Gary Gensler’s predecessor as chairman of the Securities and Exchange Commission, Jay Clayton, when presented with evidence that corporate insiders—especially those of the crucial vaccine-making variety—may have been taking advantage of a sloppily-written rule to do a bit of legal insider trading, he sighed deeply, grumpily asked those insiders to stop being quite so obvious about it, and got back to planning his post public-service life. Gensler, as expected, has a slightly more robust response in mind.
One concern Gensler has is that there is no “cooling off period” mandated by the SEC for when a 10b5-1 plan is adopted and when it can start trading, though research shows that 40% of such plans begin trading within just two months after they are opened, while 14% start trading within a month.
Futhermore, there is no limitation as to how many 10b5-1 plans insiders can open, making it easier for an insider to shut down one or many plans if he has public information that suggests that it would be profitable to do so.
“Insiders can cancel a plan when they do have material non-public information. This seems upside-down to me. It also may undermine investor confidence,” Gensler said. “In my view, canceling a plan may be as economically significant as carrying out an actual transaction,” he added. “Thus, I’ve asked staff to consider limitations on when and how plans can be canceled.”
Gensler… noted that technological advances will always create tensions between the SEC and the companies it oversees…. “I would say it’s important, and this happened as well in the 1990s, when the internet came along, that traditional fraud used to be in paper form or in speeches and then moved to the internet and if it moves to social media, still we are going to ensure the best that we can within our resources to tamp out fraud and manipulation.”
Gensler also spoke about possible new regulations in the area of special purpose acquisition companies, which have grown exponentially in recent years. “Its about disclosure,” he said, adding that new technology and new financial methods are in constant development, and the SEC must be vigilant to keep up with the times, though he declined to estimate when new regulations will be submitted.
[William] Duhnke in recent months has faced criticism from investors who said the PCAOB didn’t adequately incorporate their feedback into its work. Under Mr. Duhnke, the watchdog in 2018 stopped holding meetings of two groups that consulted investors, citing what the board described as the meetings’ ineffectiveness…. U.S. Senators Elizabeth Warren (D., Mass.) and Bernie Sanders (I., Vt.) last month wrote a letter urging the SEC to remove all members of the PCAOB. They said the Trump administration took deliberate steps to erode the PCAOB’s independence and expertise, leading the watchdog to, for example, weaken auditor-independence rules and exclude investors from participating in its policy-making process….
One consequence of the SEC’s decisions on Friday could be the overhaul of the entire PCAOB board. The regulator said it would seek candidates to fill all five board positions on the PCAOB in the coming weeks…. The remaining three members would remain in their positions pending the outcome of the SEC’s search and can apply to stay on the board.
Luckily, Gensler doesn’t have to do all of the work himself.
The proposed framework, released Wednesday by the New York City Bar Association, asks regulators to evaluate 12 affirmative factors and three mitigating factors in deciding whether to charge chief compliance officers for conduct relating to their job-related duties under federal securities laws.
The proposal is aimed at guiding decisions to charge CCOs made by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, which could decide to adopt the framework.
SEC plans to go after market manipulation on social media, executive insider trading, Gensler says [MarketWatch]
SEC Removes Chairman of Audit Watchdog [WSJ]
Proposed Framework Aims to Guide Regulators in Decisions to Charge Chief Compliance Officers [WSJ]
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