SEC Chair Mary Jo White spoke at the Fordham Law School 14th Annual A.A. Sommer, Jr. Corporate Securities and Financial Law Lecture, focusing on the importance of the SEC remaining nonpartisan. Chair White said her speech was a tribute to Al Sommer, and his staunch belief that politics has no place in the SEC hallways. She noted that Mr. Sommer spearheaded the SEC’s groundbreaking rules to “unfix” brokerage commissioners and establish a national securities market system. Chair White stated that it is vital for the SEC and its employees to have the freedom to do what is right for investors and markets without the interference of politics or outside pressure. Chair White also noted that while the SEC is an independent agency, it still relies on the ideas and recommendations of those who are impacted by its rules. She further explained that disclosure is a key aspect in maintaining the securities market; however, Chair White noted that if disclosure “gets to be too much” or strays from its main purpose, it can lead to an information overload, therefore it is important to strike a balance between useful information for investors and over-sharing.
Chair White also discussed the role of the judiciary and the importance of separation of powers to “stay in respective lanes.” She stated her belief in the enormous value of the “no admit, no deny” settlements, because it provides swift remedies for misconduct and quick relief to investors without the risk of litigation.
Lofchie Comment: This is a fairly significant speech, as it does not take much of a stretch to read the speech as a criticism of a number of provisions of Dodd-Frank, including the provisions regarding the disclosure of pay ratios and probably the requirements as to conflict minerals as well.
This speech sheds light on an interesting perspective (though it is hard to say what that perspective shows) as to the SEC’s recent rule proposal regarding corporate disclosure of the ratio between the compensation of the pay of a CEO and the average employee at the company. See SEC Proposes Rule for Pay Ratio Disclosure. The SEC voted to put that proposal forward by a 3-2 vote (with Chairman White voting in favor) – the face of two Commissioner dissents, including a particularly strong one from Commissioner Gallagher who argued that the pay disclosure rule requirement had nothing to do with the SEC’s mission and that the SEC should essentially ignore the relevant statutory provision. Arguably, this speech could be read as the Chairman regretting the decision to put forward the pay ratio rule, and as an argument that the disclosure rule on conflict minerals is not well-advised and is yet another regulatory injury to the economy.
One expressed message of the speech is that SEC Chairman White does not intend for the SEC to be entirely deferential to the White House. In an odd way, this could be read as very good news for the White House. That is, a strong argument could be made that the White House will be greatly benefitted by a more independent and self-confident financial regulator that serves as a check on some of the more ill-conceived acts of Congress, which are arguably destructive to the economy.
Although Chairman White’s declaration of regulatory independence seems to be a good choice as a practical matter, it does raise interest Constitutional issues as to the role of the federal independent agencies effectively serving as the “fourth branch” of the government, not part of the judiciary and not directly in the command of either the White House or the Congress.