Did The SEC Make A Mistake? I Think Not.


Harvard Law School Professor John C. Coates recently published this post accusing the Securities and Exchange Commission of making policy and political mistakes in taking disclosure off of the “SEC’s agenda”.  I beg to differ.

Apparently, some folks didn’t get the memo and continue to make the Reg Flex Agenda a newsworthy item after being completely ignored for decades.

  • 600,000 + investors did not write to the SEC “personally”.  First of all, I don’t know on what basis Professor Coates determined that all letters were sent by actual investors.  The SEC received 285,000 letters which it categorized as “Type A“.   This form of letter does not indicate whether the writer is an investor.  The fact that these are form letters belies any claim that these are “personally” written letters.
  • The SEC should not be playing politics.   Although it is debatable whether the SEC is truly an independent agency, most people assume that it is.  In any event, the raison d’être of the SEC is not to play politics, but to be an expert agency focused on the administration and enforcement of the securities laws.  Indeed, the adoption of a political spending disclosure rule would likely weaken the SEC by politicizing it and immersing it further in areas outside its core competency.
  • Let the market decide.  Professor Coates argues that numerous academic studies demonstrate “the relevance of political activity to shareholder interests”.  Relevance is a extraordinarily weak criterion for regulatory action.  The reality is that shareholders do not pass political spending proposals.  It is this failure at the ballot box that has led proponents of political spending disclosure to lobby the SEC for a new rule.  The SEC should not be a vehicle for forced subsidization of special interest groups.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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