Potential conflicts of interest and the possibility of recusals. From capitol hill, this is about 2 1 2 hours. This hearing will come to order. This morning we will hear testimony on the nomination of jay clayton to be chairman of the United States Securities Exchange commission. Mr. Clayton has extensive experience in our Financial Markets as a highly regarded securities lawyer. For decades he has helped Companies Access our Capital Markets, increased their ability to invest in the United States, and grow and create jobs. One area on which mr. Clayton has already indicated he would focus is Capital Formation. Capital markets drive innovation and job creation and access it the life blood of our economy. The jobs act helped revitalize the primary markets in both congress and the sec should continue to find ways to help companies go public and allow their investors to share in their success. Recently, this committee marked up several bipartisan securities bills and we encourage you, mr. Clayton, if confirmed to help us identify other securities areas which could help, could, use legislative improvement. The sec has an important threepart mission, protect investors, maintain fair orderly and 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 secs mission is critical to every u. S. Citizen and retiree. Investors should be able to participate in our markets on fair footing so that they can pay for the lifes events such as college, and save for retirement. We also need to help investors make sure they have Material Information to make informed Investment Decisions. Ive repeatedly stressed the need for the u. S. Financial system and its markets to remain the preferred destination for investors. Throughout the world. And the sec has an Important Role to that end. I look forward to hearing more from you on how we can help companies grow. Americans get hired and invisitors share in the Wealth Creation by these companies. Another important issue is that the sec is tacked with insuring that stock market rules and regulations are still appropriate. Given that most of them were promulgated in a time where technology was much less advanced. Its imperative that these rules be the needs of companies and investors. In that vein, it is important for the sec to do respect trospective views are of its own regulations to ensure they are working as intended and still acceptable. This is in line with the president s own executive orders on regulation. Other regulators are subject to egrip e growth and paperwork reduction act which mandates a review and evaluation of existing regulations in order to identify which are outdated, unnecessary or unduly burdensome. While technically the sec is not subject to egrpa, can chair white indicated before this when the that she was very much committed to reviewinging the secs rules in that fashion. A commitment like that is one that many would like us to see continue. Additionally, its important for the sec to have robust cost benefit analysis. Ive long state this had position that our president recently echoed the importance of cost benefit analysises in an executive order. I look forward to hearing from you, mr. Clayton, today on these issues as well as what you hope to prioritize when you are at the sec. Congratulations on your nomination. Thank you and your family for your willingness to serve. I now turn it over to senator brown. Thank you, mr. Chairman. Congratulations, mr. Clayton, on your nomination to be the chair of the United States Security Exchange commission. I appreciate your willingness to enter Public Service. All of us know some of the demands put on you and your beautiful family. Thank you for your willingness to stand up and be here. In the past as in past sec nominee hearings, weve discussed a number of points that are still relevant today even if technology as the chairman said has changed how the markets work. How do we improve investor protection, strengthen accounting rules and reliable financial statements, how do we better enforce violations of law and bring real accountability for misconduct. Candidate trump certainly understood that the American People are tired of the continual news of misbehavior on wall street with far too minimal consequences or accountability. About a year ago, candidate trump went to ottumwa, iowa, site of a stand up for the little guy speech by Teddy Roosevelt and the home of radar who my staff told me nobody under the age of 50 will know what im talking about. When are you over 50 . Youre over 50. Candidate trump promised the people of ottumwa that he knew wall street, that he knew the people on wall street and that he would not let wall street get away with murder. That was candidate trump. I bet the audience at that speech would 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 treasury, and that hes turned to Goldman Sachs outside counsel to run the sec. As candidate trump knew his american sacrifice and save for retirement, College Bills or a down payment on a home, theyre more skeptical and less trusting of the market. Whether its another flash crash, a billion dollar ponzi scheme, a trillion Dollar Financial crisis, people worry about rusting the market with their hardearned savings. Thats what you walk into mr. Clayton. Americans worry that the Financial Systems rigged against them at a time when quaer actually debating whether retirement advisers should put their clients interest interests first. Think of that. We debate whether client whether retirement advise