Transcripts For CSPAN SEC Nominee Jay Clayton Defends Prior Work As Lawyer For Goldman Sachs 20170327

We will hear testimony on the nomination of jay clayton be secretary of the Exchange Commission. Extensive command experience as a securities lawyer. For decades he has helped Companies Access cap bull the ability tose invest in the United States and grow and create jobs. One area he is already indicated he will focus is cap formation. Drive innovation and job creation and access is the lifeblood of our economy. The jobs act helped revitalize markets published in the fec should find ways to help companies go public and allow their investors to share in their success. Recently this committee marks of several bipartisan securities bill and we encourage you, if confirmed, to identify other security areas which could help legislative improvements. The sec has an important threepart mission. Protect investors, maintain efficient markets, and facilitate Capital Formation. Each part of the mission is equally important and should not come at the expense of the other. I raise this because the sec mission is critical to every u. S. Citizen and retiree. Investors should be able to participate in markets unfair fighting so that they can pay for the events such as college and save for retirement. We have help investors make sure to makee material informed decisions. I repeatedly stressed the need for the u. S. Financial system at its market to remain the preferred destination for investors. Throughout the world. The sec has an Important Role to that end i look forward to hearing more from you and how we can help companies grow. Americans get hired and investors share in the creation by these companies. Stock market rules and regulations are still important. Given that most of them commented in a time when technology was much less advanced. It is imperative that these rules serve the needs of companies and investors. Retrospective reviews of its own anna so ensure they are acceptable. This is in line with the president executive orders on the Economic Growth and regulatory paperwork brockton act which statutorily mandated review and evaluation of to identify which are outdated, unnecessary, or unduly burdensome. While technically the sec is not subject to a group of, your predecessor indicated before this committee that she was very much committed to reviewing the rules and that fashion. Thais one that many would like us to select and we continue. Additionally it is formed for the sec you have robust echo thefit analysis importance of costbenefit analysis and an executive order. Forward to hearing from you today on these issues as well as with you hope to prioritize you read the sec. Congratulations on your nomination and think you and your family for your willingness to serve. I appreciate your Public Service. All of us know some of the demand that was on your beautiful family and thank you for your willingness to stand up and be here. , as nominee hearings we discussed a number of points that are still relevant today. Even if technology has changed how the markets work. How do we improve Investor Protection . How do we strengthen the rules reliable statements . How do we better enforce violations of raw law . President trump understood the American People are tired of the continual use of misbehavior on wall street with minimal accountability. To ar ago candidate from site of a standard for the little guy speech by teddy radarelt and the home of whom of my staff told me nobody age of 50 will not what im talking about. Promised the people to whom he said he knew wall street, the people of wall street, and will not let wall street get away from murder. The audience at that speech wod be surprised to learn that the president has picked Goldman Sachs alumni to run the National Economic council, to occupy the top two jobs at the treasury and has told just turns to outside counsel to run the fec. Knew,ndidates Americans College bills are government on a home, they are more skeptical and less trusting of the markets. Whether it is another flash crash, the billiondollar ponzi scheme, a trillion Dollar Financial crisis, people worry about testing the market with their hardearned savings. Thats what you wanted to. At a time when we are actually debating whether Retirement Advisors should put our clients interest first, think about. We debate here whether Retirement Advisors should put their client interests first. It is hard n to see why people feel that way. Before neri fears were not enough, in recent years we have witnessed a significant financial risk of hacking and cybercrime as well as cyber change Climate Change. The insistence for removing protections against fraud and abuse grows louder and more these, collective amnesia swept across his body. Recse we do not spend the two hours discussing issues that you agree are important only to see those issues ignored if youre confirmed. You spend your career protecting some of the biggest names on wall street. Those relationships pose a host conflicts for this position. Your record representing banks and bankers and hedge funds and executives speak for itself. Already wellare represented among the president s friends, supporters, advisors, and far too many in all three branches of government. Automakers in morning, ohio, steelworkers and canton, ohio area private equity or a hedge funds to control their company, hastily ship jobs overseas. Benefits of grown smaller over the best smaller of the is because management care more about pleasing wall street and having their profits and bottom lines and is doing right by working people. Executive thank you going up and up and up. Workers nearing retirement have had their pension and health care . As one of the disclosure of corporate political spending some of the anticorruption efforts runs National Resources and Mining Industries, i could ofon and on and on and on the special interest influence in his body and administration. Thats why ill those rules are so important. A lot of ground cover, i do not get to all my questions here at it like college will do the same. I know my colleagues will do the same. Thank you again for your willingness to serve. Will now rise and take your right hand . Do you swear or affirm that the testimony youre about to give it the truth, the whole truth, and nothing but the truth so help you god . Thank you. Do you agree to appear and testify before any duly constituted committee of the senate . Thank you, take your seats. A written statement will we make in made a part in entirety and i give you my congratulations on your nomination. Before you begin your statement to the committee you may, if you choose, it is the members of our family. I see you at the beautiful family with you. I will do that. Father, walter clayton, my mother, catherine clayton. My wife, gretchen. My doctor, haley, jasper. My son wyatt. My youngest brother andrew and his wife rachelle. Were fortunate to have such a beautiful family and have them here with you. Mr. Placing you may perceive. Clayton i am honored to appear before you today as President Trumps nominee to chair the Securities Exchange commission. I want to thank you and your staff for the time youve spent with me. I have enjoyed and learned from our meetings. Our Capital Markets have farreaching and profound effects for every ameran. Making sure our markets are fair, open, orderly, and efficient and ensuring that thestors are protected is fundamental responsibility of the fec. I will take of this responsibility with energy and purpose. I pledge to work with my fellow commissioners, the fec staff, this committee, and many others who support and defend our Capital Markets. The importance of Government Service was instilled with me for a young age. Born, my after i was father shipped out to vietnam as a Second Lieutenant and my mother and i moved to her childhood home in pennsylvania. We lived with her parents and her for younger brothers. Grandfather, the eighth and last child of coal miners, a smalltown lower lawyer in Public Servant took a strong interest in me. We were great friends for 20 years. Remarkably for as far back as i can remember he took me to township meetings, real estate closings, and estate sales. These experiences, much more main street fan of wall street, made even lasting impression on me. When i enter the ninth grade we moved as a family for the last time to delaware county, pennsylvania area. I met new friends through sports. One of those friends was my best friend, my wife gretchen. We met 36 years ago and have been married for 25 years. I want to think russian for her encouragement, love, and support for herhen encouragement, love, and support. Plusg the course of my 20 year career as a transactional lawyer, it has been my privilege to work with leaders in the public and private sector. Including landmark transactions such as the Worlds Largest ipo as well is important transactions during the dark days of the financial crisis. My five years living and working in europe, whei worked on matters involving the laws and markets, no fewer than a dozen countries including france and turkey and switzerland, germany. Areworlds Capital Markets interconnected and more broadly that america is the greatest country. My work included counseling and Small Businesses and individuals. During my college and postgraduate years my mother and father operated a small warehousing and logistics business. I worked with them on various projects including lease negotiations, inventory systems design, and establishing a 401 k plan for employees. There were ups and downs and i learned firsthand the many challenges that small and mediumsized businesses face as well as their importance to our economy. Based on of experiences, nationally and internationally, on wall street and main street, i firmly believe that well functioning Capital Markets are important to every american. All americans should have the opportunity to participate in and benefit from the Capital Markets on a fair basis. Accurateing provided information about what they are buying when they invest. Is zero room for bad actors in the Capital Markets. Im 100 committed to rooting out any fraud and shave actresses in our Financial System. Undermining the harder confidence that is essential to the markets. Peoplee to the american that i will showed no favoritism to anyone. Last comment, for over 70 years, the u. S. Capital markets will be be in the of the world. Our markets have allowed our businesses to grow and create jobs. Markets have provided a broad crosssection of america with the opportunity to invest in that growth. Including through Pension Funds and retirement assets. In recent years, our markets have faced growing competition from abroad. U. S. Listing by nonus companies have slowed dramatically. Significantly, public Capital Markets are less attractive to business than in the past. As result of these development, Investment Opportunities for main Street Investors are more limited. Here i see meaningful room for improvements. With you, myo work fellow commissioners, in the fec pursue those improvements and in doing so i will always be vigilant to ensure the commission is that fast and protecting investors. Opportunity, this i look forward to receiving your advice and answering your questions. Four your statement and before i begin up like to remind the members of the committee that we will be working on a five minutes timeframe for each segment and i encourage members to honor that so all of our colleagues in have an opportunity to get the questioning in. You make it a question at the end of five minutes. If that happens i will allow you to be brief in your answers. First, you are highly regarded attorney. Receiving recognition for expertise in the security field. Some have raised concerns that your success and your former clients will create conflicts you quicklyld provide your thoughts on this issue . I have been fortunate to have a diverse experience as a transactional lawyer and a securities lawyer dealing with a number of participants in Capital Markets. Nationally and internationally. Offerings, mergers, acquisitions, regulatory matters, etc. As for as the extent of my practice and whether the recusal that would be required, the complex will impair my ability to act as chair of the Securities Exchange commission, i do not believe that they will do so. Ive discussed this at length with the fec commissions office and the office of ethics. This is not a new issue. There is a protocol in place for dealing with those matters. Most of poorly i believe that if i am recused, my fellow commissioner says that he will be able to handle matters ably and to a good effect. It seems surprising to me that a persons success in a field which we we are hoping to lead an agency can be a criticism. I appreciate your to admit to assure that complex will not in your Opening Statement, you discuss the initial topic offerings and the need to keep Capital Markets robust serving his interest and just for the economy. Can you notice the particular thoughts on how the fec can aid in this process custome process . I very much look forward to discussing this with my fellow commissioners and the fec staff using the onramp for the Public Market process. The companyn easing face. I mean making it less costly upfront to become a Public Company. It hasnt had it has had an effect on the markets. When i go to meetings were a company is considering whether to go public or not one of the first questions that is asked is is this an emerging Growth Company . If that has made it easier for companies to become registered Public Companies. The equity markets have seen a lot of change including products listed as one of the Technology Behind it and the investors participating in it. Your predecessor as well as the acting chairman as stated there is a need to review the current equity Market Structure. Such a review should be disciplined and conducted in a datadriven manner. What are your thoughts on continuing the review of Market Structure and what steps that the fec sec need to do . Apparent