Donald Trump’s recent upset victory in the presidential election has raised speculation on what changes his administration will make to the leadership and focus areas of the Department of Justice. Equally important questions have surfaced on whether his election will lead to an opportunity for the Republican-controlled Congress to limit the Securities and Exchange Commission’s (SEC) authority.
How Trump’s Presidency Will Change the Justice Department and SEC
SEC to Propose Corporate Election Reform
The United States Securities and Exchange Commission recently announced that it would consider proposing amendments to the disclosure requirements imposed in corporate director elections. The amendment would alter the ways in which investors nominate and elect members to the company’s board of directors in contested elections. By focusing on a universal ballot with a single voting form, the SEC hopes to make it easier for shareholders to exercise control over the company’s management. This would be a rather dramatic deviation from the current practice wherein voters receive two separate ballots representing a competing group of board candidates.
SEC Prepares Regulatory Review into the Exchange Traded Fund Industry
The Securities and Exchange Commission (SEC) is preparing for a full-scale review of the exchange-traded fund (ETF) industry, an unnamed source told the Financial Times in an article published October 20, 2016.
Wal-Mart Rejects Government Settlement of $600 Million
After spending five years investigating allegations that Wal-Mart representatives bribed government officials over the course of a ten-year period to fast-track store openings, the United States government has finally put a settlement offer on the table.
Clawbacks—Not the Punitive Threat They Were Thought to Be
When employees are offered incentives such as bonuses, stock options, or other types of rewards, companies may establish provisions that allow recovery of part or all of the incentives offered. These types of policies are known as “clawbacks.” Such policies seek to encourage executives to abstain from certain kinds of conduct that are viewed as negative, unnecessary, or otherwise undesired by directors and shareholders. For example, companies that operate in the financial industry adopt these policies in cases where executives could harm the company by taking excessive risks or engaging in behavior that embarrasses the company.
The Theory of the SEC’s Case Against Leon Cooperman
On September 21, 2016, the Securities & Exchange Commission filed a complaint alleging Leon G. Cooperman, the billionaire hedge fund manager of Omega Advisors, “generated significant illegal profits” due to insider trading. The trading arose when Cooperman purchased additional securities in Atlas Pipeline Partners, a company in the Omega Advisor portfolio, after receiving information that Atlas intended to sell a large portion of its assets. When Atlas announced the sale, its stock price jumped 31%. The SEC alleges that Cooperman agreed to keep the information confidential, and that by trading on it, he violated insider trading laws.
Does Climate Change Affect Profitability? S.E.C. Orders Shareholder Vote on Disclosure
The S.E.C. recently ordered oil behemoth Exxon Mobil to include a resolution on its annual shareholder proxy statement that, if approved by shareholders, would require the company to disclose how its future profitability might be affected by climate change and related legislation. This marked a defeat for Exxon, the world’s largest oil producer, which fought against the proposal. While Exxon suggested that it was too vague and that it already provided adequate carbon disclosures, the S.E.C. rejected those arguments. A company spokesman stated that Exxon would provide the board’s position on the proposal in its upcoming proxy materials. It is questionable whether Exxon’s shareholders will approve the measure, as just last year shareholders overwhelmingly rejected adding an independent board member with expertise in climate change.
SEC Charges Wells Fargo with Fraud
On Monday, March 7, 2016, the Securities and Exchange Commission (SEC) charged Wells Fargo with fraud in its role as underwriter of a $75 million municipal bond deal. The Rhode Island Economic Development Corporation (RIEDC), a state agency, issued the bonds and loaned $50 million of its proceeds to 38 Studios, a now defunct video game company whose chairman and majority shareholder was the legendary Boston Red Sox pitcher, Curt Schilling. The RIEDC hoped to stimulate jobs and lure other businesses to relocate to Rhode Island.
“Could” v. “Would” and Other Issues: The Definition of Materiality in Light of Disclosure Reforms
The year of disclosure reforms is upon us. Public financial disclosures, increasingly riddled with boilerplate, repetitious, and irrelevant information, have been criticized for “disclosure overload,” where too much noise drowns out critical information for investors, shareholders, and the public. In light of congressional urging, the SEC has recently sought public comments on financial disclosure requirements in Regulations S-K and S-X. The comments showcase the issues with reform from minor changes, such as document-compatibility upload in EDGAR, to overarching conceptual issues regarding requirements across administrative agencies. Disclosure effectiveness is seen as a multi-issued problem that requires a comprehensive solution.