areas should put their clients interests first. Its hard not to see why people feel that way. If ordinary fears were not enough in recent years, weve learned and witnesses a significant Financial Risks of hacking and cyber crime as well as Climate Change. It seems as the list of concerns grows longer, the insistence, the insistence for removing protections against fraud and abuse grows louder and more sweeping as am nearby yab is swept across this body. I hope we dont spend the next two hours discussing issues that you agree are important only to see those issues ignored if youre confirmed. You spent your career protecting some of the biggest names on all wall street and those relationships pose a host of conflicts for this position. Im concerned you may need to recuse yourself too often at a time when we need a strong independent sec chair when the front light of enforcement not watching from the sidelines. Your record representing banks and bankers and mej funds and executives speaks for itself. But those people are already well represented among the president s friends, supporters, advisers, and far too many people in all three branches of government. I want to hear today what you do to represent glass workers in lancaster, ohio, autoworkers in warren, ohio, steelworkers in canton, ohio. In some cases private equity or a hedge funds took control of their company and hastily shipped factory jobs overseas. The people who still have jobs continue to scrape by as incomes are stagnant as pay collects and benefits have grown smaller over the years because management cared more about pleasing wall street and padding their profits and their bottom lines than doing right by working people. Meanwhile, executive pay keeps going up and up and up. Workers nearing retirement have had their pension and Health Care Benefits slasheded. Thats why the pay ratio rule, the disclosure of corporate political spending the fishery rule, the anticorruption efforts around Natural Resources and Mining Industries, i could go on and on and on and on of the special interests influence in this body and in the administration. Thats why all you have those rules are so important. Theres a lot of the ground to cover. If i dont get through all my questions here and i know colleagues will do the same, i will submit them separately for the record. Mr. Chairman, thank you. Mr. Clayton thank you again for your willingness to serve. Thank you very much, senator brown. Mr. Clayton will you now please rise and raise your right hand. Do you swear or affirm that the testimony you are about to give is the truth, the whole truth and nothing but the truth so help you god . Thank you. One more question. Do you agree to appear and testify before any duly constituted committee of the senate . Thank you. You may take your seat. Your written statement will be made a part of the record in its entirety. Again, i give you my congratulations on your nomination. And before you begin your statement to the committee, you may, if you choose, introduce the members of your family. I see you have a beautiful family here with you into i will do that. Thank you, senator. Ill start at this end. My father walter clayton. My mother kathy clayton, my wife gretchen, my daughters haley and jasper. My son wyatt. My youngest brother andrew and his might have michele are all here for me today. Youre very fortunate to have such a beautiful family and have them here with you. Mr. Clayton, you may proceed. Thank you very much, senator. Chairman crapo, Ranking Member brown and members of the committee, im honored to appear before you today as President Trumps nominee to chair the securities and Exchange Commission. I want to thank you and your staff for the time have you spent with me. I have enjoyed and learned from our meetings. Our Capital Markets have far reaching and profound effects for every american. Make sure our markets are fair, open, orderly and efficient and ensuring that investors are protected is the fundamental responsibility of the sec. If confirmed, i will take up this responsibility with energy and purpose. I pledge to work with my fellow commissioners, the sec staff, this committee, and the many others who support and defend our Capital Markets. The importance of Government Service was instilled in me from a young age. Six weeks after i was born, my father shipped out to vietnam as a 2nd lieutenant and my mother, 20 at the time and i moved to her childhood home in likens, pennsylvania. We lived with her parents and her four younger brothers. Lucky for me, my grandfather, pat ker win, the eighth and last child of coal miners, a small town lawyer and perpetual public serve both in title and action took a strong interest in me. We were great friends for 20 years. Remarkably, for as far as back as i can remember, he took me to township meetings, real estate closings and estate sales. These experiences much more main street than wall street made a deep and lasting impression on me. When i entered the ninth grade, we moved as a family for the last time to delaware keep the, pennsylvania. I met new friends, mostly through sports. One of those friends who has long been my best friend is my wife gretchen. We met 36 years ago and have been married for 25 years. I want to specifically thank gretchen for her encouragement, love and support. As chair of the sec, i will be mindful of my responsibility to my children and their generation. During the course of my 20 plus career career as a transactional lawyer, it has