One of the highlights of this year’s annual fall conference of the North American Securities Administrators Association (NASAA) held in Providence, Rhode Island was a 45-minute interview of SEC Chair Mary Jo White by outgoing NASAA President Judith Shaw. The interview underscored the now friendly bond that exists between federal and state securities regulators to combat regulatory and enforcement matters together. Veteran state securities regulators and practitioners can contrast these better times with the hostility that existed between the two agencies following federal preemption of blue sky regulation by the National Securities Markets Improvement Act of 1996 (NSMIA).
Chair White emphasized in her remarks the great coordination and communication efforts that have been made between the SEC, NASAA and state securities regulators across the Country, especially since the passage of the JOBS Act, to achieve just the right balance between capital formation and investor protection. She said that a cooperative relationship between the SEC and state regulators to facilitate this balance has never been more critical now that the SEC has lifted the general advertising/general solicitation ban on certain Rule 506 offerings, and in light of SEC and state rules on crowdfunding and Regulation A, Tier 1 and 2 offerings.
Uniform fiduciary duty. President Shaw also asked Chair White a question that has been on the minds of state securities regulators and practitioners for at least two years: Will there ever be a uniform fiduciary duty standard for broker-dealers and investment advisers in light of the Department of Labor rule? Forthcoming in her answer, Chair White proclaimed that her fellow commissioners are drafting a detailed document of recommendations but that a final rule will not be quick, emphasizing that such an important standard must be done right and its impact on broker-dealers, investment advisers and investors examined very carefully before such a crucial provision leaves the gate.
Accredited investor definition. When asked by President Shaw about another important regulation—expansion of the "accredited investor" definition—Chair White stated that her staff has already published a study on this issue in 2015. But she said that while the staff will next make recommendations to her about whether to raise, lower or retain the current accredited investor threshold, examining the impact of this decision will be critical, so a final change in the definition will not be quick.
SEC enforcement. President Shaw’s question about the current status of SEC enforcement led Chair White to remark upon her strong belief in efforts to protect main street retail investors from microcap fraud, which has been exacerbated by social media in recent years. She mentioned her 2013 creation of a microcap fraud task force to go after the fraudsters and that 27 cases have been brought against them in 2016.
Chair White proclaimed that the SEC has also gone after persons perpetuating pyramid schemes, insider trading, affinity fraud against immigrants, and investment schemes against the elderly. She commended NASAA for adopting a model rule to protect vulnerable adults, including seniors, from securities fraud by family members, healthcare workers and financial service professionals. Lastly, she said in recent times there has been a dissemination of complex retail products against unwary investors, and mentioned Merrill Lynch and UBS as examples of companies that the SEC prosecuted for illegally selling these products.
Diversity. When President Shaw also asked Chair White about what the SEC was doing to increase diversity of women and minorities in the financial sector, diversity being the focus of this year’s NASAA conference, Chair White said that the problem is not a lack of supply, remarking that there are a number of qualified women out there in the working world with the skills to rise to the board of directors and executive level in companies. And to this end, she stated that young girls desiring executive status should be passionate about working in the financial service sector, love and work hard at each job they attain on the corporate ladder without simply using the job as a stepping stone to a more advanced position, and not believe any of the negative or positive press they hear about themselves.
Chair White declared that the problem of not enough women high up in companies really goes to the "old boys network of bias against women" that has existed for decades in American business, and pointed to the Regulation S-K disclosure rule as a way to help break this barrier down. She said that while current Rule S-K’s required disclosure questions help identify the "gender makeup" of company boards of directors, the rule’s not defining the term "diversity" has allowed companies to avoid providing the hard data about their corporate culture. Chair White has therefore asked her staff to recommend ways to hone Regulation S-K to glean more meaningful results on the diversity question.
Career path. When asked about her career path, Chair White said that it could be divided into three parts, namely her time as a young federal prosecutor, then as the U.S. Attorney General for the Southern District of New York, and finally as SEC Chair. She remarked on the Southern District of New York’s 60-year history of prosecuting white collar and organized crime, as well as drug and terrorist cases after the September 11, 2001 attacks. Chair White, emphasizing the SEC’s major role in helping the District prosecute white collar crime, said that she hardly hesitated when asked to accept the SEC Chair position, and was delighted to take a job that so perfectly fit her career path. She stated that nothing has satisfied her more in her career than providing public service.
Chair White closed her remarks by thanking President Shaw and NASAA for having her speak at the Conference, exclaiming how critical a cooperative relationship between the SEC and state securities regulators in today’s regulatory and enforcement arena, and how happy she is to see the relationship continuing to expand.
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