Fair, orderly and efficient markets; and facilitate capital formation. It plays a Critical Role in ensuring that our nation has Capital Markets that the public can have confidence and trust in. It provides information to investors so that as americans prepare for their futures, they not only have a wide array of financial opportunities, but they also have the information necessary to make informed investment decisions. Chairman clayton, you came before this committee a year ago and assured us that you would continue to take steps to ensure that the u. S. Capital markets remain the deepest, most dynamic and liquid in the world. I commend you and the sec staff for the actions that have been taken over the past year. Actions worth mentioning include the secs final rule package on regulation best interest, which strikes the appropriate balance of increasing transparency in investors relationships, while preserving access to advice relationships and investment products. The sec also proposed modifying the accelerated filer definition to reduce the number of registrants subject to the auditor attestation requirement. I encourage the commission to move forward quickly in a way that provides relief to all smaller reporting companies. And this summer the sec issued a concept release seeking Public Comment on ways to harmonize the private Securities Offering exemption. Regarding the concept release, i encourage the sec to revise regulation d to allow for general solicitation and advertising by sponsors, such as Angel Investor groups; the sec should consider expanding the ability for Small Businesses to crowdfund; the definition of an accredited investor should be expanded and modernized to account for qualifying expertise, not simply a monetary threshold; and it is important the sec update the definition of a Family Office to allow Family Offices and their clients who meet certain thresholds to be considered accredited investors. I commend the commission for its actions related to the process. The sec issued guidance to invest advisors in fulfilling responsibility on behalf of clients and clarify proxy voting, the place provided by proxy firms generally comes to solicitation. In november after numerous roundtables led by commissioner royceman the sec propose two amendments to improve the accuracy and transparency of proxy voting advice and to modernize shareholder proposals. I encourage the sec to move forward with these efforts expeditiously following the comments period. This Committee Held an oversight hearing on consolidated audit trail or. I continue to express concerns regarding identifiable information that will be collected in this consolidated database and how it will be protected. October 16, 2019, the cat Plan Participant spoke to the sec to use cat customer id instead of receiving and storing Social Security numbers in the. Only a year of birth and firm ids and individual account numbers, chairman clayton, you previously expressed concerns about information to be collected and stored in cash and that you believe the revelatory objectives of cat can be achieved without the most sensitive pieces of industrial information. I encourage you to quickly process the request to use alternative approaches. Finally the sec has made modernization of focus this year and i look forward to hearing about your strategic hub for innovation and Financial Technology and how the sec has engaged with initial coin offerings and other crypto currency related matters. I look forward to receiving updates on these and other sec initiatives including your views on when we can expect final rules in these areas. Senator brown. Nice to see you again. The last few years we have seen the Trump Administration dismantle in a front row view of this many of the protections congress put in place after that last financial crisis putting our Financial System and hardworking families around the economy at risk. The sec has flown under the radar, taking wall street upside over and over instead of standing with investors saving for retirement or college or down payment. Taken together the secs latest actions are making it harder to hold Corporate Executives accountable to investors and hardworking americans. I appreciate the Enforcement Divisions initiatives including those to protect teachers and military servicemembers from fraud and misconduct and Financial Advice you have done so much damage by adopting what you call regulation best interest under that rule Brokerage Firms can barely disclose but not have to eliminate conflict. It should be simple. Investment firms need to work to the people for whom they serve. Americans need to have confidence in professionals the those entrusted with her hardearned money are helping them, not scanning them. You could have simply followed congresss guidance in doddfrank to create a uniform fiduciary standard for brokers and advisers which would be the best way to give investors confidence that their interest comes first but you didnt do that. That is not the only part of doddfrank you are looking to undermine. What the secs proposal to amend the Whistleblower Program, one of the most Successful Programs create another doddfrank. We need break workers to stand up to corruption and abuse when they see in their workplace Financial Companies scamming people are engaging in other illegal activity. The only way individual workers are able to stand up to powerful wall street firms is if we give them protection. We have seen a Chilling Effect from your proposal. Each year since inception of the program the number of tips has increased in some years by more than 10 but after your rule proposal in 2018 introduced a on whistleblower awards the number of tips declined for the first time in 2019. The proposed on awards raised so many alarm bills you had to put out a statement to clarify. I know whistleblower is a dirty word nowadays to some in this town, it always is to serial lawbreakers. I dont see how you can make significant changes to a Successful Program like this without understanding that the decline in tips is a result of your actions and the environment is administered and has created in its talk about whistleblowers rather than protecting those who speak out against abuse of power. As the ftc takes fewer actions and hold the largest Financial Systems accountable we must encourage whistleblowers to identify misconduct wherever it exists and help uncover complex frauds. The secs recent proposed rules and proxy advisors and shareholder proposals are clear examples of the administration taking the side of corporate interests over americans struggling to save and invest in their future. Both proposals make it more difficult for shareholders to hold Corporate Executives accountable. The proposal, proxy advisors, Institutional Investors to have timely access to independent research and analysis, the proposed rule gives access to Investors Research before the public retirement systems. The sec says the changes are necessary because of errors in accuracy but you have provided evidence of those errors. And said the new rules would give companies a new tool to intimidate proxy advisors and threaten their independence. The overhaul of the shareholder proposal rule would make it easier for Corporate Management to silence shareholders to avoid dealing with important issues critical to investment. The amendments would stop proposals for votes on issues such as disclosure of corporate political spending, separating the rules and nondiscrimination policies. Im disappointed in the directions you have taken on these rules that have for decades, for decades for president s of both parties and sec chairs of both parties allowed investors to hold management accountable all while executives further entrenching themselves, ignoring workers and shareholders. Protecting workers hardearned savings should begin with a simple concept, putting their rights first. I hope the sec will remember that but over the last week and this week we have had nearly all the financial regulators come before this committee. At the fed we had the fdic, today the sec all defending the same policies that amount to a wish list for wall street, and corporate interests all afflicted with collective amnesia about what happened in the last decade or so. The president promised to look after ordinary working people but the people he put in charge of these agencies betray those workers over and over and over again. I would like to offer for the record this letter from the