that technology continues to change our markets. That is something that will continue unabated. Technology responds. I believe that we need to engage in a constant assessment. As far as the specifics of the Market Structure, analysis that the commission has going on right now, i do believe that they should continue. Some of the questioning from you and your staff, become more familiar with that. I do believe we should continue examining Market Structure coming forward. I just want to let you know that as a conclusion of my five minutes. This is a very important issue to us and we look forward to receiving input from the sec analysis and deliberations. Thank you mr. Chairman. Given the administrations unprecedented business and in commercial entitlements and demonstrated lack of interest in transparency, we must focus on the potential conflicts of interest this creates for people like you administration nominees. The case of the sec, this is not hypothetical. In 2002 President Trumps casino beforeomeday sec this case settled he sent a letter to the Tire Commission asking for leniency. Following the settlement he sent a thank you note to the chair for personally talking to him and being fair. I want to some of those documents for the record. My question is this. With administration billionaires, any of whom we havent heard in the hearings have had multiple conflicts of , theest and ethical lapses business inersonal the Administration Official businesses. As i said my Opening Statement i will repeat and i will repeat. If im lucky enough to be confirmed im committed to showing no favoritism to anyone in this position. What members of the trumpet ministration or team did you can medicate with prior to be selected by the president . Members of the Current Administration or Transition Team i was asked by the Transition Team how i got introduced to this process. Onas asked for my thoughts the Capital Markets and things that could be done to improve Capital Formation. That was several members of the Transition Team to do that. I do not think that i would be sitting here today when i met with them. Going intolity of me Public Service was raised. I met with members of the Transition Team who screened , i met with mr. Primus and mr. Bennett bannon and was later nominated. Would you submit to the committee the names of people that you can reconstruct and look at your notes that he went with in the first round you met with in the first round . Has anyone you spoke with have businesses regulated by the sec . I do not but i would expect they do. Would you expect submit that to us . Yes. The present stated that he planned to do a big number on. Frank. Gary cohen, former president of Goldman Sachs as now the national declared we will attack all aspects of dodd frank. What aspects will you be attacking . Have any specific plans for an attack. Frankelieve that dodd and inbe looked at particular rules that have been put in place as to whether they are achieving their objectives effectively. I have no specific plans for attacking any to or provision of dodd frank. With,anyone you have met anyone from the transition or administration you have talked to, made suggestions . Questioning the efficacy and fairness of dodd frank and suggesting it to you that it needs reform or change . Or repeal . Of the general matter question of whether dodd frank has been ineffective is a question that is on the minds of people in the amiss ration based on a interaction with them. Have i had specific discussions with them about a particular aspect of it . No. My interaction with the Administration Since i was nominated has been quite limited. Do you see your job to help the administration as they said they want to deregulate wall street or do you see your job following the law and writing the rules mandated by congress . I see my mission as very much the Tripartite Mission of the sec. Investor protection, Capital Formation, efficient markets. Thank you. Senator shelby. Welcome. I believe that the nominee before us today represents what we once valued. An individual who rises from a modest means to the pinnacle of his profession and then answers the call of Public Service. A good indeed that i can assure you will not go unpunished. Instead of applying such achievements some will seek to minimize your compliments and impunity your motivation or ability to serve. I wish it were not true. Following the crash of the u. S. Housing market crash in 2007 the near collapse of the worldwide collapse system. We had an opportunity to soak study the crisis and develop a rational legislative response. Regrettably that did not happen. , you act as an advocate and negotiator. Represent theou clients best interests consistent with their own obligations and yours. I believe attorneys should never be judged by the parties that they represent but rather by the quality of the representation that they provide. In this particular nominee i believe we are fortunate enough to have one of our nations best legal practitioners. He understands corporate structure, Capital Markets, Capital Formation. As well as the statutory and regulatory requirements to offer in those districts. The mission, as i understand it for many years on the committee, 31 years. The mission of the u. S. Securities commission is to protect investors, maintain fair and orderly markets, and facilitate Capital Formation that is absolutely necessary to sustain Economic Growth in this country. I believe your background, education, experience make you toticularly wellqualified be chairman of the Securities Exchange commission. To supporting your nomination. Having said that i have one question. I have long advocated the need for comprehensive costbenefit analysis. If the benefits of a rule or regulation cannot be shown it to outlay other way its cost i believe its not the right fourth. Would you share your views if thefelt about this about role of costbenefit analysis in the rulemaking saying, wow, that had profound effects that we didnt realize, saying, wow, that had profound effects that we didnt realize, and some of them turn out to be more costly than we would have imagined. I think rig or owsley examening the far reaches costs is an important aspect of the commissions work. Thank you. Senator. Thank you, and welcome to you and your beautiful family. You know you will have to sitting through a whole lot of boreing questions so we apologize for that. The position that your father and husband and son have been nominated for is incredibly important to the functioning capitalism we have in this country. I think it is critically important that we understand exactly how you intend to administer and participate in hat job. I want to just make a couple quick points that relate to some projects ive been involved in and working on. That is how the sec relates to Small Business. The vast majority of north dakota business is Small Business. Many of our startups find challenges getting startup capital and we want to make sure a bill senator heller and myself were able to get passed last time would require the commission to appoint at least 10 individuals across the country to serve on a new Small Business Capital Formation advisory committee. I want your commitment you will make this one of your Top Priorities if youre confirmed. Say yes. I appreciate the assistance. Capital for Small Business is very important. Okay. I want to make sure that when youre making these appointments and looking at this, that you find people with rural experience, and by rural, i dont mean a community of a half a million people, thats not rural. I want you to take a look out as we look at Rural Economic Development bringing in broadband we will have more and more opportunities. We are also working on another bill with senator heller, supporting american innovators act which would raise the number of investors who could participate from the 100 to 250. We received unanimous approval out of this committee a couple weeks ago or last week. I just want your commitment youll work with us to implement that if were able to get it across the threshold here. Im very happy to work with you on anything in the area of Small Business and recognize your comment about rural being really rural, not quasi rural. Finally, i think i only have time for just one more issue i want to raise. I think that we can all agree that one of the great frustrations that the American People had after the collapse of 2008 is no one went to jail. No one seemed to be criminally responsible for what seemed like a criminal act. Most people would say, if i did that, id be in jail. If i did that, id be investigated criminally. I think we need to have a clear understanding, as you have said, theres zero room for bad actor actors. I think we continue to see difficulties in prosecuteing folks in the white collar area. I want to ask one simple question but its not simple but its really important. Do you believe xecutives who act recklessly but not knowingly as a result cause financial significant harm to our Financial System should be held criminally liable for financial crimes . Senator, let me say this. Thats kind of a question for the courts and for the legislate legislature legislature. We can legislate. Im wondering whats your position for changeing the mens rhea standard for executives who in fact act recklessly even though we might not be able to prove they act knowingly. If that is where the law is, i will vigorously enforce the law. You do understand the sec in the past as weighed in on this and that has done a number of speeches and discussions about how do you intersect a criminal deterrent. Interject a criminal deterrent. Those of us who have been prosecutors understand the best deterrence in America White collar crime. Way too often you can hide behind the knowing. Its hard to prove someone actually knew. It isnt hard to prove someone actually should have known or acted recklessly moving forward. I think we could apply that criminal standard. Wed like you guys to be thought leaders on this. I am happy to engage on that topic with my fellow commissioner commissioners. I also want to tell you, i agree with you. I think individual prosecution, particularly in the white collar area has a significant effect on behavior. The difficulty we have is achieveing the level of criminal intent. I think there is a way we can rectify that by lowering the standard but still having the deterrent. Thank you, mr. Chairman. Thank you. Senator corker. Thank you, sir. Mr. Clayton, nu for your desire to serve in the public and i appreciate the meeting we had in our office and welcome to your family. Since i come from a smaller unit, your tribe with you today. We welcome them. Glad theyre participateing. We talked a little bit about Public Companies and the fact that there arent near as Many Companies going public today as used to be the case. Im wondering if you would expand on that and share why you believe that is the way it is today. Thank you. And i will im kind of a im more of a picture person than a written person, so if i use my hands, i hope thats okay. If the life cycle of a company is kind of gets started, people have a good idea, committed to it, picks up and grows and kind of goes like this and this is the growth phase of a Public Company, where youre getting capital, adding employees, doing things and over time, get up here andin success, my experience is 20 years ago, companies at about this stage would view our u. S. Public Capital Markets, becoming a Public Company, listing on the Stock Exchange as an attractive way to raise capital to grow. For a variety of reasons, including very robust private Capital Markets but also the costs of going public, the choice to go public here is a very hard one. Many companies do not do this anymore. We see it with im hesitant to use examples but its one everybody knows. Uber is a very growing company that is still a private company all through this phase. And then up here, you know, they may be coming a Public Company, oftentimes not to raise capital, the company is already mature. My view of the world is that id like to see more Companies Going public here, so more people have a chance to participate in that growth as investors. And theyre not doing it, again, to just crystalize that, theyre not doing it because theyre ot doing it for a variety of reasons including its too costly at this stage to become a Public Company. I think there are i agree theres numbers of reasons having served on some Public Company boards, i cant imagine desireing to go public as a first choice. But i know thats changed dramatically over time, especially over the last decade or so. Let me ask you this question. The sec unfortunately has functioned in a very partisan way. It seems like everything ends up being voted on down party lines. It wasnt that way many many years ago. As chairman, im sure you dont want to operate that way. Can ou observe why it has been that way and tell me what you plan to do as chairman to try to get things hat way and tell me what you decided along the basis of whats good for the country, whats good for the sec, whats good for all of us who youre protecting instead of just sort of ideology . I i dont want to speculate about why decided along the basis of its been that way. Ive seen it i agree with you that we want you to speculate, though. Okay. Kay. You know, people have undamental disagreements, my job has been my job for 20 years has been to reach consensus. People dont do transactions unless they agree to do transaction transactions. I believe in consensus. I would very much like, as chair, to have unanimous votes on important matters. What is it that has caused it to be the way it is right now. You know, youre going into it, youve what is it seriously thats caused to it function along party lines . You know what, senator, i will speculate. I think its not just at the commission, theres been, you know, partisanship is pretty strong right now in washington. Im new to washington, but i very much get that sense. But i do believe, having talked to a lot of people, that the mission of the