffing
cuts at the SEC only exacerbate the already difficult task that
the SEC has in regulating the size of those markets.
Ms. Waters. Well, thank you very much. I am concerned. I
yield back.
Chairwoman Wagner. The ranking member yields back.
The chair now recognizes the gentleman from Ohio, Mr.
Davidson and chair of the subcommittee on National Security,
Illicit Finance, and International Financial Institutions. You
are recognized for 5 minutes.
Mr. Davidson. Thank you, chairwoman, witnesses I thank you
for your testimony and your work in the field.
We are coming off the wake of Gary Gensler's failed
leadership at the Securities and Exchange Commission. For years
I sought to fire Gary Gensler. We never succeeded in that but
frankly one of the first things that happened when Donald Trump
became President is we fired Gary Gensler. All of capital
markets are better because of it. So we saw really a mind-set
in terms of the senior leader at the Securities and Exchange
Commission really shape everything and that led me to question
is the structure even right at the Securities and Exchange
Commission.
So I looked at maybe it should be at parity so that no one
party has it, because everybody had deferred to Gary Gensler
and we did not have the votes to change course on it. So then
you have a yo-yo back and forth, one idea versus the other. I
thought, maybe the 80/20 issues the commission on a deal was
because then partisanship would not be the driver for some of
the policy approaches because that is really what we saw is the
war on crypto led out of Elizabeth Warren's office in the
Senate was basically had a foot soldier in Gary Gensler.
Now we are trying to pass regulatory clarity in Congress. I
had a colleague earlier characterize that if you tokenize the
security under the CLARITY Act, it is not a security. No, if
you tokenize the security, it is still a security.
What the CLARITY Act says is that if you tokenize something
that is not a security, then not a security. Gary Gensler
struggled with that idea, and he did sue and subtle things not
to provide clarity. He did not do structured rulemaking with
notice and comment periods. He did regulation by enforcement.
One of the examples I always put on to you is they sued one of
the Kardashian people and settled for $1 million, $2 million
for marketing an unregistered security but they took no action
against the unregistered security that was supposedly the
problem.
They did not shut it down because it was some bad offering
and dangerous to the public. They created chaos on purpose.
They told everyone to come in and talk to us, and we will work
with you and then they used that information to target them for
enforcement actions.
They did not produce an escape. I said it was like hotel
California; you can check in but you can never leave.
So I want to thank Chairman Atkins for providing a great
direction, but a couple of questions. Mr. Cohen, in the
Coinbase case the Biden SEC issued a Wells notice advancing
novel legal theories about digital assets without identifying a
clear statutory authority or rules adopted through notice and
comment.
How could Congress reform the Wells process to require
disclosure of specific legal theories or evidence so that Wells
notices cannot be weaponized.
Mr. Cohen. I think that is probably more appropriately
directed to Mr. Chan who has more----
Mr. Davidson. Mr. Chan, my apologies.
Mr. Chan. As someone who has gone on both ends on a Wells
process, I do think it would be very helpful consistent with
what Chairman Atkins has done to reform the Wells process and
make sure that if I am getting sued, I should know what I am
getting sued for and I should know what the evidence is against
me because the whole point of Wells process is so that the
commission can hear in a fair process what--the potential
defendant's voices.
So I do think that having clarity as to the evidence to
legal theory, but also what exactly is going on. I do think
transparency would be very much needed.
Mr. Davidson. Yes and we hope the commission brings that,
but we need to pass laws to provide clarity, and we are trying
to do that in digital assets. There are things just like the
Wells notice that the loophole there was weaponized by the
previous SEC.
In recent years the SEC's advance other legal theories,
they were rebuked in court, even for arbitrary and capricious
actions. So including efforts to treat decentralized finance
protocols as securities., they held software developers and
programmers liable for how their code was used.
This would be like holding Bill Gates accountable for
somebody tracking elicit finance in Excel. I mean Excel is
useable for all kinds of things, whatever you want to track
with it. This is just a different version of software. What
guardrails can Congress put in place to ensure enforcement
actions cannot be weaponized in the future.