Public Employees retirement system raising concerns about the secs rulemaking. Without objection. Chairman clayton you make make your presentation. Thank you, chairman crapoh. I appreciate the opportunity to testify on the work of the securities and exchange commission. I want to start by thanking you for your support for the mission and its people, the dedicated women and men of the commission are the most important asset. The resources congress provided last year we have been able to lift our hiring freeze and fill 140 new positions with high quality individuals who i believe will serve investors well. Since becoming chairman the interest of our longterm main Street Investors are in front of my mind. With that perspective a perspective our staff as long held i would like to highlight a few aspects of the past year. First, modernization is the key avenue for advancing all 3 aspects of the mission. This enhances quality and transparency, that main Street Investors have with brokerdealer and investment advisor. These measures bring legal duty and mandated disclosures in line with what reasonable person would expect are providing access to a bad choice and cost to investment services. Im grateful to our experience and dedicated staff for bringing longoverdue regulatory rationality and clarity. We are working to respond to substantial changes that have taken place in our markets. And in private markets and Public Markets, Many Companies are staying private until they are very large or not going public at all. We expanded key aspects to increase the attractiveness of Public Markets while maintaining or enhancing Investor Protections. And the Capital Markets is one side of the coin. We are exploring whether Fund Structures or other measures increase the type and quality of opportunities main Street Investors having private markets. I believe we should strive to ensure individual retirement portfolio can look like a wellmanaged pension fund with robust Investor Protection that reflects the individual nature of the account. This is a challenge but we are making progress. And many other areas modernization efforts are making a difference for our investors and markets. These efforts not only include rulemakings but monitoring of market function and market risk. Turning to our inspections and enforcement efforts i want to highlight our teachers and military servicemembers initiatives where we have focused additional enforcement on education resources. My messages simple. If you are ripping off teachers, servicemembers or veterans we want to catch you and get them their money back. It continues to be a priority. This year we returned 1. 2 billion to our investors. I previously testified about the legal impediments we face in taking funds from bad actors in situations where fraud is well concealed such as a ponzi scheme. I very much appreciate the bipartisan work in congress to address these challenges and welcomed the opportunity to continue working with you to ensure defrauded investors can get their money back. Finally i note substantially increase their efforts to engage with investors, entrepreneurs and market participants. In particular we have allocated Additional Resources to Retail Investors and entrepreneurs that lived between the coasts. I believe this engagement is important. Thank you for the opportunity to testify and i look forward to your questions. Chairman clayton, i hybrid that the sec has taken some critical steps to modernize guidance and rules around proxy advice, proxy process in shareholder proposals. This Committee Help multiple hearings in the sec has conducted roundtables on these issues. These rules have not been reviewed by the commission in decades and i commend the sec for taking thoughtful actions on expertise. Based on the expertise to address changes in markets that have occurred. In your public remarks you mentioned you expect the commission will address universal proxy. When can we expect to see actions to modernize these aspects . We take an approach to regulatory collectibility agenda which is on the nearterm agenda and intend to get it done in a year but these items are on the agenda, staff is working on them and i would hope we could move them forward in the coming year. I appreciate the attention you have given it and encourage your strong focus to bring it to completion. Moving to a different issue facebook announced its plan to develop a new crypto currency called libra. The sec is one of the regulators, how has it affected how the sec and other regulators are working to be responsive to and innovative to market developments and trendss. I appreciate the question, highlights what happened with that announcement. Im not going to speak about the particular product. It is not appropriate for me to do so but the announcement was a focal point for regulators of different types to recognize the digitization of the plumbing and other aspects of our Financial System including payment transfers. It is coming. The natural economic forces that it unleashes, taking a bat out of the system, it is happening. We have to recognize that is happening, recognize our mission, safety and soundness, Investor Protection. Out of it digitization we are being cute to those principles but we should not be fighting that digitization. If we fight it, it will go around us. That mirrors my feelings and i assume when you say it is coming. It is here. It is here. It is here. As i have said many time, leaving behind the specific proposal of libra, the issue is one the United States and its allies and friends in the Rural Community need to lean on and set the rules of the road on rather than let it come and develop on its own through other jurisdictions who are not as friendly to the United States and frankly through other currencies than the us dollars so i encourage you and other regulators to focus on this carefully. One of the first decisions the United States has to make is who among our regulators are those who regulate and how will we regulate as well as the specifics of how we set the rules of the road so i encourage you to pay careful attention to this. The sec concept seeking Public Comment on how to harvest the securities exemption. Many key reforms, what are the next steps and timing from the sec to act . The next steps, a proposal around accredited distribution. In upcoming remarks you highlighted one of the issues about the investor definition, a binary definition, and there are a number of people who have the sophisticated ability to assess investments to meet wealth thresholds. And we do a better job identifying them. The private markets have risks that are significant. Senator brown . Wells fargos management recommended voting against shareholder proposals asking the company to separate the role of chairman and ceo of Corporate Governance best practice. The amendments you proposed resubmit sensible proposals like this would have cut off wells fargo investors after four years of doing that even though in subsequent years and received support from 37 of shareholders and we know separating the chairman and ceo is a sensible proposal because after wells fargo found itself mired in scandal and abusing its employees it decided to separate the positions and took a victory lap. How do you justify a proposal that could limit shareholders from continuing to push for sensible governance reforms . The question you are asking is after a shareholder proposal has been put on proxy and kept all shareholders to vote on and garnered, less than majority support, how long does it stay on proxy . The thresholds to get more than 10 of the vote they keep it on proxy indefinitely and that will his not been changed since late 50s or early 60s at a Time Communications and shareholder engagement were very different. Our proposal looks at increasing those thresholds. We back tested them. If you were able to garner more than one in four shareholders in favor of your proposal the proposal would be able to stay on the proxy. You say that that sounds good but commissioner jackson study data from 20042018. We found proposed rules would have exceeded 35 of proposals for independent board chair, 50 of Board Diversity proposals and 50 political disclosure proposals. These are all areas where corporations need to do better. I hope you will consider that as you think this through. Let me talk about whistleblowers. You tried to clarify your proposal to amend the Whistleblower Program and said you would not create a cap on awards. Can you