commission doesnt have to be a partisan mission. What happens when it functions that way, is we have a lack of consistency, right . Every time theres a swing andin the balance of power the sec and the direction it takes swings and therefore probably keeps people, even more people from wanting to go public. Im glad youve observed that. I hope that you will change that when you become chairman. I want to close with this, mr. Chairman. Theres been some criticism of the type of people that mr. Clayton has represented. I used to build Shopping Centers around the country and feel like i know the business pretty well and think if this body decided there was going to be some Shopping Center regulatory body, i think id be really good because i know the business. I know youve represented large numbers of clients and my guess is some of them were, and you watched seriously, watched some of your clients do some really jerky things and watched some of them do really great things. My sense is someone like you who has represented the broad array of people that youve represented really knows the good actors from the bad actors more so than people who come from the outside. I know we had folks last time that were academics. I have nothing against academic academics, my sense is you bring a lot of real life experience. Im glad youre willing to do this and i look forward to your service. Thank you very much. Hank you. Senator van holland. In reference to repeal or dramatically scale back doddfrank, i think its important audio difficulty difficulties financial meltdown and a lot of bad practices that went on that help helped precipitate that and left a lot of people around this country in foreclosure and holding the bag. As you know, last year, Goldman Sachs agreed to a 5 billion settlement in a lawsuit that a arose out of what happened during the financial meltdown. The acting associate attorney general of the Justice Department at the time said and i quote, this resolution, referring to the settlement lawsuit that a arose out of agreement holds Goldman Sachs accountable for its serious misconduct falsely assureing investors securities its sold were backed by sound mortgages when it knew they were full of ortgages likely to fail, unquote. This was a very serious breach of trust with respect to goldmans clients. You mentioned at the outset you wanted to put an end to shady ractice practices. Would you agree that what goldman did during that period in falsely assureing investors that securities it sold were backed by sound mortgages when it knew they werent was a shady practice . Senator, i think that i think that settlement speaks for itself. Im not im not familiar with all of the facts of that matter, but i think the settlement speaks for itself. Let me ask you, you represented Goldman Sachs, right . I have, yes. Did you represent Goldman Sachs in any of the transactions s that were the basis of the Justice Department finding of misconduct . My understanding is that was a mortgage a case of selling Mortgage Securities. I can tell you that i did not work on any Mortgage Securities deals for any client that i im very any mortgage security deal for any client prior to the financial crisis, it was not part of my practice. You were not involved in adviseing some investors with respect to the Financial Instruments that were the subject of the settlement . I want to be very clear. After after the financial crisis, i did become familiar with mortgagebacked securities and how they worked. I spent a lot of time trying to understand how they worked and after the crisis, i have advised a number of people on how those securities were designed to function, but prior to the crisis, mortgagebacked securities were not part of my practice. All right. To pick up on what senator high camp said and i heard my republican colleagues say it plenty of times we believe these settlements where nobody was held personally liable did not have the kind of deterrence we want. I hope Going Forward the public will see people not just using the investors moneys to pay offsetlements but be held personally accountable. Let me ask you this, there are disagreements with whats happening in the sec and its role. Do you think a stock holder would have an interest in knowing if the company theyre invested in is spending disagreements with whats 5 Million Dollars to elect Hillary Clinton or donald trump, do you think thats something that would be of interest to a stockholder . After all my understanding is disclosure atreatments to the public, salaryies paid to top managers, potential conflicts of interest between those of the company and others. Do you believe thats something stockholders should have information about . The touchtone for stock holder information is material aterialality. What would a reasonable investor making an investment decision, what should they know. This issue of political spending disclosure has been talked about in this committee and for a while. I think where it stands now, is there are a number of companies who make that disclosure making the judgment that it is material to investors or that it may be and they put it in. Shareholders have access to through the share holder resolution proxy process to require it if they want. The question whether it should be mandated is one that im happy to think about but again my touchtone for these things is materiality. Thank you, mr. Chairman. I would just say i believe theres a Reputational Risk to a company if its disclosed. If people find out through other means they may have spent a whole lot of money supporting one political candidate or another. Thats something that investors should know up front so they can take into account the possibility of that information. So i look forward to continueing that conversation because, as you know, there are a number of things that are mandated by the sec and its my view thats something that would be important to investors. We can follow up on that conversation. Thank you. Thank you. Senator toomey. Thanks very much, mr. Chairman. Mr. Clayton, i just want to say, im delight youre willing to serve. I think youre an outstanding choice based on your background, expertise, knowledge, we had a great conversation in my office. I appreciate it. Im particularly pleased you have experience overseas and ives you a comparative basis to help inform your judgment about our regulations. Im not saying all of that because youre a pennsylvanian but it doesnt hurt. You mentioned earlier, i think we all know for decades the u. S. Capital markets have been the envy of the world, deepest broad broadest most accessible markets anywhere ever, but that our lead is diminishing, no question by any number of metrics, our lead is diminishing. You suggested because its at this point, right, in the growth cycle its become too costly for Many Companies to go public, to become public issuers of securities. I just want to be a little bit drill down a little bit, isnt it really too costly where does the cost come from . The cost is complying with the regulation regulations, isnt that the principle costs . Yes, senator, i believe regulations broadly is the principle cost. Thats whats changed, certainly its changed and we see a corresponding reduction in public issuance, big ipos, i would argue other adoption of new technologyies as well. I really hope that youre going to focus on that and i know you are. I want to make another point. Isnt it also the case that over the last the last certainly number of decades, weve had a dramatic transformation of the ownership of american companies, a dee democrat ice zation, if you will, if you go back 50, 60, 80 years im sure its true that a very small percentage of wealthy americans owned all of our companies. If you look today, our companies, the people who oent stock in our Big Companies are very often very ordinary americans who own it through their pensions, their 401 k plans, their 529 plans, their ira plans who the universities they send their ids to have it in their endo you mtsments and those are huge now, isnt that true . That is true and its changing the you mtsments and those are huge shareholder dynamic. And if a company decides its got excess cash and it doesnt believe it can generate a market return on that cash, isnt it a very reasonable thing for the company to consider returning some of that cash to these ordinary americans who own this company in the form of dividend or stock buy backs . Isnt that a per ferktly reasonable consideration . Senator, it say perfectly reasonable consideration, yes, and i think some of our greatest investors, respected investors say if you cant use the cash wisely give it back. Which is actually good for the ordinary americans who own those stocks. One of my criticism of the se dplrks vent years it has not done a good job on the Capital Formation of its mission. And i think weve passed some good legislation at times, the jobs act being one case. And i think the sec has implemented some of these legislative kwhangz legislative rules that are way too umbersome, a very simple reform that got very complex in the regulations. I look at how Little American companies are using some of these new technologies, new opportunities. I attribute it to the regulations. What i would just ask, would you be willing to work with us to review some of the rules implementing the legislation with an eye towards facilitating the use of these reforms as it was intended by congress . Yes, senator. I am i know i know its difficult to right a regulation and as we talked about, know all of its effects. And sometimes i think it takes too long because you worry about all of those effects. At some point you have to move forward. After you move forward, you have to examine whether you got it right. And thats thats the way i look at these things. Its not im done, out the door, we tried do it as well as we could. Lets look back and see if we got it right. I think thats a very sensible approach i look forward to work being with you on it and i think i finished within my time limit. Did you. Senator cortez masto. Thank you mr. Chair and ranking member. Mr. Clayton good to see you again. Let me say thank you so much for taking the time to visit with me and your candor in our conversation, i so appreciate it. Its wonderful to see your family here with you as well. During our conversation, if you recall, we talked about the fact that im from nevada and at the time of the foreclosure crisis was the attorney general and so took a number of entors meant actions to protect the homeowners in my state. You were very candid during that time and when we met we talked about this. And you specifically dismissed the effectiveness of Enforcement Actions against companies on the grounds that prosecutors unfairly take money from shareholders without holding individuals responsible. And i want to just follow up on those comments and have some questions as well. And in fact, in a speech yuft before he left the department of justice, attorney general holder described current law saying, quote, the buck still stops nowhere. Responsibility remains so diffuse and top executives so insulated that any misconduct could again be considered more a symptom of the institutions culture. And so my question to you is, do we need to change the law to ensure that individuals you want to go after arent insulated from accountability . Okay. Thank you. And just on on my view on Company Accountability and individual accountability, i want to be clear. Companies should be held accountable if they if they make illicit profits, those profits should be disscourged. There should be deter reince at the company level. But shareholders do bear those costs and we have to keep that in mind. I also said to you which i firmly believe that individual accountability drives behavior more than corporate accountability. And n mind. I also said to you as we work all of us work together, that will be in my mind. And so then i appreciate that and that goes back toy think what my colleague senator high camp was getting to when she was talking about mens rea. So let me put it in different terms and talk about strict liability. And, again, it was attorney general holder suggest that Congress Change the law to provide for strict liability for Financial Service executives, in other words, executives should be liable for as we work all of us work misconduct that occurs under their watch wlofrhether or not they had intent of the wrongdoing. Due i degree with that proposal . Its not for me to make the law, its for me to enforce the law. I dont understand the expect contours of that proposal. If that you can say it again . Sure. So as and i think this is what we talked about and this is a new realm and i get it youre stepping into a different role here as forcer. This is an enforcement mechanism that you are going to have authority over and these are decision dollars you are going to have to make. So it just comes down to the issue of trict liability. Can executives or do you believe executives should be held liable for misconduct that occurs under their watch whether or not they had the initial intent to do it or knowledge of wrongdoing . In other words, whether it was just reckless, whether they intentionally did it oreck less disregard, do you agree with this proposal there should be strict liability and they should be held accountable . Strict criminal liability without mens rea, im not you know, im not sure about that. Not something ive really thought about, but striekds mekes me as a big step. Is this something you intend to look into and really i guess my concern is, the enforcement side of this and your lack of ability or familiarity with it. And as you step into this position, thats a key piece of oversight. And im just curious your thoughts on how you continue tend to pursue or familiarize yourself with the enforcement side of the job. Oversight. And im just curious your thoughts on how you continue tend to pursue or familiarize yourself with the enforcement side of the job. Let me try and answer your question as quickly as i can. In all aspects of this job, if confirmed im going to have to rely extensively on the very good people at the sec, both the Division Directors and staff. I have a lot of respect for the people at the sec that ive interacted with including on the enforcement staff, and i do have i do have more familiarity with prosecutors working with prosecutors, and in particular investigations than most tractional lawye transacl lawyers. Thank you, again. I appreciate your willingness to step up for the Public Service. Thank you. Thank you. Senator kennedy. Thank you, mr. Chairman. Mr. Clayton. Let me pivot here. How are you. Im well, thank you. Im over here in the cheap seats. Im in the cheap seats. You went to penn. I did. Undergrad. Undergrad. And law school. And law school. And cam zblij cambridge in england, right. Cam fwlij england. Whatd you study there. Economics. Are these your three clirn . I think i met wyatt. I shook hands when i came in. I was late. Did he look you in the ooh . He did. Im jasper. Okay. Im haley. All right. Why did they did they give you instructions about how to behave and not make faces and stuffed to . You dont have to answer that one. Let me ask you about sullivan and cromwell, its a big place, blue chip clients, one of the premier firms in the world. You dont get to pick your clients, do you . I mean, if youre a lawyer there and a client comes in and says im in trouble and i need help, you dont you dont, like, say well i dont like the color of your suit, go away. Generally not. Yeah. How long you been at sullivan and cromwell . Over 20 years. Would you consider yourself a securities expert . If anyone can be, i think i think so. Im kind of like senator corker since youre going to be running the sec id like to you know something about securities law. I want to ask you about a matter thats important to many states but also louisiana. You familiar with a gentleman by the name of Alan Stanford . Ring a bell, the ponz decide scheme. I am. He at one point was in 2008 was listed on the forbes top 400 or whatever, he had a net worth of 2. 