Mr. Chan. Well, first it of all, the oversight by this very
subcommittee is actually important. I do think in terms of
guardrails it goes back to hardwiring fairness and clarity in
the enforcement process.
One of the things Congressman highlighted is the problem of
the SEC making up standards of enforcement, even with new
technology.
Chairwoman Wagner. The gentleman's time has expired.
Mr. Davidson. Thank you. I yield back.
Chairwoman Wagner. The gentleman yields back.
The chair now recognizes the gentleman from Indiana, Mr.
Stutzman for 5 minutes.
Mr. Stutzman. Thank you, Madam Chair.
The SEC was created to protect investors to maintain fair
orderly and efficient markets and facilitate capital formation,
not to serve as a vehicle for advancing political or social
priorities. However, under President Joe Biden and Chairman
Gary Gensler the SEC strayed beyond its statutory mandate and
pushed forward a large and complex regulatory agenda.
The result of this was hire compliance costs, reduced
market competition and fewer opportunities for businesses to
raise capital. Much like our banking industry, our capital
markets are among the most heavily regulated sectors in the
world. Therefore, it is important that regulators carefully
calibrate their actions to address market deficiencies without
causing undue harm.
Mr. Iacovella, I would like to ask you how important is it
for the SEC to evaluate the total economic impact of its
rulemakings and what happens when regulators move too fast
without fully understanding the consequences?
Mr. Iacovella. It is extremely important to fully evaluate
and ask the public for information so that you can quantify the
cost, the real cost to everybody of different sizes. You cannot
aggregate those costs and then extrapolate them on to the
industry. People need to understand at what levels they are
going to be impacted.
The unfortunate part is that when those are not done
properly, you are left with one scenario which is to either
comply with a rule that is faulty and that you know could
potentially put you out of business or put a strain on
competition or to sue and that is not good for the industry, it
is not good for our economy.
Mr. Stutzman. Thank you. One of the things that we saw
during the Gensler SEC was the departure from the traditional
60-day public comment period on a proposed rule. So this
shorter timeline makes it harder for our--it might be feasible
for large firms with plenty of lawyers on a retainer, but I am
sure that for smaller firms it is much more difficult. Mr.
Cohen, how do shorter public comment periods negatively affect
smaller firms and independent researchers?
Mr. Cohen. Well, exactly for the reason that you stated,
digesting several hundred pages of release and coming up with
coherent views on them is just not something one does overnight
and you have to put aside a lot of other pressing business to
do it.
Mr. Stutzman. So broadly speaking, would you see a
difference between the Biden SEC's activity and the Trump-era
SEC?
Mr. Cohen. Yes and one of the market aspects of it is
comment.
Mr. Stutzman. Comment?
Mr. Cohen. Yes.
Mr. Stutzman. Yes. Anything else?
Mr. Cohen. Well, regulation by enforcement, as has been
mentioned. Yes. Mr. Iacovella, how about you?
Mr. Iacovella. Oh, I would agree. I think, cover that.
Mr. Stutzman. So it is much easier--I mean, it is better
for the industry, it is better to move business along, giving
people an opportunity to raise the capital that they need.
This committee's currently considering legislation that
would guarantee a 60-day comment period with certain
exemptions. Would this sort of policy help improve the quality
of stakeholder feedback? Any of you could answer that.
Mr. Iacovella. Yes, absolutely. I think the more time that
people have to be able to absorb, get their teams together, ask
them how this kind of a policy would work, but let those
business people and operational people actually understand what
is being proposed and tell management and the legal and
compliance folks what it is going to do to the business, that
is how you get informed comment.
Mr. Stutzman. Thank you. Thank you, I yield back.
Chairwoman Wagner. The gentleman yields back.
The chair now recognizes the gentleman from Montana, Mr.
Downing for 5 minutes.
Mr. Downing. Thank you, Madam Chair and thank you to the
panel for being here.