admit the final will be consistent with statutory requirements and not create a . Absolutely. Any characterization of the proposal as the cap is completely misguided, completely misreads our vote. The statutory mandate is for the commission to decide between 10 and 30 , not how much whistleblower should be entitled to. I can tell you that what our proposal was intended to do was to make clear how we make those decisions practically at the top end and bottom end, i believe in how the decisions are made, transparency. I believe Congress Gave the commission discretion to make those decisions. Im not speaking for the rest of the american position, i think the program has been extremely beneficial to investors and i support. I believe you support it but i have also seen the proposal you made has had a Chilling Effect which is in the numbers change. When character mischaracterize think they have a telling effect. I have to step in and clarify which is what i did. You are arguing the Chilling Effect is on because you clarified it. You cited the 5000 number, the whistleblower tip number which is slightly down from last year after a long upturn but people identifying issues for us, we had another 17,000 of those and we try to target investigations within the first week they are received. Anybody sees a problem, let us know. Let me close with a comment from senator grassley. He wrote a letter to the commission. And establishing was a lower Award Program congress was not concerned about the reward figure being too big. Congress was more concerned about whistleblower rewards being too let me do one more. Senator cotton. Mister clayton. I want to talk about the collapse of we work. The company laid off 2400 workers, 20 of its workforce almost entirely do to frauds and crimes. Bloomberg reported in september that the sec was investigating, and security violations. We do not comment on whether we are investigating or not. I thought that might be your answer so let me put it a different way. Hypothetically speaking, if a Real Estate Company was going public and the ceos wife and nephew had been given positions, head of wellness which sound like phony made up drugs to me might that be something that the Secs Enforcement Division would look into . Hypothetically speaking . Im going to take a step back and say transactions between the principles of companies, family members and other interests are something where transparency is essential. If the ceo sat on the Compensation Committee allowing him to determine his own salary is that something the sec might look into . We are very interested in the types of issues you are identified, should be transparent to investors. If the ceo had trademark a common word like we and then sold it to his company for might be concerned to sec . Those transactions are required to be disclosed. The ceo of the company had credibly been accused of transporting Illegal Drugs and a private jet across International Boundaries, millions of dollars of his companys money and lavish parties with famous djs and tequila, would that be responsible governance . Let me say this. Our Disclosure Requirements around the background and character and activities of directors and officers of other Companies Require disclosure that enable people to make those types of judgments. Let me say this about sec attorneys. I commend you for your work in initial public offerings. They follow perspectives 9 months. Your lawyers found many discrepancies like they claimed they could assume a 100 occupancy rate of all their buildings and contribution margin, whatever that means so it is good, fortunate they caught it last minute but for so many workers are injured. All those things are things that adam newman did as a matter of record or credibly accused him, one of transporting Illegal Drugs across International Boundaries is under investigation by the department of justice and i hope the Enforcement Division is investigating adam newman because despite all that he is a billionaire, he received 1. 7 billion payday to walk away from the smoking rubble of his Company Already called it not a company, a state of consciousness. He was able to extract the payout because the Corporate Governance structure gave him 10 votes per share. A supervoting stock that enabled him to hold his company hostage until the other investors paid him just to go away and stop destroying its value and even on a 4year consulting contract, 85 million in case they need tips on djs or other kinds of tequila. 1 billion is a lot of money for eczema any executive but certainly someone who presided over the ruin of his company. Leadership requires character and accountability and that is corporate leadership. That was absent in this case with adam newman and what he did to the workers of his company, aided and abetted by some of wall streets biggest law firms. A lot of us often lament polls that show younger americans have doubts about capitalism and are open to socialism, for good reason given the brutality and poverty socialism inflict on people but people like adam newman and what he did is the reason people in america are open to socialism. Senator reid. Im tempted to ask you to respond to senator cottons question. Several of my colleagues have indicated you proposed two major rules, one related to shareholder proposals but these are rather complicated rules and i presume you will receive significant letters of comment set out to be clearly analyzed and rather than expedition i urge careful deliberation. Senator browns comments reflect the pitfalls in adopting these rules and also, looking at investors who conducted the study, since 2016 the median number of days the sec rule has been promulgated and adopted is 416 days, more than a year and those are for rather in oculus rules. What i would ask is you commit to be very deliberate, very careful in analyzing what is coming in and do that in a way very careful in review of these rules the consequences are significant. Can we get that commitment . Yes. You mention i have on my calendar for tomorrow we are open to engagement on this, people of all types. Let me turn to the issue of status of legal, institutional, cultural, earlier this year the sec assesses a penalty to a major accounting firm, altering work as related to stolen information about inspections of the firm, that is why audit professionals by sharing and manipulating test results. A principle of the firm, it was convicted of wire fraud and other crimes. These proceedings suggest there may be problems in the accounting industry. On top of that, Financial Times last month did a lengthy article about the behavior in these firms which you are probably aware of in which whistleblowers came forward with experiences of harassment, bullying and discrimination. It was a toxic article and very unflattering to all the industry. Do you see these issues as significant . And second, i hope you do, what specific acts do you anticipate taking this year with respect to the issues . Yes, senator reid. I consider high quality Financial Reporting people can rely on is the bedrock of our Capital Market system and on equality people can count on quality, is essential to that. With our office of chief accountant we are engaged on a regular basis with these firms on efforts to approve quality and through the pca ob. You mention the Financial Times article. It is not just a domestic issue but an international issue. We have asked our chief accountant to take on an additional role as head of the monitoring group, trying to ensure highquality Audit Standards across the globe, us investors should understand the quality is not uniform and in fact i dont believe it is as highquality in many places across the United States. The only thing is to try to lift it and we are trying to do that. We are engaged in a number of fronts. Thank you, mister chairman. Senator kennedy. Thank you, mister chairman. Good morning, mister chairman. I want to talk about the Public Company accounting oversight award. The acronym is pca ob. What does the board do . There are really three functions, standard setting inspection and enforcement. They review the audits of Public Companies. Is that right . And broker dealers. And fair and honest. We have 156 companies from our friends in china on us exchanges, big market, 1. 