2 billion. Now hes got another number, hes got a prison number its 35017183, he defrauded in a ponzi scheme investors, life savings. The securities Investor Protection corporation, sipc, denied coverage of them. Se sued the sipc, i think a federal judge threw it out. Obviously i was disappointed in that. Heres my question. I wrote it out so id be precise. What do you intend to do to ensure that investors who lose cash and securities in a failed brokerage are victims of a ponzi scheme like this financial scheme the one i just talked about receive fair treatment in the event they have to turn to the sipc for help . Senator, i am familiar with the stand ford matter and people people like Alan Stanford and other fraud sters that we could name need to be dealt with sternly, sa rearly, et cetera. As far as their victims and the sipc, i am familiar with this issue and there is a there is a line where the sipc has denied coverage and in particular in the instances of fraud coverage doesnt extend that far. I am familiar with that being an issue, i look forward to working with you and others on what we do about the victims of people like Alan Stanford. Okay. Thats fair enough. Thats fair enough. Let me just use my last minute to make an observation. I think this is a really important nomination. Im impressioned with your credentials, i think the president s chosen well. I think theres a lot of anger in my state and in this country. I hear from middleclass americans every day that the problem as they see is that weve got too many undeserving people at the top getting bailouts and too many deserving people getting hand outs and the folks in the middle get stuck with the bill and they cant pay it anymore because their Health Insurance has gone up, taxes have gone up, but ill tell you what hasnt gone up is their income. Right. I believe in efficient markets, i believe in supporting Capital Formation, but i also have lived long enough to understand human nature. Some people cheat, they cheat in all walks of life and they cheat in all professions, but when people cheat in securities matters, a lot of people get hurt. I hope youll be mindful of that and i know you will be. Im out of time. Thank you. Its nice to meet your wife. Thank you, senator. Senator donnelly. Thank you, mr. Chairman. Were honored to have you here and to your whole family thank you for being here. I was fortunate we met in my office and i just want to be read you a little bit about an article in the Indianapolis Star recently about a rexnord worker whoez whos losing his job, the jobs are going to mexico. He did his job great, hes presently training whats called team month ter ray, and what teem monterrey is the mexican workers that have come to indiana to learn the skills to take the jobs away. And let me tell you about john felter in who is the individual here. So his 21yearold son austin because he knows dads going to lose his job, his 21yearold son has taken off time from studying criminal justice at ivy check, Indiana Vocational Technical School to manage a pizza shop so that they can raise a few more bucks for the family. His 19yearold daughter emily is still in school in indiana state. Her plans were to become a vet. Its an eightyear track. Shes looked up and said at this point this is not doable. Shes now gone to a fouryear program in nursing, had is still a great thing. But like your dream was to become a lawyer and you had a wonderful granddad who took you around, her dream was to be a vet and thats over now because shes trying to help keep the family together. This is the real world consequence of what happens on wall street and of what you are going to be responsible to try to make sure it doesnt happen. My state in my tone of coka mow at the time there was an economic collapse the went from a thousand people to less than a hundred. Unemployment 20 twon 20 , thats countywide, not one town or this town that was countywide. Thats the real world effect of what happens. Ive got 2,100 workers who have just been fired from carrier to pay for a stock buyback. 16 billion stock buyback and they fired these workers and shipped the jobs to mm because that 3 an hour wage would help them make a few more pennies to pay for the stock buyback. Thats the real world is 2,100 families who have no idea how theyre going to cover their mortgage next month or send their kids to school. So you know, we talked about all those things and i want to know your general insight and advising clients on stock buybacks. And as we talked about in your office, im not familiar with the indiana, but there are. Pennsylvanias just like a cousin to us. Yes, right. Redding, pa, is a place im very familiar with. This is the issue of jobs going overseas and how thats related to the operation of a company, what choices the management makes is a difficulty. I dont like these results anymore than you do. I dont like it at all. Stock buybacks, there are times when stock buybacks make sense. That is clear. Company has excess cash, they dont know what do with it, they dont have a good place to put it, they should return it to their shareholders. Thats as far as whether thats always the case and whether theyre using the money in a way that we would like to see them use the money, i agree with you, there are a range of outcomes and there are a range of consequences and there are a lot that as a citizen i dont like. As far as the sec goes, im happy to talk about that. And i wish i had an hour with you, i really do. We had some good time before. But this was clearly not a case of excess cash. This was firing workers to pick up the difference in their wage from going to mexico so they could give it to the wall street hedge fund spec slatetors. Thats what this was. And what happened in 08 and 09 was Credit Rating agencies that abandoned ship and sold their reputation for a few extra bucks, ridiculous, instain colatter rised debt obligation that it was all allowed to go on. And if it was stopped, those 5,000 people at the chrysler transmission plant wouldnt have lost their jobs. And so youre the sheriff. Besides being a great dad you now have the opportunity to be a sheriff and we are very, very hopeful you can fill that role. Thank you. And as i my families counting on you to do that. As i said to you, i very much believe that if growth looks like this in america, thats a lot better than growth in america looking like this because this is is really bad for everyday americans. And what you do will help to determine that. Yes. Thank you. Thank you. Senator heller. Mr. Chairman thank you and thanks for holding the hearing. Good to see you. I welcome your family also its good to see everybody here and by the way congratulations on the nomination and this process. Thank you. I worked in the securities industry for a few years, got my securities license. I worked on a civic Stock Exchange, became an institutional broker, worked in the third market, but subsequently a few years later i became secretary of state in nefd and ended up regulating the securities industry for our state and had realworking relationships with the industry and saw some real bad players. I think senator kennedy talked about a few of them and my colleague from indiana talked about a few of them. And its usually its usually the states that really dig up some of these issues and some of the problems, even if its a Major Trading firm like Merrill Lynch and back when i was secretary of state. I guess my question for you is your commitment to working with these states, working not all securities regulators are in a particular office. I think theres only half a dozen or so in secretary of States Office but they are every state does have regulators. And theres kind of been a back and forth, i just want to get your feel for working with these states on some of these issues and helping regulate their industries. I i am very interested in working with the state securities commissions and the many others who who have jurisdiction over the securities markets, including, you know, state law enforcement, the department of justice, you know, the sec. To your point, it is also my experience that the bad actors, theyve been bad for a long time and until their caught. And, you know, early on detection would be much better than later. And where that comes from, if it comes from the states or it comes from selfregulatory organizations, it comes from state law enforcement, im all for it. The word that comes to mind suspect restitution. Earlier you get there, first of all, the less damage, but the larger the chance of restoring these individuals that have been defrauded. Do you have any views on that . Yes. Yes, i yes, i do. It has been it is very disappointing when you have these types of individuals that the people who bear the brunt of it are ordinary investors if you have an Alan Stanford like we talked about or bernard may doff. I do think some of the reforms weve seen around tracing will help prevent that so that is my view. And we should be looking to a point made earlier, we should be looking with technology at better and more efficient ways to monitor those individual Financial Advisors and brokers. In my office when we were chatting back in january i talked about a new regulation called industry guide seven, that was proposed regulations that would effect Mining Industry in the state of nefd. Im appreciative of chairman crepe poe and snaer senator tes so he also working with me on this particular issue. All were trying to can is align the exposure requirements with Global Standards so that our domestic mines have economic competitiveness and were afraid that were going to lose that. What all im asking from you is if i could get your commitment that youll work with this committee, that youll work with my office as we take a look at some of these new regulations, make the necessary changes that i think are needed to keep our Mining Industries across this country competitive. Yes, senator, i do look forward to working with this committee and the staff on disclosure and the disclosure has followed where the market is. The Mining Industry makes sense, i think the staff just put out for comment another industry guide that hadnt been updated in some time. So i understand the point and look forward to working with you. Mr. Clayton, thank you. My times run out. Thank you for being here. Thank you, senator. Senator warren. Thank you mr. Chairman. Its good to see you again mr. Clayton. A big part of the job of chairman of sec is enforcement. You said in your testimony today that you intend to enforce the law strictly and i very much agree with that goal. But im concerned that you wont be able to achieve it. It is clear that the sec will play a Critical Role until deciding the sec chair will play a Critical Role in deciding what the enforcement position of the sec will be. And in recent history they have favored weaker enforcement while democrat commissioners have sought tougher enforcement. The chair is often the deciding vote, and of course if the chair cant vote and the remaining sec commissioners split along party lines, then major Enforcement Actions dont go forward and serious wrongdoing may go unpunished. So its important to think about how often the sec could be caught in such a deadlock. Under the president s executive order for ethics, the first two years of your tenure as sec chairman, youd have to recuse yourself fromming in a particip any matter involve a former client of yours. Thats about half of your term as chair. So based on your personal client disclosures for half of your tenure as sec chair, you would not be able to vote 10 to force the law against several big banks including Goldman Sachs, deutsche bank, barclays and ubs, is that right. Yes, senator, the way thank you. Those banks have repeatedly violated securities laws in the past few years, but if they violate securities laws again, in your first two years as sec chairman, you cant vote to punish them and i think thats a problem. But, its just the tip of the iceberg. Your recuse als would not be