been my privilege to work with leaders in the public and private sector including on landmark transactions such as the Worlds Largest ipo, as well as important transactions during the dark days of the financial crisis. From my five years living and working in europe, where i worked on matter involving the laws and markets of no fewer than a dozen countries, including france, sweden, turkey, switzerland, italy, glaends greece and germany, i learned the markets are very interconnected and that america is indeed the greatest country by work has included counseling a number of businesses and individuals. During my college and post business years, my mother and father operated a small logistics business. I worked on lease negotiations, Inventory System design, and establishing a 401 k plan for employees. Therern ups and downs and i learned firsthand the many challenges that small and medium size businesses face. As well as their importance to our economy. Based on all of my experiences, nationally and internationally, on wall street and main street, i firmly believe that one well functioning Capital Markets are important to every american. Two, all americans should have the opportunity to participate in and benefit from our Capital Markets on a fair basis. Including being provided Accurate Information about what they are buying when this invest. And three, there is zero room for bad actors in our Capital Markets. I am 100 committed to rooting out any fraud and shady practices in our Financial System. I recognize that bad actors undermine the hard earned confidence that is essential will to the efficient operation of our Capital Markets. I pledge to you and to the American People that i will show no favoritism to anyone. One last comment. For over 70 years, the u. S. Capital markets have been the envy of the world. Our markets have allowed our businesses to grow and create jobs. Our marks have provided a broad Cross Section 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. Listings by nonu. S. Companies have slowed dramatically. More significantly, it is clear that our public Capital Markets are less attractive to business than in the past. As a result of these developments, Investment Opportunities for main Street Investors are more limited. Here, i see meaningful room for improveme improvement. I am excited to work with you, my fellow commissioners and the sec staff to pursue those improvements and in doing so, i will always be vigilant to ensure that the commission is steadfast in protecting investors. Thank you for this opportunity. I look forward to receiving your advice and answering your questions. Thank you for your statement, mr. Clayton. And before i begin my question, id like to remind the members of the committee we will be working on a fiveminute time frame for each segment and i encourage members to honor that so that all of our colleagues can have an opportunity to get their questioning in. And as senators are prone to do, you may get a question right at the end of the five minutes, mr. Clayton. If that happens, i will allow to you answer the question. I encourage you to be brief in those answers. First, you are a highly regarded attorney who has received recognition for your expertise in the securities field. Some have raised concerns that your success and your former clients will create conflicts for you and frankly, could you quickly provide us your thoughts on this issue . Yes, senator. Il try to be brief. I have been fortunate to have diversity experience as a transactional lawyer and a secures lawyer dealing with a number of participants in our Capital Markets. Both nationally and internationally in a number of different settings, securities offerings, private capital raising, mergers and acquisitions, regulatory matters, et cetera. I believe that that is a strength. I also believe that the types of matters ive worked on which involved problem solving is a strength. As far as the extent of my practice and whereby the recusals that would be required and the potential conflicts will impair my ability to act as chair of the securities and Exchange Commission, i do not believe they will do so. I have discuss this had at length with the sec ethics office, with the office of government ethics, this is not a new issue. There is a protocol if place for dealing with those matters. Most importantly, i believe that if i am recused, that my fellow commissioners will be able to handle the matters ably and to good effect. Thank you very much. And i agree with your observation. It seems surprising to me that a persons success in a field in which we are asking them to now lead an agency could be a criticism. So i appreciate your commitment to assure that conflicts will not arise and that you will fairly and impartially administer the agency. Mr. Clayton, in your Opening Statement, you discussed the dearth of initial Public Offerings and the need to keep our Capital Markets robust serving as engines for our economy. Can you please let us know any particular thoughts how the sec can aid in this process . Yes. I very much im looking at this from the outside. I very much look forward to discussing this with my fellow commissioners and with the sec staff but i will note that easing the onramp to the public Capital Market process, when i say easing the onramp, i dont mean the important regulations that Public Companies face. I mean making it less costly up front to become a Public Company has had an effect on the market. When i go to meetings where 