2 trillion. How many of those are owned by the Chinese Government . Trying to come up with the precise number to that question would be a fools errand but i will say i am certain the Chinese Government has Significant Interest in many of those. The state owned companies are under president xi jinping are more prominent than privately owned companies. How many of those Chinese Companies are complying with how many of the audits of those Chinese Companies are working with the pca ob to review their audits . The ecb of the request workpapers and with respect to those Companies Access to those workpapers has generally not been available. And american exchanges, they have Companies Audit their companies. And we will not review the audits be because the Companies Say no, right . That is correct and it is a problem. We are trying to remedy that directly because remedying that directly has not taken too long. Sitting down the head lapse of audit firms. To ask what they are doing to ensure and give us comfort the audit work they are doing is of the same quality as the audit work in other jurisdictions. Does that help . I dont know yet. But that is not a one time dialogue. I wanted to make sure they understand how important that is so engaging at the level of my office. We want to encourage companies all over the world including but not limited to china to raise the United States because our markets are very efficient. But there is a reason god made the sec, to make sure these companies, these Smart Companies use Auditing Companies that tell American People and other investors, the Chinese Companies dont seem to be cooperating and it doesnt seem to be Getting Better so a lot of investors including but not limited to american investors are flying blind and we have had trouble in the past with Auditing Companies that dont do a proper audit. Ive got a bill, it basically says a company has three years to cooperate with our pca ob and after three years if they dont allow us to review and answer our questions they are d and listed. Do you think that would be effective . There is one issue and i will look at it. Just because a company is delisted doesnt mean us investors will not continue to invest. Let me put it another way. It will get attention of foreign companies. It will and will get attention of investors and those are valuable and not all of them but many of them will be born again and start complying. Am i correct . I hope so. Thank you, mister chairman. Senator menendez. Im increasingly concerned about the ability of foreign actors to manipulate us companies through their investments particularly the media and Technology Sectors. In 2017 the us China Economic and Security Review Commission highlighted this issue when it recommended that congress modify sec regulations to require Greater Transparency regarding Chinese Government ownership of Media Outlets as a clear labeling of media content sponsored by the Chinese Government and i offered a risk review modernization act to make sure they are requiring foreign state owned companies to disclose their attempt to purchase us companies but the sec also has a role to play. Section 13 d of the Securities Exchange act of 1934 requires investors who become Beneficial Owners of 5 of any sures Equity Securities to report certain identifying information to the sec. If undisclosed or disclosed without sufficient information such ownership stakes could undermine the free flow of information to the American People. My question is how does the sec monitor equity markets to ensure Foreign Investors are not accumulating significant shares of Public Companies especially in the media and Technology Sectors without filing requisite disclosures . Senator menendez, your question is a really good one. The only ones i ever ask here. Im just kidding. Occasionally got to have fun. Control over a Public Company is something markets and investors need to know about, the 13 dg rules the trigger 5 , not just for an individual holder but concerted efforts by others i think are extremely important to investors, we tried to monitor and look for violations of those rules but i want you to know, im not going to get into much detail, our ability to track us citizens in surrounding companies, it is very robust. When investments occur through overseas accounts it is not as robust. That is what im concerned about is i appreciate your acknowledgment of that. Is it fair to say you dont have the ability to independently verify the information in the 13 d filing or whether a foreign entity should file the 13 d filing but failed to comply with the law . I will not go so far as to say we dont have the ability. I am looking for ways to enhance our ability. Let me ask about that. Given the need for the American Public to know if media is funded by Foreign Investors would you agree that the sec should monitor how wrongdoing is concentrated by sector . Im not sure i follow. Looking at where you find wrongdoing would it be of value to know which sectors those violations are taking place . People, Enforcement Division, they are very good at noticing sector specific when you do find a suspected 13 d violation how does the sec enforcement what penalties are assessed against those who have broken the law . I can think of some episodic ones but to give a general answer i can get back to you on that. We have seen violations of different contexts, different from others. Let me give you an example. I am aware of public filings of a large Radio Station network that ultimately found that Foreign Ownership because of litigation found that Foreign Ownership exceeded the, they brought that to the attention of the sec under their due diligence, then there should have been a 13 d filing by this entity but there was not and so the question is in circumstances like that you have a foreign entity, a group of creditors abroad who are moaning in excess of percentage permitted under the cc who didnt make a 13 d filing which is the only way a company could know whether they have a Foreign Ownership existing in publicly traded stocks so the question is what happens to that entity . If we were to have heat at the end of the day, 13 d and to protect ourselves against Foreign Ownership that exceeds the applicable entity under the law we need to have some teeth in the 13 the process and i hope as chair you will look at that because if it comes to the essence of information we are making decisions on based on Public Information of our media but when it is controlled by a foreign entity you have to wonder if it is just an investment or an attempt to make influence. Understood. Senator tillis. Thank you for being here. You and your team are doing a great job. We had a discussion a couple times over proxy advisor rules. I know you have all put out amendments, i think on november 5th and i appreciate you are taking it seriously moving forward and potential amendments. Particularly interested in making sure the propose rules give impact to companies and opportunity to consult with proxy advisors to potential errors or conflict of interest. As you are looking forward how do you think the proposed rule actually can help to ensure proxy firms plan Important Role in the marketplace but also adding in issues you and i talked about with conflict of interest . Let me be clear on this. Service firms like this plan Important Role. Data is very efficient to crunch the data on a collective basis and provide that information. They can provide other services. What the proposals are looking at is three things. One is to make sure any fraud rules apply. Materially misleading statements, something we should address. Conflict disclosure if you have conflict to the extent that they are material through the investor, we should disclose them. The last one is a more tricky one. To the accuracy and completeness of investors from all areas to make a decision. I think all of those could be accomplished in our framework. We do it in many other areas assuring we have transparency around conflicts, with significant influence in our marketplace, trying to improve accuracy. We welcome comments. Are you looking beyond the rules . Are you looking at other areas of rulemaking Going Forward . Automatic voting and automatic priorities . Beyond that, any specifics, the plumbing, trying to improve the plumbing which is fairly archaic in the proxy area and universal proxy, there has been enough debate that we can move forward with the proposal. Just one other thing. I have heard concerns over litigation and how they increase in this space. Do you have anything in the sec . Happy to hear from people who have a concern about an increase in litigation. To be clear, the proposal makes