limited tuft to injury own former clients. It also requires to you recuse yourself for two years frommy manner in which your former law firm, sullivan and cromwell, represents a party. Now, sullivan and cromwell is a leading new York Law Firm with a very long list of wall street clients. So for half of your term as sec chair, you would not be able to vote to punish any corporation or bank that uses sullivan and cromwell as their lawyer, is that right . I i believe thats a fair summary, senator. Thank you. More potential cases with a deadlock and no enforcement and thats a problem. And even beyond sullivan and cromwells already long list of wall street clients, any reasonably Strategic Company that wanted to try to avoid an sec enforcement action could simply hire sullivan and cromwell to represent them before the agency and then you couldnt vote for enforcement against that company, is that right mr. Clayton . Im not sure about that, senator. Well, you do know the rule that if if they are represented by sullivan and cromwell in front fortunate of the agency, then youre going to be banned from being able to vote against them. Theyre represented by sullivan and cromwell i will not be able to part but that does not mean. Thats my point. So more cases that you could not participate in, meaning more cases potentially here with a deadlock and no enforcement. I think thats another problem. So its important to think about how often as we go through this if President Trump wanted to make sure that the sec would have a hard time in going after his wall street friends, it seems to me you would be the perfect sec chair. You cant vote to punish some of the biggest names on wall street, that means those cases would be at least more likely to end up in deadlock, which means those companies could skate free. And i just want to point out, this not a theoretical problem. Recusals were a very big issue for the outgoing sec chair Mary Jo White. Like you she came from a major wall street law firm and in her short time heading up the sec she had to recuse herself in at least 48 Enforcement Matters because of conflicts involving her former clients, her former law firm, and her husbands clients and law firm. At least 48 cases in which she couldnt vote to punish a big company because the other commissioners were often split on Enforcement Matters, chair whites recusals led the commission to deadlock time and time again. Which meant the corporations that may have broken the law were able to get off easier. Your recusal problems seem to be even more severe than chair whites. With you as sec chair, it looks like wall street can breathe a little easier knowing that you wont be voting against them. And theres likely to be weaker enforcement. So heres my question. Can you explain why, out of all the people who could have been selected to head the sec, you are the right person for this job . Thank you. And i want to i want to say that the question the question of whether im recused from a matter doesnt mean that there will be deadlock. I do i do believe that the current mr. Clayton, i dont understand that. If theres not a majority to go forward on an enforcement action, if the other commissioners split 22, that say deadlock. And if youre recused that leaves four commissioners, two democrats, two republicans, republicans have consistently gone for weaker enforcement, democrats for stronger enforcement. You come here today saying im going to stronger enforcement. Youre not going to stronger enforcement if you cant vote. Im not sure about that characterization, but i do know that the characterization of a deadlock . No, the characterization of who goes for more erne e enforcement. Take a look at the data on that. Okay. But what i would like to say is that i i believe that on Enforcement Matters, on Enforcement Matters, the commission is almost always unanimous on Enforcement Matters. I think you want to check your numbers on that, mr. Clayton. Okay. And you want to check what has just happened. We have experience on this. You know, im going to yield because i recognize the chair has been very endull ghent letting me go over. But i want to underline the point that holding wall street firms accountable ask a major job of the secs mission and the sec chair needs to be able to participate in those Enforcement Actions to be the cop on the beat for the American People, not on the sidelines when former clients and wall street firms are able to skate free. And i think that raise a very serious concern about your nomination to be senator rounds. Thank you. Thank you, mr. Chairman. Sir, id like to just begin by id like to just kind of follow up on the questioning here just a little bit. I thought some of the questions that were being asked required a little bit longer answer than just a yes or a no. Id like to give anne opportunity to, perhaps, elaborate a little bit. With regard to the issue of a split vote, a split vote in the case of an enforcement action could possibly come as the result as to whether or not there should be an enforcement action in the first place. Would that be a fair statement . Yes. And in that particular case, then, it would be a matter of making a determination yes or no and in this country most cases we dont decide on a split vote whether theyre guilty or not and then make the assumption that theyre simply guilty because theres a split vote involved in it, fair enough . I think thats fair. How much time do you think as the chairman of the securities and Exchange Commission do you think you would spend in terms of breaking ties on the determination of right or wrong on the part of a company on the part of a company whosz being brought before it . Compares to the rest of the job . I would not expect that it would be any meaningful amount of time, senator. What if there were parts of the and recognizing that were all limited by the amount of time that we have to share, if there were parts of the previous questions that were asked to you that you didnt feel like you had the opportunity because of the time constraints, would you like to share a little bit of information to perhaps clarify or expand on your answers . Thank you. As i said in my Opening Statement, i have zero tolerance for bad actors. Im not only saying that here, i will say it to the enforcement staff at the sec. I will say it to my fellow commissioners. I do believe, as ive said before, that individual accountability is extremely important not only to get rid of bad actors but it sets a tone for the industry. Much of the enforcement activity of the commission, as i understand it, is driven by the Enforcement Division and the oversight of the Enforcement Division. I have every confidence that that will continue and that any recusal stlaz do will not impact that. Are you a republican . No, im an independent, sir. Seems to me that the suggestion was that republicans are lack are lacks on enforcement. As an wind i independent, would you see republicans as being lacks on enforcement . No, that was that was i do not see it that way. I think sometimes people of different parties may have different enforcement priorities, but i would not say that republicans are lack on enforcement. Would you see your role in terms of being the an independent and being a nominated for this particular position, to be an arbiter, perhaps, in terms of finding Common Ground with regards to issues of enforcement and with the layout of penalties that are appropriate for organizations that are found to be in violation of the law or the rules . Yes, senator. And if i wanted to say what i thought my if i had to pick a single strength that i believe i would bring to this position in that regard, it does go back to what i what i said at the beginning in that being a transactional lawyer, build a consensus is what youre is what your job is. People have different views. They want to get to a place thats happy for everyone, and thats very much what my job has been and i want to continue to do that if im confirmed. Thank you. Anything else you womaned to add to that at all . No. I thank you for the time. Thank you mr. Chairman. Thank you. Senator ma nin des. Mr. Clayton congratulations on your nomination. Since you and i met in february theres been quite a bit of activity at the skrks ec. Of particular concern to me as acting chair are efforts to scale back the authority of the commissions Enforcement Division. He unilaterally reopened the common period on a congregsally mandated rule making disclosure of ceo to worker pay ratio so i want to focus first on the enforcement and then turn to the other matter. In 2009 former sec chair shapiro gave enforcement staff subpoena power. Before this only the commission had the power. This empowered senior enforcement attorneys to quickly escalate informal inquiries to formal investigations ultimately strengthening the commissions ability to investigate corporate misconduct. When we met and discussed enforcement issues, you said that bad actors have cost this country billions, and i couldnt agree more with you. In my view the sec function dollars best with a strong Enforcement Division that stays ahead of the markets. Unfortunately, acting chair has taken steps to curb the Enforcement Authority by revoke the subpoena authority from 20 enforcement officials and limiting it only to the Enforcement Division director. Thats a major reversal from post crisis policy designed to assist the commission in going after bad actors that ravaged investors and our economy at large. So i want to get some quick answers to these questions. In your opinion, do you think that the secs enforcement staff has abused its authority since the delegation of subpoena authority in 2009 . Senator i have no i have no idea whether they have abused their subpoena authority. Well youre a practitioner before them. Do you have a sense they have abused their authority for the last eight years . Senator, in my experience, which as far as, you know, on the defense side is very limited so take it with that. I have not seen an abuse of subpoena authority by the sec. Were you consult the at all on these policy changes as the potential new chair . No, i was not. Do you agree with this policy change . I dont know. I will i will have to discuss this with both commissioners and with the enforcement staff let me ask you this. Taking away subpoena power from senior enforcement attorneys better protect investors and deter misconduct . I dont know the answer to that question. Really. No, because the ab just the proposition that taking away subpoena powers from those line entities that are engaged in investigating misconduct and limiting it to only one person and then having to go through a whole process, it seems to me that were going to largely deter and delay investigations. I think i think those are good questions. Well, theyre questions, im looking for good answers. I know. My good questions dont mean much if i dont get good answers. I would hope to hear from you that what was happening before in terms of spreading the authority was the Better Process of making sure that we build on the successes of empowerment. At the end of the day we need an sec and kay chair whos going to be a cop at the beat because what we had at one time was they were asleep at the switch and that gave us the successes that all americans had to pay for. I had another concern about acting chairs ooun unilateral decision to open a new public common period on the rule requiring Public Companies to disclose the ratio of their total cea compensation to medium worker pay, a rule adopted built Commission Nearly 18 months ago, a year and a half ago. In addition to obstructing the implementation of a congregsally mandated rule, one that i offered in dodd frank and diverting staff resource dollars and time seemingly only ton justify the personal ideological views of one person, this action actively ignores the tens of thousands of comments from investors and Investment Managers expressing the view that this information is material and important to be shareholders evaluation of compensation. In fact yesterday a coalition of 100 investors and investor organizations representing 3 trillion in assets under management wrote to the acting chair expressing support for the ceo to work pay ratio rule and urge the sec to maintain the current Effective Date for disclosure. So my question is, do you agree with the acting chairs unilateral decision to open a new public common period on the rule and, if so, why . Senator, i the acting chair is the acting chair, thats a decision for him to make. Yeah, but youre going to be if confirmed the new chair. I want to know do you think would you do that . Would have you done that . I do not know enough about the thats not acceptable. What do you mean you dont know . You dont know about ceo pay work raises this say major issue thats been debaited out there for some time. It has been debated for some time. Its a congregsally made for some time. So youll be the next chair if confirmed to ultimately undo that seems to me to tell me you dont know, you dont know is not acceptable. Thats not what im saying. Im saying that i dont know what motivated chairman im asking you what you would do. If you were the chair stligt would you have done that. I cant answer that question because i dont have the benefit of the interaction with the staff that the chair had and the history with the rule that he had. The history with the rule its already been done for 18 months. Im sorry, mr. Clayton but those answers arent acceptable. Thank you, mr. Chairman. Thank you. Far tillis. Thank you, mr. Chair. Mr. Clayton thank you for being here. I sometimes go on to these committees and it reminds me of a far side comic the caption read the floggings will continue until morale improves. So i think you for your patiencence. I want to ask you a question that the primary mig for the is pain maining and to facilitate Capital Formation. Do you have any sense over how well the secs done over the last eight years or the last 20 years . You pick your time horizon. Senator, i think on the on the let