Securities Regulation Daily Sen. Warren wants SEC probe of industry comments on DOL fiduciary proposal
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Friday, April 1, 2016

Sen. Warren wants SEC probe of industry comments on DOL fiduciary proposal

By Mark S. Nelson, J.D.

Senator Elizabeth Warren (D-Mass) called on the SEC to investigate whether a number of companies may have violated federal securities laws when they made seemingly inconsistent statements to analysts and in public rulemaking comments about the potential impact of the Department of Labor’s proposed fiduciary duty rule on their businesses. According to a letter Sen. Warren sent to SEC Chair Mary Jo White, at least four companies are trying to both sink the DOL’s rule while saying the rule, if finalized, would generate little worry for them.

“While I am hesitant to make a direct accusation that these companies have violated the securities laws with their directly contradictory statements about the impact of the DOL Conflict of Interest rule on their business models, I believe the circumstances justify initiating a prompt and thorough SEC investigation,” said Sen. Warren.

The DOL has twice sought to adopt a broader fiduciary standard for retirement savers’ accounts, but the Department’s latest effort got a boost from the White House a year ago when President Obama directed it to move ahead with the proposal. Senator Warren, along with Rep. Elijah E. Cummings (D-Md), ranking member of the House Committee on Oversight and Government Reform, jointly raised similar concerns earlier this year.

Securities violation? In a footnote to her letter, Sen. Warren drew attention to a private securities class action fraud case in which the plaintiffs alleged that Barclays PLC and some of its executives misled investors about the safety and transparency of a dark pool. The plaintiffs claimed that Barclays touted safety features while encouraging predatory high frequency traders to use the platform.

In allowing some, but not all of the Barclays plaintiffs’ claims to go forward, the court found the plaintiffs had adequately pleaded scienter against Barclays’s head of equities electronic trading, who also was the source of many alleged misstatements, including in a comment letter to the Financial Industry Regulatory Authority.

The district court certified the plaintiff class in the Barclays case in February. Barclays is currently seeking to appeal the class certification before the Second Circuit and has drawn support for its petition from the Securities Industry and Financial Markets Association, the U.S. Chamber of Commerce, and a group of law professors and former SEC commissioners that includes Paul Atkins, Daniel Gallagher, and Joseph Grundfest. The various amici focus primarily on the district court’s application of the Supreme Court’s Halliburton II opinion, which reaffirmed the high court’s fraud-on-the-market presumption, albeit subject to a defendant’s opportunity to offer evidence prior to class certification of the lack of price impact.

The DOL rumor mill. A rumor has surfaced that the DOL may issue its final version of the fiduciary standard next week. Published reports of the DOL’s supposed time frame for releasing the final rule appeared to be derived from two recent The Wall Street Journal articles. The DOL submitted its proposal to the Office of Information and Regulatory Affairs for review in late January, and OIRA’s website today showed the review was still pending.

The SEC’s Dodd-Frank Act authority to make rules in the fiduciary space overlaps with the DOL’s authority. Proposed legislative solutions to the fiduciary standard debate would either increase congressional oversight of a final DOL rule or would require the SEC to act before the DOL finalizes its rule.

Companies: Barclays PLC; Barclays Capital, Inc.; Financial Industry Regulatory Authority, Inc.

MainStory: TopStory DoddFrankAct FiduciaryDuties FinancialIntermediaries

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