it clear that there is no new right of action created by the proposal. Another area i want to touch, some of our members and folks on the commission have expressed concern about buybacks and potentially placing limits, it is a business trying to figure out the best way to deploy its capital. Would any kind of restrictions what would the consequences be to mom and pop shops or i should say mom and pop investors over time if we limit that optimization or deployment capital. What negative impact could it have on the average investor . Difficult to say without any degree of precision and i agree with the premise of your question which is Capital Allocation decisions but to invest in a new line, whether to pay a dividend or buyback stock, those are board of directors decisions understanding the idiosyncrasies of the company and what they believe the best longterm interest of the company. To put a point on it i am not qualified to make that decision for them. I agree, thank you. Not that you wouldnt be in the boardroom but in your current capacity i dont think it is an inappropriate rolling your current capacity. Thank you very much. Senator smith. Thank you and hello, nice to see you again, mister clayton. I would like to followup on the line of questioning senator brown and senator reid started around shareholder proposals. Last month as the sec voted on party lines to adopt these two rules that i think will make it harder for investors to seek votes on shareholder proposals, i am concerned about this. I want to talk about something specific to this. In your statement you cited several comment letters and something to the effect of how these letters struck you because they came from main Street Investors including an army veteran, marine veteran, Public Servant and mom, this is all great except it turns out there is question about the validity. And they found out the retired teacher said she never wrote the letter and military vets, the brother and cousin of the chairman of this virginia Advocacy Group that was paid for by corporate supporters of the sec initiative, bloomberg went on to say one of the retirees that he didnt write other bearing his name in the Public Servant cited, a lot of Public Affairs program without knowing what it was about. Given that you cited these letters didnt have an effect on your thinking about whether this was a good idea . A couple of things. We have an investigation done on this issue. I believe the specifics of that. I am very interested in hearing directly from individual investors, in particular directly. Not by groups. One of the reasons we have conducted a large number of townhalls in connection with standards of conduct that rulemaking is when you interact rightly with investors you get a lot of good information. I would agree with that. During this comment. I encourage individual investors to share their thoughts with us and they will have an opportunity to speak directly to me. Your investigating sham letters from the public to try to understand what happened and how they got included . I am not but we were in contact but very shortly after the bloomberg article came out we contacted our general counsel. Do you think it should be illegal to submit comments under a false identity has happened here . Im not going to get into that. The comment process is an open process. I will just leave it at that. If youre basing decisions on what to do in public interactions that end of fueled by corporate Advocacy Groups that is a problem. We have that comment period. Let me ask another question. I serve on the agriculture committee. In august the Commodities Futures Trading Commission agreed to settle allegations that the food giant crafted manipulated the wheat market and the Settlement Agreement was unique because it included no factual findings or conclusions of law and prevented the commission for making any public statements about the and what agencies are doing when they are settling cases. My question to you is are you how common is this practice . Is it happening at all that you are aware of at the sec . You are asking a very open ended question. I am not aware of any situation of the type you described. I want to make sure i carve out any kind of National Security or intelligence area from what i am saying not that it is appropriate in these circumstances but as far as ordinary commercial actors. Im not aware of any. That is of concern of me as well. Senator more and. Thank you for joining us. I will start by commending you for your leadership and appreciate the agenda you helped accelerate. I appreciate the openness of your comments in response to questions and conversations we had in office as members of this committee. I want to raise a concern about what i believe is occurring, increased use of enforcement industries often referred to as regulation by enforcement. At least one commission recently asserted when the Commission Sees a widespread problem affecting investors it should, quote, issue with some guidance or promulgate a rule and put a end to the problem before it is a problem to investors under the belief that it is better for investors, it is better for investors than large Enforcement Initiative and provides regulated industries with appropriate notice of what the sec expects from them. Do you agree with that or have a comment as to what was conveyed . Your question highlights one of the challenges of regulating abroad market. If you see widespread conduct that is clearly problematic there is no reason to provide guidance, just go out and deal with it. You see widespread conduct, a new area, people reasonably could conclude reasonably could conclude one way or the other. My view is guidance is the best way to do that. Life is complicated. A lot of things fall somewhere in between. One of the things we talked about is the share initiative. Where we were was much closer if not all the way at the end of the spectrum. People have different views but i appreciate that spectrum and i appreciate our Enforcement Division and Inspections Division understand that. Part of my job is to make sure they understand that and make the appropriate selection. In that regard you have said before that staff statements and guidance dont create enforceable legal obligations, yet i think we all can see the sec point to risk alert and enforcement proceedings brought against other industry as justification for appropriate notes. I will use the february 2018 Disclosure Initiative regarding disclosures for conflict of interests from certain fee arrangements as an example. Sec staff pointed to a 2016 risk alert as evidence the industry was given sufficient notice about what the sec expects from regulated firms and disclosures such as use of main versus will. However i understand the initiative has penalized firms for activity dating back to 2014 and beyond. In other words previous to the notice youre claiming occurred. There is something here i should be worried about . I dont think there is something here in particular you should be worried about but i think the principles you articulate are something we should be concerned about. We should not be in the business of gotcha but we need to be in the business of making sure we enforce and if the commission feel some way about it we the commission should articulate, we shouldnt be relying on staff guidance if there is to be a change in the law that should come from the commission or change in the regulation. I fully support the Initiative Objectives to provide protections for Retail Investors. That is not the issue. I dont know exactly what do process means but the notice has been something good. It included in due process in order to, one, i would hope you have the ability to regulate, if they knew what the position of the sec was they would comply voluntarily. That is a positive in and of itself and secondly something in which their seemingly was no notice, denies them the ability to voluntarily comply, eliminating the opportunity for them to have due process. Chairman, thank you. Senator cortez masto. Thank you for appearing today, appreciate it. I want to talk about my concern and what can be done and what you are doing to prohibit requests or prohibit requests from clients. I want to give you an example. I sent a letter along with my colleagues to limit the ability of brokerdealers and other Financial Advisors to inherit money from their clients. I know as former attorney general, there are fines associated with that. I understand some family