me foc counsel the question of Capital Formation, if you dont mind. I do believe that over the last 20 years, particularly in the area of our public Capital Markets, we could have done better. Could have done better. That spans a couple of administrations. What were the highs and lows just briefly because i want to keep my time and ive got a couple other questions i want to ask. In particular, i believe, for mediumsize companies, companies that are in their growth phase, it has been polar we have made it more difficult and less relatively attractive for them to be Public Companies. I think that almost what do we have to do to get on a positive trajectory . You know what . We have to reduce the burdens of becoming a Public Company so that its more attractive. That was going to be another question i ask you. Why do you think it is we have i was trying to get the number in front of me so that im accurate. But just comparing hold on one second. Theres onethird fewer Public Companies today than 20 years ago. Is that healthy or unhealthy . I i believe that that statistic should be telling us something, and i think whats it telling us . I think its telling us that our public Capital Markets are less attractive and our public Capital Markets, i believe, are a much they are they are much more effective for the main street investor than other forms of investing. Is it fair to say that if we dont come up with a way to with proper regulatory oversight, i worked in the banking industry, i was a partner at price water house cooper so i work with a number of different Financial Institutions bang of america probably being the one i spent the most time with, but is it fair to say that if we dont come up with a way to improve Capital Formation that were hurting the little guy . Because Capital Formation creates jobs, is that right . I agree with that. At every level. At every level. So the one thing, its not a matter of going willynilly approximately i was a partner at pw back in the 90s, i saw the bust, i saw the very real regulatory exposure that enron gave light to, it had to be fixed. Im not against all regulations, im against regulations that prevent the little guy from getting a job. And i think if we dont form capital, we dont create jobs and we dont grow our economy. We dont reduce the tax burden. Theres a right size to regulations just like theres lean manufacturing techniques and lean process techniques that the private sector uses. And i hope that youll go in there and look at this organization and right size the regulations, come up with ske z screa schemes that promote capitalization. There are a lot of people in this congress that want to just beat down job createters and employers, and i just decided on the fly and im glad my staffs able to respond to my request, but take a look at Goldman Sachs. They want to demonize them, thats an easy thing to do. An institution thats committed to let me look at the general numbers here. They had 36,500 employees. Theres probably a lot of little guys in there. Theyve contributed billions of dollars to nonprofits. Theyve got a commitment to producing 150 billion between now and 25 that are either Capital Formation for nonprofits or directly in a nonprofits. Deem mondemon nizing employers t look out for the little guy isnt helping the little guy. And ive heard them looking out for the little guy, i was a little guy. When i was 19 years old i wasnt in college. Weve got to look out for the little guy and weve got to stop demon nizing businesses that have to be held accountable. You find a bad actor, everybody things that i like pharmaceuticals. I like farm skoout suit cals who are responsible. Any Financial Services executive or anybody in a Financial Services business that acts badly needs to suffer the consequences. But if we just let the American People think that theyre all bad, you are hurting the little guy, and i hope youll go to the sec, promote responsible Capital Formation and do a good job. And i think that you will and jasper and wyatt and haley, think your dads going to do a great job. Thank you, senator. Senator shots. There are 20 regulations mandated by dodd frank that the sec has not yet drafted or finalized, thats more than 20 of the law which was passed seven years ago. The acting chairman has publicly stated that the sec will halt all work on dodd frank related rules. What would be the legal basis for not finalizing rules that are required under a statute . Rules required under a statute . Rules required under a statute rule making should go forward with respect to rules required under a statute. And at what point does a delay become a refusal to implement the law . I think that depepds on the context i dont think theres a specific well im giving you this context. A sevenyearold law, the rules not yet implemented the chairman refusing to move forward on implementation of the rules. That sounds like a refusal to efrp pla meant the law as oppose to the normal procedures act stumbling and bum lk. Im not sure i would characterize it that way, but i understand your point. But im asking what you think. Again, as as i said with senator ma nin des, in terms of a specific rule making, i dont have the benefit of the interaction with the staff and comment letters and what the prior but when and i hope i do, became chairman, assessing the rulemaking calendar, priori prioritizing and moving forward is what i want to do. Do you think they have a authority to implement a rule required by the law. I think rule making required by law should go forward. Thank you. I want to ask sort of an uncomfortable question and you and i had a good conversation, i also have young kids, were both in Public Service, theres a lot of travel, we appreciate it. Your dads doing fine. You guys are doing better than he is because im sure this is a little boring for you. We appreciate that. They always do. Yeah. But thank you for that. I appreciate the conversation you had with senator warren regarding rhee cuesals and conflicts of interest, but theres another aspect of this. Take mary joe whites situation who recently returned to the firm she left to join the sec. While at the sec she had to recuse herself from dozens of actions as you would. This made is harder for the sec to carry out its mission, but now that shes back at her old firm it raises questions that she never really severed ties to former colleagues, friends, and clients and thats not because shes doing anything nefarious, its because of human nature. Its only human to think about the next phase of your career and naturally we know that future options are shaped by current actions. And for a financial regulator its especially problematical. This leads me to sort of a challenging question to ask, and i in no way mean to impugn your personal integrity but i have to ask. Is it fair to say that you have friends and colleagues at companies and institutions that are subject to the secs oversight. Yes, and it is a fair question and, yes, i do. Is it fair to say that you will consider returning to sullivan and cromwell after your term is finished . On that, this is a huge change for me and my family. And im committed to doing this. As far as, you know, whether my term whether my term is hopefully a full term, a lots going to change, if thats if thats the kiss. Even if its i mean, your whole life changes when you when do you Something Like this. I am sefrg all ties to the firm, im divesting myself of all the financial assets, you know, and i know having done some changes in my life that when you do a change your perspective on just about everything changes. Maybe some a little bit, maybe some a lot. I guess what im hearing is that you dont preclude the possibility of any professional opportunity that may present itself after you serve as chair of the commission . Im not going to preclude it. I dont think thats an appropriate i dont think thats an appropriate precedent to set. Okay. You know, that said, i am committed to this job. Sure. I understand. And i think from the standpoint of not this panel for the people in this audience or even the people watching on c span but from the standpoint of the regular person, its not unreasonable to worry about someone who comes from industry whos social network, whose professional network whose friendships are within that industry to be put in charge of being the cop on the beat, its not purely a matter of whether theres a square conflict and whether you do the recuse als proper properly but whether they influence your thinking in your own life and about the decisions before you. Thank you mr. Chairman. Senator purdue. Thank you mr. Chair massachusettsman and mr. Clayton thank you for your forebeariance and willingness to step out in midcareer do Something Like this. As a past Public Company ceo, i have had a personal relationship with the sec and i find it on balance to be a very supportive and constructive agency. So lets put that on the record. Having said that, im very concerned that the economic miracle of our lifetime, the last 70 years, in my humble opinion has been based on innovation, Capital Formation and the rule of law. And i think we outcompete everybody in the world with regard to the totality of what that means. Im concerned that right now in the last since 2000 we had eight years of republican president and eight years of democrat president so this is not a partisan question. But our number of ipos, initial Public Offerings has gone from an average of 450 in the decade before to somewhere under 200 now, close to 150. Thats a significant change over a long period of time. It seems to me systemic, it represents, i think, some things that are troubling with regard to our current financial situation. This smie second question 2019 come back to your usa 10k. You can speak to the fact that the reduction in Public Offering and also to the number of Public Companies we have today were whats causing that, what do you think the sec can do to help us become more competitive with the rest of the world. I a debris with ygree with y. I believe that the reduction in number of companies which say function of fewer companies becoming public is a problem for our Capital Markets. The public the ability to invest in a Public Company is one of the most efficient ways for a main street investor to invest. You know, the price is there, our equity markets have become very efficient. You can invest, you can divest, very easy. Its very important. It has who chooses to become a Public Company . Management of the company. When they come to make that choice as to where theyre going to raise capital or how theyre going to incentivize their employees or other things that are when you make these decisions, they look at the landscape now and very often say, its just too burdensome. And thats i think thats a problem. You think that puts us at a competitive disadvantage with other countries . I think it puts us at a competitive disadvantage with other countries, i think and in particular it puts us at a competitive disadvantage in terms of something uniquely american, the participation in the Capital Markets. What im concerned about the private markets are also a very efficient way to raise money, but it only allows a certain percentage of investors to play because the blocks of investment are so much larger, the risk per dollar of investment is so much greater, and frankly its not as liquid. People cant get in and out as quickly as they can in the Public Market. So im one thats paying attention to this as having run a Public Company and a private company, im very concerned about that imbalance right now, particularry with regard to Global Investment in the capital around the world. You wrote an article, i think you cowrote it usa 10k. In there you make a lot of comments, one that really speaks to my heart, is one of the reasons i got involved in running for the senate is im concerned about our current financial situation. You talk about complexity risk in the current state of affairs. You can just speak to that briefly . I have a problem with regulations that are unnecessarily complex. A real a real problem with it because it leads to a lot of things. One is its very costly to address them up front. The second is, it creates loopholes. No one wants loopholes. Cox complexity allows and third it kraetsz an opportunity for gotcha. Thats not what we meant, we meant this. My view on regulation is to the extent practicable, and you cant do this in all cases but to the extent practicable, reducing complexity, accelerator are very important. If people know the rules, they can operate more efficiently. Thank you. Mr. Chairman, you know the number one thing that im looking for in this nomination is somebody that can help the sec create and maintain a level Playing Field. And i think with your background you have all the skills and personal integrity to do just that and i applaud you again for being willing to step out and take on this responsibility. Thank you mr. Chairman. Thank you. Senator warner. Thank you. Good morning mr. Clayton. Ive got a couple things i want to bounce around here so ill try to be fast in my questions if you could try to be somewhat fast in your answers. Ive been very interested in the emerging challenges around cybersecurity. To me, it was fairly remarkable that yahoo, for example, had a 500 million user breach and yet did not feel that was material enough to file in the quartly sec filing and now i dont just pick on yahoo, the remarkable stat is theres 900 publicly traded Companies Less than 100 have ever reported any kind of cyber breach or violation as material information. You know, as more as more Companies Get more and more often threatened by this type of activity and more intellectual property is subject to this kind of attack, do you think the sec ought to take a fresh look at reporting around the whole threat of cybersecurity . Senator, let me let me give you my personal view and i think it answers your question. I dont think that the American Public were down to the american investing public, particular lit investor has as great an appreciation