As an entrepreneur, and a former regulator, I cut my teeth
in tech venture alternatives, a lot of Reg D exemptions. Coming
out of the space it is really exciting to me to once again have
an SEC that cares about its core mission of facilitating
capital formation, rather than pursuing a political agenda.
I am glad that this hearing is focused on ways to reform
the SEC to ensure that the Gensler-era antics can no longer
plague our capital markets.
I am going to start with Mr. Iacovella. Thank you for being
here. Under former Chair Gensler, the SEC finalized 34
substantive rules. This exceeded the average of the three most
recent predecessors by 36 percent matching only the financial
crisis-era pace of former Chair Mary Shapiro. Can you discuss
the harm caused to U.S. capital markets by rushing through so
many rules?
Mr. Iacovella. Yes, I think it goes hand and glove with
what we were just talking about, Congressman, that when you do
not have the time and opportunity and when you have one complex
rule, it takes a long time, and it takes a lot of resources and
manpower. When you have a number of them coming at you at one
time and in the case of market structure, there were four of
them and we did not understand exactly how they were going to
work intertwining together to change the entire market
structure.
That was very problematic because it started to make people
very nervous about what the changes were going to look like.
Instead of actually putting comments together, people were
contemplating whether they should just sue.
Mr. Downing. All right, thank you. Thank you for that
answer. I am going to move to Mr. Cohen.
The SEC currently has 43 offices, yet only seven are
established by statute. I currently have legislation noticed
for this hearing H.R. 3318: 3318, the SEC Modernization Act,
which reorganizes the SEC bureaucracy into just 12 offices. So
my question is: How can the SEC's current organizational
structure be improved so that it operates more efficiently?
Mr. Cohen. Well, in addition to the ideas contained in the
legislation, in my own appendix creating a position of vice
chair, as well as I think folding the Public Company Accounting
Oversight Board (PCAOB) into the SEC, which is I know the
subject of another piece of legislation.
Mr. Downing. Thank you. So under the SEC's previous
leadership, market participants heavily criticized how the
SEC's economic analyses were performed in its rulemakings,
particularly when it came to climate disclosures and market
structure reforms. As a former regulator, I had to deal with
that whole issue, but my question is how should the SEC
properly conduct its analysis for its rulemakings impact on
capital formation?
Mr. Cohen. Well, we talk a lot about tone at the top and
tone at the top is incredibly important. Chairman Atkins used
to point out quite often when he was a commissioner that the
SEC's estimate of the cost of Sarbanes-Oxley (SOX) 404(b) the
order attestation was in the order of $90,000 and probably
missed several different zeros. So I think rigor in economic
analysis is extremely important.
Mr. Downing. Thank you. I want to turn now to the SEC's
notice and comment period. Historically, the SEC is allowed at
least 60 days for notice and comment from the public on
rulemaking. Under Chairman Gensler, public comment periods were
frequently shortened, concerningly enough for it to be raised
in a 2022 Inspector General report.
So first, why is it important for the public to have an
adequate time to comment on a proposed rule.
Mr. Cohen. Well, again, I think it is the complexity of the
financial market simply makes it very difficult to just react
from the hip. I can tell you from my own experience at doing
emergency rulemaking in 2008 that input was really valuable. Do
you think that 60 days is adequate or is more time needed?
Mr. Cohen. That would be interesting to see what other
people with industry consensus is on this. Sixty days at least
establishes a reasonable starting point.
Mr. Downing. There have been times when the public comments
led to a substantial change in the SEC's final rulemaking.
Mr. Cohen. Absolutely. I think in the comments on the SEC's
de-SPAC rulemaking in particular for proposed rule 140a really
led to the SEC to pull that one back, right?
Mr. Downing. Well, I appreciate your responses there and I
appreciate the panel being here. On that, Madam Chair, I yield
back.
Chairwoman Wagner. The gentleman yields back.
The chair recognizes the gentleman from Wisconsin, Mr.
Steil, chair of Digital Asset FT and AI for 5 minutes.