members there could be exceptions for certain relationships but most importantly concerns about the fraud associated with it. My question to you is twofold. Do you think regulation should prohibit Financial Advisors to receive requests from clients and what are you doing to address that issue . On the specific question, on the contours of it i am not going to comment but on the area of our elderly, many of whom are in a position of diminished capacity or not have support we are very concerned about that. Let me just say that the fact pattern you posit of a trusted advisor receiving it is something that strikes me as very difficult to understand how that could happen and it worries me. What specifically are doing, and many investors are getting older. And implementing the senior say fact allows brokerdealers to hold off on distribute in funds a think something inappropriate is going on but im happy to engage with you further on this issue. I would appreciate that because it is an issue that needs to be addressed and i look forward to seeing what you are doing to address the issue. My vx ten is its going to get passed to the sec for you to take a look at. My question is just what you ensure rule 4111 is clear that unscrupulous Financial Professionals cannot continue to operate . And then secondly, when will the sec approved or would you anticipate taking a look at that rule and approving at or having a comment with respect to 4111 . Let me say, generally, argue is its approach to work in our securities markets. Its a privilege you can lose and should lose if you misbehave. I want to be careful not to prejudge because i havent seen text of the rule but i have long been supported of the concepts that are in that rule, including, if youre going to hire somebody who has a history, the registration and other requirements that further impose should reflect your taking more risk than someone who doesnt. Thank you. Let me also, i appreciate the concern around Digital Currency. This is an area along with the chairman paying very close attention to. I know your comment come you said it here, we should not go around. Absolutely agree. Im hopeful as we move forward that youre putting resources to addressing and taking a look at this and what can be done. But also at the same time coming back to congress and talking to us about what we can do working with you to really be prepared for the future of Digital Currency. Because it is coming. I think we need to be prepared for it so thank you. But i do have one final question with respect to the enforcement. I was glad to see the spc had taken action against crypto currency firms that fail to comply with requirements for raising funds from investors. However according to a recent article, the wall street journal, three of the companies missed the deadline to repay people about their tokens. What is the sec doing about crypto currency companies that fail to comply with the sec settlements . One. And then to have enough resources within the Enforcement Division to address this issue . Okay. Let me try and summarize what can happen with settlements. We try to structure settlements and trying to structure settlements in a way to try to get the most money back to investors over time. Sometimes that means allowing payments over time, the invoice to continue and try to get the money back. And sometimes they just fail because they were not Good Companies to start with. I think that paradigm applies to the situations that you identified or at least some of them. In terms of resources, i think we can do our job. When i first took this job i didnt know what i would do with significant Additional Resources. Now i feel better. To the extent we can have Additional Resources, particularly in some of these emerging areas, put them to good use but we can do our job. Thats the way i feel about. Chairman, thank you. Senator cramer. Thank you, chairman crapo, thank you, chairman clayton for being with us and for your candidate i want to drill down a little bit on the certified audit trail, the cat issue which is of course by design to collect a lot of personal sensitive financial information. In fact, information on every retail brokerage client in our country as i understand which showed a two by mike cancellations over 100 million clients. In that in and of itself, that much of data, and information that one places, has its challenges. But in addition to that the sros with some 3000 people, 24 organization will have the ability not only to access it but bulk it down into their systems. I didnt used to be paranoid but i have come to a point where the ability for institutions to secure that much data, especially this broad application of it concerns me. I do love for you to help me feel more comfortable with what the sec is doing to protect against attacks and cyber challenges with that kind of a risk. The cat is a good example. I think how should look at a lot of large data projects. I agree with your concern, and the question is, the fundamental question is, not what data would we like to have, but what data do we need to do the job . We are going through a process with the sros and others, i think we can significantly limit, i said to speaking for myself, phonebook information from individuals, should enable us to do our job and have the cat function in a way it was envisioned to function. So that reduces the risk because the data is an as sensitive and then of course the other side of the coin is what type of Security Protection to put in place and how do you ensure that the Security Protections can evolve as the threats evolve . Thats kind of a general summit but working on reducing the Sensitive Data and ensuring that folks have insight into and we continue to approve the Security Protections. Just to drill down further then, my understanding is firms are required to sign this cut agreement which in essence shields the sros from liability. And any time we start shielding institutions or individuals from liability, i always ask why, why is it necessary . If the safeguards are in place, only adds to my insecurity, if you will, mr. Chairman. From my point of view this is a highly risky, and i believe a breach will happen but i hope the sec can prevent that obviously. Im aware of the issue of rent application of potential liability and actually meeting tomorrow with representatives of the sro community and probably the buick energy to discuss the issue. Busy day tomorrow. Sounds like it. Senator schatz. Thank you, mr. Chairman. Chairman clayton thank you for being here. I want to ask you about the commissions engagement on the work of the task force for climate related financial disclosure. How are you working with the task force . We are working let me try the our international bodies, theres we are working with all of them on this issue because market disclosure issues of this type our global issues. Theyre not just just domestic issues. I think thats a good way to look at it. And you think that were not quite there yet . Its hard. I think its hard. Are you actively enforcing your 2010 guidance on Climate Disclosure . If what you mean by actively enforcing it is always actively Monitoring Companies to see if they are following it and to the extent they are not theyre addressing that, i think the answer is a clear yes. One way you could were actively enforce it would be to put issuers on notice that this is something that division of Corporate Finance will be examining . Let me say, we examine for this. We examine filing. Thank you. People listen more carefully if you think we examine for this. Typically we examine for this. And have been examined for it and i would encourage people to look at the comment letters that will eventually become available publicly. I divide this problem into a number of categories. First is politics, mostly in terms of your commission, mostly through that part of the problem but there are a couple of other problems. One is we have to develop instruments and processes that work across platforms and across the planet so that when youre doing disclosures you are comparing apples to apples. But the other part of this is whether or not you as an agency are leading versus sort of waiting for gcfd and others and seeing how things play out. So in the kind of, in the ecosystem thats working on this come would you consider the sec a leader or a follower or a participant . Where do you put yourself in this . Definitely a participant. And i would say a leader to that decision useful