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 because that has made it easier for companies to become registered Public Companies in this country. Thank you. The equity markets have seen a lot of change in the past few decades including in terms of companies and products listed as well as the Technology Behind it and the investors participating in it. Your predecessor as well as the current acting chairman and other former commissioners have stated that there is a need to review the current equity Market Structure. And such a review should be disciplined and conducted in a datadriven manner. What are your thoughts on continuing the secs review of Market Structure and what steps does the sec still need to do . Senator, i think it is very an apparent that technology continues to change our markets. And that is something that will continue unabated. The markets respond, technology responds. I believe that we need to engage in a virtually constant assessment of whether our markets are operating efficiently and for all investors. As far as the specifics of the Market Structure, analysis that the commission has going on now, i do believe that they should continue. I have become, thanks to some of the questioning from you and your staff become more familiar with that, and i do believe we should continue examining Market Structure Going Forward. Thank you. Id let you know, at the conclusion of my five minutes that this is very important issue to us and we look forward to receiving the input from the sec from its analysis and deliberations. I encourage you to pursue that very aggressively. Thank you. I will yield back 15 seconds is out of my five minutes. Senator brown. Ill take it. Thank you. Thanks. Thank you, mr. Chairman. Given this administrations unprecedented business and commercial entanglements and demonstrated lack of transparency, lack of interest in transparency, we must focus on the potential conflicts of interest that this creates for people like you for the administrations nominees. The case of the sec, this is not hypothetical. In 2002, candidate President Trumps casino bissetaled an sec enforcement action over the use of nongaap Financial Data before the case settled, he sent a letter to the entire commission asking for leniency. Following the settlement he sent a thank you moat to then chair harvey pitt for personally talking to him and, quote unquote, being fair. Mr. Chairman, i want to submit those documents for the record. Without objection. And my question is this. In an administration replete with billionaires, many of whom as we learned in confirmation hearings had multiple conflicts of interest and ethical lapses, how will you ensure the secs independence in matters that affect hisors his personal business, the president s and other Administration Officials businesses . Senator, i am as i said in my Opening Statement and i will repeat and i will repeat if i am lucky enough to be confirmed, im committed to showing no favoritism to anyone in this position. Okay. What members of the Trump Administration or its Transition Team did you communicate with prior to being selected by the president as his nominee . Members of the trump, current Trump Administration or Transition Team . I was asked by the Transition Team how i got introduced to this process. I was asked by the transics team for my thoughts on the Capital Markets and things that could be done. Tom problem Capital Formation. And that was several members of the Transition Team to do that. Did not think that i would be sitting here today when i met with them. The possibility of me going into Public Service was raised. I then met with members of the Transition Team who screen candidates. And then i met with now President Trump. Mr. Priebus, and mr. Bannon to be interviewed for the job. And was later nominated. Would you reconstruct not right now but submit to the committee the names of people that you can reconstruct and look at your notes and that you met with in the first round, if you would possibly do that . Yes, sir. Do you know if anyone you spoke with has businesses regulated by the sec . I i do not but i would expect they do. Would you submit that to us also. To the extent i can, yes. Thank you. The president signed an executive order directing the review of financial regulations and stayed that he planned, to do a big number on doddfrank. Gary cohn, former president of Goldman Sachs and now National Economic Council Director declared were going to attack all aspects of doddfrank. What aspects of doddfrank will you be attacking . I dont have i dont have any specific plans for attack, senator. I do believe that doddfrank should be looked at in particular rules that have been in place as to whether they are achieving their objectives effectively. But i have no specific plans for attacking a particular provision of doddfrank, senator. Is your job, has anyone whom you met with talked to you, anyone from the transition or the administration youve talked to made suggestions and questioned, did they question the efficacy and the fairness of doddfrank and suggested to you that it needs reform or change . Or repeal . As a general matter, the question of whether doddfrank has been effective is a question that is on minds of people in the administration based on my interaction with them, yes. 