for the cyber risks that our businesses face today. I would just hope that weve got some Bipartisan Legislation that would at least require someone on the board to have some level of cyber experience. But to me, the question of materi materiality, if yahoo had 500 million there was a question it exceeded a billion, how thats not its just beyond belief. It would about inappropriate to comment on a specific case or a specific matter. What i want to say is as i look across the landscape of discussion and understanding of cyber threats, and their possible impact on companies, i question whether the disclosure is where it should be. I appreciate that. One of the hearings we had one time was we i think he may have touched on this. Rbc capital brought in a chart that showed this is around equity Market Structure. They showed 839 different fee schedules that were composed of 3,722 separate fee variables. In effect, there was an ability for the Market Makers to, bespoke transactions, really gear toward people who are going to make the Biggest Commission off of this. It was not by any means a level Playing Field in answer senator purdues questions. One of the things that we pushed very hard the former chair, but we have not seen it, is to move forward on a make or take pilot so we can try to bring more clarity to make sure that all bidders in the market are going to get a fair shake. If confirmed, would you pledge to continue to work with us on that type of pilot . In my opening remarks i noted that in our interactions i was really glad to meet with you. I learned things. This is a case where i have learned something in the interim thanks to your questions. The equity Market Structure working group at the commission is doing i think is doing a good job of bringing the fact that theres a great deal of complexity. We dont know whether it is as efficient as it should be or as fair as it should be. And i do want to work on i would like that. Seeing that structure, seeing this chart, to me it looked like it was a total ability to game the system that really allowed Market Makers to give to a preferred broker and frankly was by no means it was no means the kind of level Playing Field that i think we all want. I want to get in my last question here. I know that you have represented valiant and persian square. There was potential Insider Trading in conjunction with the alergin bid in 2014. The federal judge in california ordered both persian square and valiant to make additional disclosures on their shareholder documents. In a sense, it seemed like they were almost begging the sec to take on a case around this issue around Insider Trading. I also believe that one of the challenges i think senator donnelly raised this issue around longmateri hlongterm v shortterm. In the United States, we still have under 13d what i think is a very antiquated tenday reporting people. Somebody canning aga ing aggreg stock. Then you have ten days for an alliance, coinvestors, aggregate stock without the level of disclosure that the the uk is two days. Hong kong has a requirement of instantaneous disclosure. To me, 13d and the ability for these investors to aggregate shares and provide an aggressive activist type sometimes play well. But i dont think we are serving our market or investors well. Do you have any comments on 13d and how we might be able to get this information faster out and this notion of whether you think the sec ought to take a look at that judges decision in the persian square case . I tried to get a lot in there. Thats a lot. Quickly, please. On the question of activist investors and the benefits that they bring to the market and some of the questions that people have raised about their activities, thats going to be an ongoing debate. I understand that the contours of the debate. And i look forward to working on it. 13d, i also understand that debate in terms of you want to incentivize people who see something wrong with the company to come in and say, youre not doing a good job. On other hand, you dont want to give them an unfair advantage. In particular, i understand your question about whatever we want to call it, domino affect, group affect. Thank you. Senator reed . Thank you very much, mr. Chairman. I apologize. My tardiness, i was leading along with senator mccain a hearing simultaneously with the supreme allied commander in europe. Im sorry. He is probably more important. Its not. Welcome to you. Welcome to your family. I want to salute your fathers service in vietnam. Thank you, sir, very much. You have said in your Public Statement theres zero room for bad actors in our Capital Markets. I am 100 committed to rooting out shady practices in our Financial System. One of your predecessors wrote that one of the reasons why theres inhibition is because the authority obtained civil monetary is capped at low level given some of the behave yoiors resources. Would you be sympathetic to statutory raising these penalty thresholds . Senator, actually, i have to confess, this is the first time ive been asked the question about the penalties. Im very willing to take a look at the issue and work with you and give you my views after ive been better educated on it. One of the things that most people you dont have to be a financial analyst. Just somebody back in rhode island reading the newspaper. When you have a company that settles for admits no right or wrong, they didnt do anything wrong and they settle for money which is a fraction of what they were suggested they got through the behavior, people get cynical and skeptical. I would urge you very much to look at that. Following up on senator warners question about Cyber Security, we also have a proposal, senator collins, myself and senator warner have a legislative proposal that would require a publically traded board to have at least one person on the board who is a Cyber Security expert. And if not, in their disclosures explain why they dont need it because of steps they have taken. Let me emphasize, it does not require companies to take any action other than just provide this disclosure. Would you be sympathetic with that legislation . Senator, as i said, i believe in materiality being the touchstone. That said, there are areas where i believe guidance to corporations in terms of what their disclosure should be is appropriate. I think Cyber Security is an area where ive said previously, i dont think theres enough disclosure. In terms of whether theres oversight at the board level that has a comprehension for Cyber Security, i believe thats something investors should know. Whether companies have thought about the issues, whether its a particular expertise of the board or not, i agree its something companies should know. Its a very important part of operating a Significant Company. Any Significant Company has cyber risk issues. Thats not just the traditional sort of Financial Company nowadays. The ability to interfere with operations is significant. Yes. Let me ask a question about Climate Change. Its interesting, black rock, one of the Worlds Largest asset managers, have just indicated that they would expect companies such as miners, real estate companies, wood, have a demonstrated fluency in how climate risk affect theirs business and how a Given Company will address it, which raises a similar issue. Should these companies that are exposed to Climate Risks be required to make disclosures in their publically filed documents . I know the sec has issued guidance in this area. In particular, not on the impact of clie mamate change on busine but potential regulations and other activities. Let me say this. Companies Public Companies should be very mindful of that guidance as they are crafting their disclosure. This is a footnote. An interesting time when the secretary of defense seems to be the most fervent believer in the Climate Change and the director doesnt believe that at all placing companies in a position of who do you believe. I believe the secretary of defense. Lets stop there. Final point, we talked about in our office, which is intentions is one, resources are another. Resources will affect your behavior. As i observed, one of the impressions i had in the runup to the collapse was the sec had good intentions but they didnt have the budget to go out there and wall street knew it. So they knew that there was a lot of behavior that might have been in the murky area. The likelihood of it being discovered, two being prosecuted or anyone held accountable is virtually nil because the resources werent available. Right now, the sec is operating on a cr of 1. 6 billion. They asked for 1. 7 billion. Looking at the skinny budget domestic agencies are being decimated. What happens when you are presented with a budget which you think is absolutely inadequate for the technology, for the enforcement personnel . I think that will translate into wall street generically speaking into the sense that theres no sheriff. In terms of using resources, im very interested in using resources as effectively as possible in the area of enforcement. As i have said and i do look forward to discussing this with the staff at the sec and prosecutors who i know and will if confirmed cooperate with, i do believe that individual accountability has a greater deterrent affect across the system than corporate accountability. I look forward to pursuing that. On the question of budget and resources, i know lots of instances where new ceos have had to go into a particular situation. They wish they had more money. They wish they had less money. One of the things i would have to do is get up to speed very quickly on the areas of acute need versus less need and act accordingly. Thats what i can tell you. Thank you. Thank you, senator reed. Mr. Clayton, that concludes our first round. We have had a couple of senators ask for a second round. So we will do that for i think we have three senators who have asked to do so. I will forego my second. I will probably make wrapup comments at the end. Lets start the second round. Thank you, mr. Chairman. I appreciate your indulgence. I have to go to agriculture after this for the confirmation hearing for the secretary designee there. Again, thank you for thank you for answering the questions that you have so far. Youve clearly thought a lot about the foreign corrupt practices act. How would you edadvise a client interested in complying with the act if that client was weighing going into business with a politically connected family known to be corrupt and tied to the Iranian Revolutionary guard . You know thats not just a what if. Thats a real case. I think that is a real case. Im going to not comment on a real case. Im going to comment on the question of how do you advise a client who is subject to the foreign corrupt practices act who may be entering into business in a country wellknown for corruption. I think you are to tell that client to think long and hard about whether you want to have the potential exposure to not just the foreign corrupt practices act but thankfully now, which was not the case five, seven years ago, similar oversight and enforcement from other oecd countries. And in fact, there are some jurisdictions where in the vast majority of the cases it may make sense just not to participate. Im sure you know that the president was involved in that situation. In 2012 he said the fcpa is a horrible law that should be changed because it puts u. S. Business at a huge disadvantage. I know you have had similar kinds of thoughts. But i just i think all of us want you to understand how important it is with the president like no other in terms of Family Investments and in terms of the president s family has gone overseas to do more investing while u. S. Taxpayers have paid to protect his family when they are overseas and how those raise questions not for this hearing but that you need to be particularly vigilant because he is your boss. I understand you have a fixed term, but he is your boss. And he is continues to appear to be making money from around the world. Im hopeful the standard will be high. We should send a message that american businesses we shouldnt be sending the message american businesses can be so successful partnering with corrupt entities. Its bad for our moral standing in the world. Its bad for developing countries. Its bad for investors. I would just ask to make that statement. Let me ask another question. I dont think ive heard anybody in main street ohio complain about the lack of ipos crimping their investment choices. What they want to know is that we are doing what we can to prevent the bus that can endanger their savings and retirement to make sure the system is not rigged against them. Ive been troubled for last three or four years of the collective amnesia on this committee and in this senate about what happened in 2007, eight and nine. I think most americans share that concern and wonder about the collective amnesia of too many of our policyholders. My question is this. What do you tell people saving and investing about a market where companies can stay private for longer, can limit shareholder Voting Rights . Were seeing that in a number of prominent u. S. Companies. And where they can make it harder for even large institutions to submit proposals for shareholder votes. Let me try and take those. In terms of let me go back to your first statement. In terms of whether having fewer Public Companies, i do think it is i think its a problem. And i do think its a problem thats not wellknown. If you have fewer Public Companies gecompany s gets on the growth phase and these are all here, thats fewer returns for people who participate in the Public Markets. People who participate in the private markets are capturing those returns. I do want it see more Public Companies. In terms of your other questions around amnesia, i can tell you that i dont have amnesia. I worry about where the risks are today. The risks in 2007, 2008 were in one aspect of our economy and it got away from us, very much got away from us. And we didnt know. I worry about where those risinris irisks are housed today and making