lens including try to articulate ways that we can use the information that is being generated to further what i would say is monitoring oversight. Other bunch of bollettieri disclosure regimes, carbon disclosure project, and some organizations that come under your jurisdiction are making voluntary disclosures under tcfd and others and they make a separate sort of lesson from disclosure as relates to climate risk to you . Do you consider it appropriate for the commission to then look at those voluntary disclosures and incorporate risk analysis . Back to your to reexamine for this, not just in this area but in many areas we look at a Companies Public disclosure, the required statutory disclosure in their annual report and compared to what theyre saying other places and often Ask Companies please make sure you reconcile this for us to the extent they dont look consistent and tell us why there are any inconsistencies. That is something we do. You think you can these in terms of being decision useful a number of ways look at that but one problem is you just got different ways to disclose climate related risk. Do you think the sec can lead or assist in developing more consistent comparable through disclosure for climate risk . Let me say this. I think we have a great deal of expertise in assisting registrants in disclosing risks in a way that investors can use it were trying to bring the to bring all areas including this. Thank you. Senator rounds. Thank you, mr. Chairman. Mr. Chairman, good morning. I want to follow up on the issue of the consolidated audit trail. It seems to me you suggested there will be modifications or least we could expect modifications based upon the amount of data that might be collected im concerned because clearly there is high probability that there would be breaches come just as an example having an employee takehome a notepad with data on it. Any type of a process in which employees can gain access and simply use it, if nothing else. These all seem to be ways in which data could be lost. We are talking about the consolidation of data from a lot of different entities into one location, which seems to be making for a prime opportunity for nefarious activities. My question is, number one, when we talk about the limitation of liability as senator cramer has suggested, it bears when someone still has that and the question then is, do you believe the rules as they are currently being laid out or the guidelines as were seeing them where there are limitations for some, are these fair the waiter set up to limit the liability . Are you going to go so far to maybe review process of limitations that are currently being put in place today . The short answer is yes. Do you want the longer answer . Yes, i do. The longer answer is your premise is right and what you allocate responsibility, to gently try to allocate it to the people who can best address the risk or are responsible for it. Thats something thats in my mind as as a look at these thi. I think, i want to bring attention can i do think this is a serious issue and it doesnt mean you need to consult it an audit trail but if youre going to go that route then its got to be something in which data has to be kept in some kind of secured entity. If you cant do that and im not sure that you can come perhaps we should look at a more limited amount of data and us how to me like youre looking at that but then along that line making certain that where the possibility of risk is at, the blame does not leave that location so that is a responsible and authority which are combined for the protection of that risk. Understood. I want to go back a little bit. I listened with interest at a want to just give you an opportunity should i say to perhaps clarify the suggestion that libra might be ridiculous, and i want to go into this with the following. I know this but a number of folks of one wasnt libra which i think was an attempt to do something different, if we simply walk away from that thing is simply say that is ridiculous or the product is ridiculous which is the way i heard it, i think we pick winners and losers. Let me jump in. Im not asking judgment on any, if my comments any product is ridiculous or not, i can tell you what, i dont know. What i do know is there is a great deal of how do i say friction in the marketplace that digitization can reduce. We need to make sure that to the extent that happens were still being true to our statutory missions across the federal financial regulatory community, and our Investor Protection efficient markets at the banking i i dont want to speak for them but safety and soundness, et cetera. Cant lose sight of those things because of the new technology but we also cant rely on Old Technology to ensure that we do those things. You look at definitions that come from a 90yearold law. I guess let me just maybe to the chase on it. Do you delineate, do you see a difference between, do you see it as a separation between the currency and perhaps a Digital Currency . Do you see, this is being the separating issue where you literally have Digital Currency today in some respects backed by a sovereign verse a crypt of which may not be back that way . Is that what you you have an obligation i guess in this case as a regulator so you may be looking at both. Let me say this. I think theres a lot, theres a lot going on. Its complicated. We all have a great deal of digitization and a Financial System. I do believe there is a difference between a sovereign backed medium of exchange and a private medium of exchange. I agree with you and i think i just want to make sure you have the tools necessary to look at both if thats your charge. I want to say to you and this committee, ive heard you and i appreciate that to the extent we need something we should be engaged with you and and i thau for the. Thank you. Thank you, mr. Chairman. Thank you, sir. Standard of an old. Thank you, mr. Chairman. Welcome, mr. Chairman. A couple thinks first of all one associate myself with senator kennedys remarks about our legislation required that Chinese Companies listed on our exchanges meet the same requirements you recorded requy what else. Seems to be common sense. Second, a number of occasions when we had hearings ivories with you, the issue of a strong correlation between the timing of insider shares selling and stock buybacks, since we last discussed that commissioner jackson and others have prevented, presented even more evidence that the timing is not a coincidence, that executives may be manipulating the timing, that that is at the expense of their shareholders and im disappointed that you and the commission have not move forward more rapidly to investigate this. Im disappointed instead you are focused on strengthening the hand of already very strong ceos and corporations at the expense of their shareholders in many cases. With the proxy adviser regulation you proposed. And this seems to be an answer in search of the problem theres some issues we all know what you discover sort of the plumbing under to get. I agree with the concept of interest provisions. But what youre doing is saying that if i go out and hire somebody independent proxy adviser to make recommendations to me about how i should vote with my shares, that that proxy adviser, that has to go to the company and the ceos and get them essentially to comment on them and to get have a number of reviews. I really dont need a nanny to advise me. F i dont want to a proxy adviser, i dont have to. But what troubled even more was you did try to present this as sort of a concern of main Street Investors. When you roll this out you attempted to create the impression that this is something a lot of main Street Investors to that. I can tell you, i sit on this committee. I serve in the house, i been on a suit. Ive had main Street Investors have come up to me and say this is the concern of theirs. There are those who look forward to it but you got duped when you roll out that statement. Senator smith asked you about that, but the reality is in addition to the fake letters that she mentioned, people who, a teacher who decided who are barely says now she didnt write the letter, you are a number of letters you cited ever clearly orchestrated by a group called 60 plus. For those of us who been around your come we know what 60 plus is. Its its a dark money funded group that corporations use for messaging. They dont have to disclose their donors. It sounds great. And make a it sound like theye taking care