Mr. Steil. Thank you, Chair Wagner. I appreciate all of you
being here today. We have got a big opportunity, and I think we
have made real progress in turning the SEC around to its actual
task of being there for investors rather than driving forward
political agendas.
I want to cover two topics today that I think are really
important. One is the politicization of the Gensler-era SEC,
and have we made the reforms needed to bring us back and away
from that in particular the Staff Bulletin 14L. I do not want
to cover materiality and what we are doing in that regard.
I will start with you if I can, Mr. Cohen. Staff Legal
Bulletin 14L really gave staff at the SEC massive authority no
make a decision is to what had a societal policy--based on what
was having a broad societal impact, that is the language.
What we saw is after the staff bulletin comes out we see a
dramatic increase in shareholder proposals going before the
SEC, we see this whole drive of the liberal left trying to
drive through policy agendas, via publicly traded companies in
the United States so they cannot move through Congress because
no sane elected individual would support a lot of the stuff
that they were trying to force publicly traded companies to do.
We finally get sanity back at the SEC. Have we done enough?
Where are we at? Can you give us a status update.
Mr. Cohen. Well, certainly having rescinded Staff Legal
Bulletin 14L really brought back the practices in this area to
what it had traditionally been, which is it should have to have
a connection to something company specific in the proposal.
Mr. Steil. But the staff that was reviewing and many of
them are still there, does that cause concern or is the change
in the removal of the legal memo sufficient?
Mr. Cohen. I----
Mr. Steil. Are people still operating in a politicized way?
Mr. Cohen. I have to be careful in answering that because
my wife who is sitting behind me was for 10 years a staff
member at the Division of Trading and Markets, but I can say
that I just have enormous respect for the profession.
Mr. Steil. I am not saying that there are not many great
men and women at the SEC and I would not want to disparage
everyone there. I think it is pretty clear when you were seeing
some of saw the rules coming out of the SEC under the Gensler
chairmanship that it was pretty politicized. You had staff
members who were making decisions as to whether or not
something had a broad societal impact.
I do not know if Mr. Chan or Mr. Iacovella would like to
comment on that, maybe your wife or partner is not sitting
behind you, and you can speak broadly on this. I say that
teasingly. Do you have concerns with some of the individuals at
the SEC who were clearly pushing a politicized agenda
previously?
Mr. Chan. I think my concern in the past years is the shift
of cultural fairness. I do think that at the core we are
dealing with materiality. We are dealing with a variety of
issues. I think the north star should be creating incentives to
get the staff back to focusing on what is fair and that
includes trying to figure out what is material and
understanding an investing public, also that includes making
sure----
Mr. Steil. But does that cultural challenge that was
created, I think it is highlighted by Staff Legal Bulletin 14L.
Is that culture where people would have been--you if you were
an individual and you came out of law school and thought boy, I
like securities law, but man, I want to drive forward a
wackadoodle agenda, boy the SEC might be a great spot to go
because under Legal Bulletin 14L you could pretty much willy
nilly make a determination as what had a broad societal impact.
Now good we removed 14L, positive. Maybe those individuals that
came in--again, not everybody at the SEC is of this mind-set,
but it is pretty clear that there were some people there who
were trying to drive forward a liberal agenda under Staff
Bulletin 14L.
Mr. Chan. Yes, and I think that goes back to the culture.
If you ask and take a poll of the frontline staff in the
division and enforcement people, the great people I work with,
they want to fight fraud and they want to fight securities
fraud and they want to focus on protecting investors.
So I think anything that can return the staff to doing what
they actually want to do, which is to fight fraud, would be
great.
Mr. Steil. Mr. Iacovella, did you want to comment on that
as well.
Mr. Iacovella. I would just say that the tone is set at the
top and Chair Atkins was very clear about what he was going to
use staff resources for and what he was not going to. I think
you see a material change at the agency.
Mr. Steil. That is great to hear, because I think Chair
Atkins has done a spectacular job. I think that there is a
massive shift of tone at the top. I think you see it in removal
of Staff Bulletin 14L.
