Delivering remarks on the House floor in opposition to H.R. 1675 today, Congresswoman Maxine Waters (D-CA), Ranking Member of Committee on Financial Services, led Democrats in denouncing the inaptly-named “Capital Markets Improvement Act of 2016,” a bill that includes several provisions that instead of improving our capital markets, would actually harm investors, the SEC and small businesses in our country.
In her remarks, Ranking Member Waters noted that H.R. 1675 will reduce corporate transparency, establish additional administrative burdens for the Securities and Exchange Commission (SEC), and create easily exploited loopholes for bad actors. Waters also highlighted that this package of five anti-investor bills fails to take into account recent developments and action by the SEC.
According to the Statement of Administration Policy (SAP,) the White House “strongly opposes” H.R. 1675, and if this bill were to reach the President’s desk, his senior advisors would recommend he veto it.
Full text of the remarks, as prepared for delivery, is below.
Thank you, Mr. Chairman.
I rise today in opposition to H.R. 1675, a package of five bills, which will harm investors and, perversely, the very small businesses Republicans seek to help.
It does so by ignoring and supplanting the good judgement of the Securities and Exchange Commission, which has already sought to provide small businesses with regulatory relief in these same areas, while also ensuring that investors in those businesses have the protections they deserve.
The SEC’s balanced approach makes sense, as investors who are not confident in the integrity of our markets will simply not invest, which means that job-creating companies will not have the capital they need to grow.
In particular, this bill would reduce corporate transparency for employee stockholders by allowing private companies to compensate their employees with up to $10 million in stock per year without having to provide them with relatively simple disclosures about the financials of the company or the risks associated with those securities.
This provision would double the current disclosure threshold, enabling larger companies with at least $34 million in total assets to encourage overinvestment by employees in a company that they cannot value and that may never permit them to sell, except back to the company at a price set by the company. This type of deregulation invites more Enron-style fraud onto the market, where employees have to trust the accounting of their companies but instead are left with valueless stock.
Similarly, this bill would exempt over 60% of public companies from using a computer readable format, known as XBRL, in their SEC filings. Exempting such a large number of filers would prevent those companies from being easily compared to other companies that use XBRL to the disadvantage of analysts, researchers, the SEC, investors, and even the companies themselves.
According to the SEC’s Investor Advocate, this exemption would, quote “seriously impede the ability of the SEC to bring disclosure into the 21st Century,” unquote.
Title three of the bill further supplants the SEC’s good judgement by significantly expanding the Commission’s recently provided relief for certain mergers and acquisition brokers – without imposing eight important investor protections granted by the SEC. As a result, bad actors, who may have committed fraud, and shell companies could use this relief, and brokers wouldn’t have to make basic disclosures about their conflict of interests. In Committee mark-up, Democrats attempted to close these loopholes, but our efforts were rejected in a party-line vote.
Title two also fails to sufficiently protect investors, as it eliminates offering liability for brokers, who under the guise of providing Exchange Traded Fund, or ETF, research reports, could selectively use data to promote and sell highly risky, complex and little known ETFs to unsuspecting retail investors.
Finally, the bill seeks to impose additional regulatory burdens on the SEC by requiring it to conduct a duplicative and more onerous retrospective review of its rules. Specifically, Title five would require the SEC, within 5 years of enactment, to review and revise all of its rules, which I should mention date back to 1934. It would also allow the SEC to override Congressional mandates, including those in the Dodd-Frank Wall Street reform bill. Republicans on the Financial Services Committee are always claiming that the SEC is unresponsive to Congress – and yet this provision in the bill allows the Commission to unilaterally repeal the will of Congress at their whim.
Indeed, this Title is a thinly veiled Republican attempt to impose cost-benefit type analysis on our regulators as a means of eliminating rules designed to benefit the public and protect investors.
H.R. 1675 is an anti-investor bill that will reduce transparency, establish additional administrative burdens for the SEC, and create easily exploited loopholes for bad actors.
I urge my colleagues oppose HR 1675 and I reserve the balance of my time.