seniors but we have found that some of their donors include corporations like chevron and exxon, and so it turns out a number of the literature cited were from relatives of the head of 60 plus. Are you aware of that out . I have now heard this. I was not familiar with the group of 60 plus. Were you aware that the retired couple you cited are the mother and father lot of head of the 60 plus association . Are you aware of that and. Was only because you just told me. Are you where they told a reporter had no connections themselves the letter . No. Are you where the military veterans that you cited are the brother and cousin of the chairman of the 60 plus association. Mr. Chairman, look at the company had done this, we could go after them for deceptive practices for misleading statements. I know you didnt intend to do that but she became the vehicle for that. And you became the vehicle for that as you try to roll out this provision with the patina that it was looking out for main Street Investors. Wasnt that your intent . Regardless of this colloquy, i still believe were looking out for main Street Investors. It doesnt appear to me to do that. But this is the top priority. This doesnt make it had but it does mean you should be cautious before you say its the top of page to investors. This this is the top priority oa lot of corporate ceos who dont want to be secondguessed by proxy advisors. Isnt that true . So look, lets see what we agree on. Disclosure speeders i said in my remarks, thats fine, number one. Theres two and three were you require everybody speedy we will get to three. Disclosure complex, take commensurate responsibility for what you are saying. The antifraud rules should apply, okay . The last one, i will tell you i am, im open for discussion on all of them. The last one how we ensure better accuracy, im very open if people think that what we are proposing is too onerous, but we can get to improved accuracy and another way. Im open. As you know theres ongoing lawsuit right now from this issue because the basis for your rulemaking is that, the proxy solicitation, that these proxy its the same as proxy solicitation. Thats how i understand is theres a threetwo vote. There are different levels. Theres an ongoing lawsuit and that goes to the heart of the question of your authority. So my question is are you willing to delay the rulemaking process pending the outcome of this lawsuit . Im not going to commit to that today. What if you go through this process and the lawsuit says was still authority to do it . Unfortunately, that is a risk that we run. The advice weve got is we should be very comfortable with where we are. Suggest in closing, mr. Chairman, my biggest concern right now is the way you try to present this when you roll it out. You did get duped. I am not backing away from the fact that we want to do whats in the best interest of thats a great goal but, mr. Chairman, the letters you cite were orchestrated by a Dark Money Group that is funded i many of the corporations that stand to benefit from your proposal. They are advocating for that. They are using this group to funnel their money through and you became their mouthpiece. So i do think its important for you to retract those statements, to let the public know that you were duped. Im not, you didnt intentionally deceive anybody, but the letters that you used to make the case that this was for main Street Investors were, in fact, orchestrated by a group that is funded by some of the very big corporations that are pushing hard for the role. Thats a deceit on the public, not from you but you became the vehicle for that. And i hope you will make it very clear that you find that outrageous to the people who hope that youre going to do this. These are people who were pushing hard for this to happen, and you became the vehicle for their fraudulent attempt to make it sound like this was all about main Street Investors. Thank you, mr. Chairman. Thank you. Senator brown would like to ask another question. First a comment on, thank senator bennet challah for his comments and his back and forth with the children. We hear always in this committee senator van hollen the momandpop investors and all the trump nominees want to take it of the little guy in the momandpop investors, and i think senator van hollen investigation and commerce chill oftentimes the momandpop investors have some front to not be conspiratorial in this town and in these days, but its pretty clear thats been whats happening for years in so many of these Dark Money Groups. Let me take us to slightly different place and ask one question. Early in my Opening Statement i mentioned, i asked for inclusion of a letter from the retirement system and appreciate the chairman grassley did that. They wait in leicester at tacc roundtable and proxy voting issues they raise concerns that changes to the rules would make proxy advisor advice more expensive, less independent, less timely and could only hurt public pension participants. The proposal you issued last month we do all of those things under the pretense of improving conflict disclosure eliminate errors but the rule would go far beyond that by giving companies to bytes to the apple to review proxy research before it gets to investors that are paying for. How do those sweeping changes institutions didnt ask for could compromise the research they are paying for . How does it benefit investors . Senator, i do think robust conflict disclosure when it is material, does benefit investors the they should know what incentives people have went to making statements. I do believe if youre making statements and an attempt to influence or solicit votes, general antifraud prints will shoot up like on the last one, how to increase accuracy, i guess i did snort van hollen i remain open to ways to deal with that but lets just be clear lower trying to achieve. Trying to achieve that the investor has a robust mix of information on which to make an investment decision. If that comes from proxy Advisory Firm in combination with the company, so much the better. Thank you for that. It looks to a lot of us that we again took the power too far in favor of companies and management needs to be more accountable, not less than shareholders need more tools, not fewer, and the direction you seem to be going is not that. Lets also be clear. We are not, say on pay, of engagement mechanisms, what i want to achieve here is that people are making the investment decision, the voting decision, has as good a mix and his academics of information as they can have. Thats what i want to achieve. Thank you. That concludes the question at a given want to thank you, chairman clayton for being here today and also for your strong leadership at the sec. I appreciate it. For senators who which to submit questions for the record recore questions are dont tuesday december 17. I encourage you, chairman, to please respond is probably as you can to them. This is our last hearing for this congress, unless we schedule another one. And without a lot of good hearings. I believe we should come on what to thank all our senators for make that happen and also our witnesses and those who have come before us. And it has laid the foundation of voice expect to be a significant amount of productive effort. With that, the ceiling is adjourned. Thank you. This hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] even president George Washington in his less glorious second term went along with Alexander Hamilton idea of crushing an internal rebellion called whiskey rebellion in western pennsylvania, at the head of an army that was as large if not larger than what washington commanded during the revolution. What is uncovered in this book and documented and a very carefully fact checked weight is much bigger than any one network star, network executive, any one network it is about patterns of coverups in corporate america, the way which people get hurt if problems are swept under the rug with payouts and nondisclosure agreements instead of addressed. Watch the special airing a booktv this holiday week and every weekend on cspan2. Next, a look at how Online Platforms like google and facebook use consumer data to target advertising. Witnesses discussed competition, Consumer Privacy and data portability. The hearing was held by house ug sure subcommittee and is about two hours. [inaudible conversations] the subcommittee will come to order proud objections just authorized in the recesses at any time. Welcome everyone to the t