sure we dont have a repeat of that situation. Go back thank you for answering the collective amnesia part. You said you want i said they stay private longer. You answered that well enough. More and more companies limiting shareholder Voting Rights, more and more companies are not really particularly welcoming of submitting resolutions by even major institutional shareholders. On the Voting Rights and governance issue of companies, two things. Its well disclosed and well understood thats where we are. The ability of companies to come to the market with governance structure like that is does it make sense. I also believe its a function of whats the supply of Public Companies coming to the market . My sense i could be completely off on this. Because i havent tested it with experts and things like that. But my sense is that the ability of theres so much thirst for Public Companies that its easier for a company to set a particular set of governance requirements that it may have been in the past. Thats not a good thing . I dont know if its a good thing or a bad thing. But i think thats a change in the balance. Thank you. Senat senator . Thank you for the indulgence. Mr. Clayton, i know its been a long morning. I appreciate you being here and the answers to your questions. Have two quick ones for you. One has to do with the forced arbitration klaclauses. Doddfrank gave the ability to reign in forced arbitration clauses. The sec never studied the issue. If confirmed, will you commit to reigning in the use of forced arbitration clauses . Im not going to prejudge and committee to that issue. Its actually i will tell you its an issue that i dont know a great deal about. I will say that i will commit to working with you and working with the staff to learn more about it. Thank you. Second question, number of my colleagues today have covered how your substantial recusals may impede the work of the sec. My specific interest is in transparency. I believe that government doesnt do enough of being transparent enough to the taxpayer to understand what is taking place. In commission hearings, in any type of process or procedure. While i certainly dont want market moving information to be disclosed before its ripe, i think the public should know when you or any commissioner has recused yourself once an enforcement matter is settled. Will you commit to report to the public instances when you have recused yourself and what triggered the recusal once that enforcement matter has been settled . I think there are two parts to your question. Let me say there are three parts to your question. I do agree with transparency. There are situations, as you know as a prosecutor, where, for example, you dont disclose an Ongoing Investigation until its over. In terms of recusal, i think they have a policy. I look forward to working on that. As far as the particular reason for recusal, if its not i will need to look into it. But there are its the first time ive thought about it. There are things going through my mind like whats the duty to a client, those types of things . But i will look into whether the specific reasons for recusal is something that should be disclosed. Thank you. Let me just couch this. Most states, in particular nevada, have open meeting laws. They require any type of action taken by a commissioner to be put on the record for the public to understand. I completely agree with you that during a pending investigation you want to protect the integrity of the investigation, whether civil or criminal. My question to you was at the end of the matter, once its settled and done, at that point in time would you be willing to even change a policy if its different than what im asking you is to identify if you recused yourself on that particular matter and then why you had to recuse yourself. I am very open to having that dialogue with the sec ethics officer and the people at the sec who have experience with this. Its not a new issue, finding out whats been done in the past and discussing it with you. Thank you. I appreciate that. Thank you for the answers to the questions today. Thank you. Senator warren . Thank you, mr. Chairman. Thank you for letting us have an extra round here. Mr. Clayton, last december president elect trumps Transition Team announce ed car icahn would be special adviscse to the issue on regulatory reform. Mr. Icahn is a longtime activist investor withholdings of more than 16 billion. He has Massive Holdings in Public Companies like cvr energy a an oil refinery and herbal life supplement manufacturer. As far as we can tell, he has not divested any of these investments despite his role in this administration shaping regulatory policy that affects the companies that he is invested in. About two weeks after mr. Icahn was named to the position, you were nominated to lead the sec. According to news reports, mr. Icahn helped president elect trump choose you. Thats troubling for a number of reasons, especially considering the sec is actively investigating herbal life, one of mr. Icahns largest investments. Have you had any conversations or other communications with mr. Icahn since the election on november 8 . The news reports that carl icahn had i dont know i have no knowledge i just ask after i was after my nomination was announced, i had a bit of heads up it was going to be announced. After it was announced, i got a call to ask me to meet with carl icahn. And i met with him. So you met with carl icahn not before you were nominated but after you were nominated . Correct. And can you tell us what you talked about . We talked about mr. Icahns view on the importance of activist investors and how they, through their methods, drive performance of Public Companies. Let me guess. He thinks activist investors are good things and should be encouraged . I think he thinks that they do well for markets. Yeah. Did he talk about any of his investments . No. So he just talked generally about his view. And talked about his view about how the sec should no. No real specifics. He just wanted to give you his general view on activist investors knowing you were the nominee . Correct. That was the only conversation you had with him or with his people . That conversation . That was the only time ive spoken with mr. Icahn or his people. That was the only topic of the conversation when you met . He congratulated me. Fair enough. We talked about people we knew in common. Its the first time i met him. If you were confirmed, do you agree it would be inappropriate for to you have any conversations with mr. Icahns about the sec regulatory or enforcement plans, given his massive financial interests in various sec decisions . If im confirmed and im in the seat of the chairman of the sec, i think its important to talk to participants in the markets of all types. Including those that there are massive Ongoing Investigations . That is something that needs to be navigated very carefully. If theres a massive Ongoing Investigation, thats why we have counsel and protocol. It may be its completely inappropriate to talk to somebody. What i want to say is, receiving information about what participants in our Capital Markets think about them from all different types of people is an important part of the job. But to your point, senator, i agree, if theres an Ongoing Investigation and the appearance of impropriety or even the appearance of impropriety, it may be inappropriate to have that kind of meeting. I would like you to upgrade that may be inappropriate to you believe it is inappropriate. Im not going to totally prejudge it. But i get your point. I feel totally a lot happier if you would totally prejudge this is inappropriate. Let me go on from there a little bit. In february, mr. Icahn purchased a stake in Bristol Meyers squibb. He purchased this months after he was appointed as a special adviser to the president for regulatory policy. Let me do this as quickly as i can. I just want to ask you generally, can federal governments regulatory decision affect the value of holdings in a drug company like Bristol Meyers squibb . Yes, senator. Good. And can the value of those shares be affected by fda policies . Yes. Good. And patent decisions . Yes. And plmedicare and medicaid decisions . Yeah. Good. Because of course they could. Mr. Icahn is helping dictate Trump Administration policy at the same time that he is buying stock in this company. It is almost impossible to imagine how he would not have some inside information about how these policies would affect a company like Bristol Meyers. Mr. Clayton, if mr. Icahn had inside information about federal regulatory policy affecting Bristol Meyers and he chose to purchase shares in the Company Based on that information, is that potentially a violation of securities laws . As we both know in general. As we both know, the question of the scope of the securities laws around Insider Trading is its a very facts and circumstances analysis. If he had inside information it depends on where it came from, what duty. How about came from the fact he was appointed by the president to get this information and actually to create this inside information. I think were assuming a lot. I dont think we are assuming a lot, mr. Clayton. I appreciate that you want to be fair here. I know i need to stop because im over my time. The chair has been very indull gent here. We are talking about an administration that has conflicted everywhere. Its very difficult to determine whether someone is actually working in the interests of the American People or theyre just lining their own pockets or doing some secret blend of the two. The American People should not be on guess about that. When carl icahn is influencing policy that will affect companies and then he is investing in those companies, buying and selling in those companies, that creates a conflict of interest that just its just beyond what were even talking about everywhere else. I just want to make the point that were going to have to count on you. The American People are going to have to count on you. I want to hear that you are clear that this is not right, that this will be investigated, that theres not going to be chummy conversations and that we will see some real enforcement of the law on Insider Trading. I do not understand how we can have someone who continues to trade in a market and is influencing regulatory policy simultaneously. I want to hear the chair of the sec say he is going to look into this and i hope put a stop to it. I will stop there. Thank you, mr. Chairman. Mr. Clayton, that concludes the questioning. I do want to make a couple of comments and supplement the record on one issue. Im glad you are here, senator warren. It relates to something you said earlier that i want to supplement. In your first round of questioning you indicated that you believe that the republican commissioners were more lenient in Enforcement Actions than the democratic appointees. To the commission. I just have some information here from two articles back in october of 2016 in which reuters in one case and law 360 analyzed all of the Enforcement Actions of the sec from mary joe whites tenure, a threeyear period of time. There were 1400 defendants over 400 cases. The conclusion of that analysis was that over that threeyear period of time, the commission was unanimous in virtually all of them. There were only four of those 414 cases in which there was a single negative vote from one commissioner. I just wanted to make it clear i didnt want to let your allegation that republican nominees are lenient stand without at least a response. Im glad you would i know you would like to make a response as well. Thats right. I havent prepared for this. I want to say i think we have a New York Times analysis showing in the 48 cases where Mary Jo White recused herself the republicans wanted less enforcement. Im not familiar with that article. You are welcome to the democrats wanted more enforcement. We can continue to talk about this issue. We will do so. Mr. Clayton, thank you again for your willingness to serve and participating in this hearing here today. I have just one announcement for our members. That is that the questions for the record which will be submitted and we ask you to respond to promptly, mr. Clayton, are due by the end of business on monday. Once again, thank you for being here. That concludes our business. The hearing is adjourned. [ no audio ] [ no audio ] in days you missed it, i dwrused to think the hardest thing i would ever have to to is look into the eyes of a child and listen to her story about being abused. I was wrong. The hard oast thing i ever had do was watch their abuse, sometimes still photos, sometimes video, sometimes with sound. All heart wrenching and even ow impossible to forget. Farmers are really struggling to be profitable, hold on. And many times even the best farmers are not able to produce a product even with the best production capabilities they may have. So i think trade is really the answer. The truth contains in hard news. The truth arrives in the front page. Thats what contains the politician. Thats what stops theover reach in power. And thats what the country takes seriously. And thats what matters this hours, this week, this time in our lives. Treasury secretary on comprehensive tax reform. The goals of tax reform ok, which are about creating a middle class tax cut, about creating personal tax simpleication and making u. S. Businesses competitive, ok, where we have a very high business tax rate and worldwide income. You know, were able to take the tax code and redesign things. On pharmaceutical costs. No one is dwrusing our meds sns the exchanges. I to think we need to reform the health care is the way its delivered and the consequences will be with patients. Theres some exciting things going on with resfect to Clean Coal Technology across the globe. Theres exciting things going on in the nuclear space. But not here. Most of that is happening in europe because of the disincentives that we put into play in this country. If you really care about some of these Environmental Concerns nuclear ought to be in the mix