You also see it in Chair Atkins and the now SEC board
actually diving into what is actually material to the company,
not creating and allowing staff to drive forward a political
agenda to determine what is material. Let alone what some of my
colleagues on the left side of the aisle want to do where they
want write in statute that something is by definition material
even if it has nothing to do with the company.
I appreciate you all being here. We have made some real
progress at the SEC. We have got more work to do. Madam Chair,
I yield back.
Chairwoman Wagner. The gentleman yields back.
The chair recognizes the gentleman from New York, Mr.
Garbarino, who is the vice chair of the subcommittee on Capital
Markets. 5 minutes.
Mr. Garbarino. Thank you, chairman. Thank you very much for
having the hearing today and thank you to the witnesses for
being here.
U.S. institutional investors, including pensions funds,
asset managers and insurance companies invest and trade across
global markets, often they do work with foreign broker dealers
to access the deepest liquidity outside of the United States.
SEC's cross border broker framework, including rule 15a-6 was
written decades ago and generally requires foreign brokers to
operate through a registered U.S. intermediary. While intended
to protect investors, market participants say these
requirements can create unnecessary costs and friction at
sophisticated institutions and may put U.S. investors at a
competitive disadvantage.
By contrast, Commodity Futures Trading Commission (CFTC)
uses equivocal frameworks that allows certain well-regulated
foreign firms to serve U.S. participants without duplicating
full U.S. registration. Markets are now far more interconnected
and cross border trading is more common. There is a growing
discussion about whether a similar modernization could be
considered on the security side.
Mr. Chan, are there areas where the SEC could focus to
allow U.S. institutional investors more efficient access to
broader global liquidity in non U.S. markets through well-
regulated foreign broker dealers such as equivalency regimes
with major similarly regulated jurisdictions.
Mr. Chan. Absolutely, I call this the four corners of
global interoperability. The SEC can do a better job on
ensuring that investment products can be acessible seamlessly
and internationally; professional licensing can easily be
clarified and simplified--the reporting regime and also the
examination. There can be a lot of work done with other
regulators, globally, that can make international trading and
investment securities much easier. As someone who worked with
my partners on other jurisdictions, the key is the SEC
understanding to what else is going on in the rest of the
world.
Mr. Garbarino. You just answered any follow up question, so
I appreciate that very much.
I am going to switch some gears here. Chairman Atkins has
recognized that the SEC's rule book has become bloated and is
an obstacle to growing our markets, to address that problem
created over the past 5 years the chairman has noted that the
SEC rulemaking agenda includes a number of proposals to reduce
compliance, burdens and facilitate capital formation.
Recent years the SEC adopted deeply problematic fund
related rulemakings, example under former Chair Gensler is in
2023, funding. The 2023 fundings rules amendments which the SEC
estimated would affect 76 percent of funds and introduced new
compliance costs and operational complexity for funds. Those
added burdens would ultimately be passed on to American savers.
Mr. Cohen consistent with the SEC's goal of reducing
unnecessary burden how should the commission or staff address
those rulemaking excesses.
Mr. Cohen. Well, I think the proposal that Chairman Atkins
has made to revisit for example regulation S-K and much that is
in it is very welcome. One thing you will note is that he
articulated the concern about too much disclosure overwhelming
people. I think that is a long-standing concern that many SEC
chairman have articulated.
Mr. Garbarino. I appreciate that. I know I have two more
questions, but I think I am going to yield back so Mr. Ogles
can get some time.
Chairwoman Wagner. I appreciate that. The gentleman yields
back. Votes have been called about 6 or 7 minutes ago. Mr.
Ogles, I appreciate, please submit whatever you have in writing
for the panel.
I would like to thank all our witnesses for your tremendous
testimony today.
Without objection, all members will have 5 legislative days
to submit additional written questions for the witnesses to the
chair. The questions will be forwarded to the witnesses for
their prompt response. Witnesses please respond no later than
March 11, 2026.
[The information referred to can be found in the appendix.]
This hearing is adjourned.
[Whereupon, at 3:36 p.m., the subcommittee was adjourned.]
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