When the SEC last week abandoned its plan to sharply reduce the number of six-week-old hedge fund portfolio reports available to the investing public, it seemed a victim of overwhelming opposition: Not only did negative comment letters outnumber the two dozen positive ones by 100-to-one, but the very people Jay Clayton thought he was helping by increasing the 13F threshold to $3.5 billion in assets under management—the very people he’s hoping will be clients when his miserable four years by the Potomac at last come to an end—the hedge funds themselves weren't especially keen, either.

Of course, the unpopularity or general inadvisability of a proposal has never been an obstacle for the Trump administration, and it hasn’t been for Jay Clayton’s SEC over the last several months, anyway. So a sudden outbreak of conciliation and humility certainly doesn’t accord with everything else going on at the agency. And, as it turns out, it is: Clayton & co. haven’t suddenly discovered the value of consensus. They’ve simply discovered that their plan was against the law.

Platt noted that the SEC’s proposal relied on a quote from a 1975 Senate Banking Committee report that said the regulator had the “authority to raise or lower” the reporting threshold./The only problem was that this never became law. Instead, the final legislation allowed the SEC to lower — but not raise — the regulatory threshold./“The whole proposal rested on the legality of being able to raise the reporting threshold, and the linchpin of their argument turned out to be completely inaccurate,” Platt said by phone. “I am puzzled as to how that error would have made it into a proposal like this.”

“The linchpin of their argument turned out to be completely inaccurate” could serve as a fitting epitaph for the entire misbegotten Trump era, which the good Prof. Platt appears to have been sleeping through. After all, Clayton’s not the first Trump appointee who doesn’t understand the difference between a bill and a law, and many of those who presumably do simply don’t give a damn. Still, it’s a pretty embarrassing misapprehension from someone who hoped to become one of the most powerful law enforcers in the country, or it would be were any of these criminals and charlatans able to feel it.

Why the SEC May Have Scrapped Its Controversial 13F Proposal [II]

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