Last week, SEC Chair Mary Jo White delivered a speech titled “The Importance of Independence” at Fordham Law School.
White’s speech was spot-on in terms of her discomfort of Congress and others seeking to effectuate social policy or political change through use of the SEC’s powers of mandatory disclosure. White stated:
“When disclosure gets to be too much or strays from its core purpose, it can lead to ‘information overload’ – a phenomenon in which ever increasing amounts of disclosure make it difficult for investors to focus on the information that is material and most relevant to their decision-making as investors in our financial markets. To safeguard the benefits of this ‘signature mandate,’ the SEC needs to maintain the ability to exercise its own independent judgment and expertise when deciding whether and how best to impose new disclosure requirements. For, it is the SEC that is best able to shape disclosure rules consistent with the federal securities laws and its core mission. But from time to time, the SEC is directed by Congress or asked by interest groups to issue rules requiring disclosure that does not fit within our core mission.”
[As an aside, although not mentioned in White’s speech, this is exactly what happened with the SEC in terms of the FCPA. As detailed in the “Story of the Foreign Corrupt Practices Act,” the SEC wanted no part in enforcing the FCPA’s anti-bribery provisions as it viewed such enforcement beyond its core mission. However, Congressional leaders – most notably Senator William Proxmire – insisted largely because in the post-Watergate environment the DOJ was not viewed as sufficiently independent.]
Speaking of the Dodd-Frank Act, White stated:
“But other mandates [in Dodd-Frank], which invoke the Commission’s mandatory disclosure powers, seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions. That is not to say that the goals of such mandates are not laudable. Indeed, most are. […] But, as the Chair of the SEC, I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals.”
(See here for the prior post – days after Congress passed Dodd-Frank in 2010 – noting that Section 1504 of Dodd-Frank “Disclosure of Payments by Resource Extraction Issuers” did not represent sound policy for the same reasons White identified above).
The final portion of White’s speech concerned “Judicial Involvement.” She stated as follows.
“I should not conclude this talk about the importance of independence without mentioning our third branch of government – the judiciary. When I urge the courts to defer to the SEC’s independence and expertise, I am really only making the point that separation of powers requires each of us to respect and stay in our respective lanes.
[…]
We recognize that, under the law, a court can review a settlement. But a court that reviews a settlement that a law enforcement agency like ours enters with a defendant has a more limited task. It is unlike a court’s wide-ranging inquiry into the merits of a class-action settlement, for example. A court reviewing a consent judgment in one of our cases has a narrower focus – making sure that the settlement is not ambiguous and that it does not affirmatively harm third parties or impose an undue burden on the court’s own resources.”
By requesting the judiciary to stay in its “respective lane,” White misses the point – sticking with the traffic analogy – that the SEC is driving a different car in an enforcement action compared to its typical regulator car. As the Supreme Court recently unanimously recognized in the Gabelli decision (see here for the prior post), “in a civil penalty action, the [SEC] is not only a different kind of plaintiff, it seeks a different kind of relief.”
As noted in this prior guest post, Gabelli is “an encouraging sign that the justices may be ready, willing, and able to take on other troubling issues that arise as federal law enforcement agencies continue to blur the lines between traditional criminal prosecution and increasingly punitive “civil” prosecution.”
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In another speech last week, this article quotes White as follows.
“I realized just how much leverage the SEC has,” Ms. White said, speaking at the Women, Influence & Power in Law summit in Washington. Many public companies would sooner acquiesce to a demand for an admission than engage in a long-running dispute with the agency, she suggested. “You don’t want to be at war with your main regulator,” she added, saying the policy shift takes advantage of “perhaps more leverage than the SEC realized that it has.”
Spot-on and given that the SEC has acknowledged in litigation that an SEC settlement “do[es] not necessarily reflect the triumph of one party’s position over the other” (see “The Facade of FCPA Enforcement” for a more extensive discussion), White’s comments are hardly surprising.
Yet they do highlight why it is not wise policy to link whistleblower awards to SEC settlements (see here for the prior post) or suggest that SEC FCPA settlement money ought to be paid out to alleged “victims” (see here for the prior post).
