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From Securities Regulation Daily, June 2, 2015

Warren demands answers from Chair White on rulemakings, waivers

By Mark S. Nelson, J.D.

Senator Elizabeth Warren (D-Mass) called on SEC Chair Mary Jo White to answer questions about when the agency will finish its Dodd-Frank Act rulemakings, its granting of waivers to companies accused of securities violations, the agency’s settlement of cases without admissions of guilt, and White’s need to recuse herself in many proceedings. Warren’s letter, issued today as part of a press release, comes just two weeks after the senator said she met with White to discuss these and other matters.

Pay ratio in 2016? Warren singled out a few items where she said White had not acted quickly enough. Among them is bringing finality to the pay ratio rule proposed in September 2013. Under Dodd-Frank Act Section 953(b), the rule would require companies to disclose the ratio of the median annual total compensation of all employees to the annual total compensation of the company’s CEO.

According to Warren, White told her at their May 2015 meeting that the pay ratio rule would be finalized by Fall 2015. But Warren implied that White may have given the senator “what appeared to be misleading information” because the latest Current Unified Agenda of Regulatory and Deregulatory Actions published by the Office of Management and Budget’s (OMB’s) Office of Information and Regulatory Affairs indicated an April 2016 completion date for the pay ratio rule. Warren said White should have known of the added delay because of the SEC’s submission to the OMB, which was due in March.

Waivers, admissions of guilt. Senator Warren expressed concern about the ease with which well-known seasoned issuer or bad actor waivers can be obtained by showing good cause to the SEC. Warren noted that many of the most recent waivers involved large financial institutions that had admitted criminal conduct. The waivers typically allow companies to continue to take advantage of favorable regulatory treatment that aids their efforts to raise capital.

SEC Commissioner Kara M. Stein has been especially vocal in questioning the availability of many of these waivers. In her dissent from the waivers granted to UBS AG, Barclays Plc, Citigroup Inc., JPMorgan Chase & Co., and the Royal Bank of Scotland Group Plc last month following the banks’ involvement in a criminal conspiracy to manipulate foreign exchange rates, Stein said “I am concerned that the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic,” a point Warren picked up on in her letter to White.

Warren also took White to task for not doing more to ensure that the SEC settles appropriate cases with admissions of guilt. Warren said that during White’s tenure at the SEC, the agency required admissions of guilt in just 19 of 520 settled cases (Warren’s data spanned June 2013 to September 2014).

According to Warren, White has not lived up to her pledge, made shortly after she was confirmed as SEC Chair, that she would take a tougher stance on admissions. White previously told Warren that the SEC seeks admissions in egregious cases, where the wrongdoer’s conduct harmed many investors, where markets or investors were subjected to greater risks, where the wrongdoer obstructed the SEC’s investigation, where admissions could send a message to others, or there is a future threat to markets or investors.

Recusals, loopholes, preemption. Warren also chided White over her frequent recusals in administrative cases due to her prior work at the law firm Debevoise & Plimpton LLP, and her husband, John White’s work at his law firm for companies that appear before the SEC. Mr. White, a partner at Cravath, Swaine & Moore LLP, was Director of the SEC’s Division of Corporation Finance from 2006 to 2008.

Chair White had previously said her potential recusals would likely be no more frequent than for prior SEC chairman, and they would not prevent her from carrying out her official duties. But Warren cited a New York Times article that implied the Commission is often deadlocked in cases where White is recused.

Moreover, Warren opened several other fronts in her critique of White. Specifically, Warren noted that many of the SEC’s Dodd-Frank Act rules contain loopholes that were not intended by the reform law. She also questioned the SEC’s final Regulation A, adopted to implement changes brought about by the Jumpstart Our Business Startups (JOBS) Act. Here, Warren said she is worried the agency rushed to preempt important state investor protections. Warren also noted the lack of SEC action on requiring disclosures of companies’ political campaign donations.

Attorneys: John W. White (Cravath, Swaine & Moore LLP).

Companies: UBS AG; Barclays Plc; Citigroup Inc.; JPMorgan Chase & Co.; Royal Bank of Scotland Group Plc.

MainStory: TopStory DoddFrankAct Enforcement ExchangesMarketRegulation ExecutiveCompensation JOBSAct

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