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 finish and to finish writing the rules mandated by congress . Senator, i see my mission as very much the try part mission of the sec. Investor protection, Capital Formation and efficient markets. Okay. Thank you. Thanks. Thank you. Senator shelby. Thank you. Welcome, mr. Clayton. I believe that the nominee before us today represents what we once valued in this country. An individual who rises from modest means to the pinnacle of profession and then answers the call of Public Service, a good deed that i can assure you will not go unpushed hernished here. I wish it were not true. Following the crash of the u. S. Housing market in 2007, the near collapse of the worldwide Financial Systems, we had a unique opportunity to closely study the causes of the crisis and develop a rational and targeted legislative response. That did not happen. As an attorney, you act as an adviser, advocate and negotia r negotiator. We should all realize this. In so doing you represent the clients best interests consistent with their own ethical 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 were fortunate to have one of our nations best very best legal practitioners. He understands corporate structure, Capital Markets and Capital Formation as well as the statutory and regulatory requirements that govern those disciplines. The mission as i understand it for many years on the committee, 31 years there, the mission of the u. S. Securities and Exchange Commission is to protect investors and maintain fair markets and facilitate Capital Formation thats necessary to promote and sustain Economic Growth in this country. I believe your background, education and experience make you particularly well qualified and suited to be chairman of the Security Exchange commission and i look forward to supporting your nomination. Having that i have one question. Ive long advocated here the need for comprehensive cost benefit analysis for all agency rule makings. If the benefit of a rule or regulation cannot be shown to outweigh its cost i believe it should not be brought forth. Would you share your views if you thought about this, im sure you have, on the role of cost benefit analysis in the rule making process which youll be confronted with . Thank you for your comments and, yes, i will. I do believe that the Economic Impact of rules and regulations that are promulgated, im going to focus on the securities and Exchange Commission, is very important. Not only quantitatively, but quantitively. I think we are often looking back after a decade or two decades and saying that had profound effects we didnt realize and some of them turn out to be more costly than we would have imagined. I think rigorously examining the effects of rules and in particular some of their far reaching costs is a very important aspect of the commissions work. Thank you, mr. Chairman. Thank you. Thank you, mr. Chairman. Welcome to you and to your beautiful family. Youll have to sit through a whole lot of boring questions and we apologize for that, but the position that your father and your husband and your son have been nominated for is incredibly important to the functioning capitalism we have in this country and its important that we understand exactly how you plan to administer and participate in that job. I want to make a couple of quick points that relate to some projects that ive been involved in and that ive been working on and that is how the sec relates to Small Business. Many of our startups find challenges in getting startup capital and we want to make sure that a bill that senator heller and myself were able to get passed last time would require the commission to appoint ten individuals across the country to serve on a new Small Business Capital Formation advisory committee. I want your commitment youll make this a top priority if youre confirmed. Say yes. I appreciate the assistance. Capital for Small Business is very important. Okay. And 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 500,000 people. I want you to look at rural economic, were going to have more and more opportunities. We also are 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 of weeks ago or last week and i want your commitment that youll work with us to implement that if were able to get it across the threshold. Im happy to work with you on anything in the area of Small Business and recognize your comment about rural being really rural, not kwazi rural. I think i have time for just one more issue that 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 no one went to jail for what seemed like a criminal act. Most people would say if i did that i would be in jail. I think we need to have a clear understanding as you have said theres zero room for bad actors. But i think we continue to see difficulties in prosecuting folks in the white collar area. I want to ask just one simple question and its not simple, but its really important. Do you believe that executives who act recklessly, but not knowingly, and as a result cause financial significant harm to our Financial System should be held criminal liable for financial crimes . Senator, let me say this. Thats kind of a question for the courts and for the legislator. We can legislate. Im just wondering whats your position on changing the mention raya 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 would enforce the law. You understand that the sec in the past has weighed in on this and has done a number of speeches and discussions about how do you interject a criminal deterrent. Those of us on this diaz who have been prosecutors understand that one of the best areas for deterrence is White Collar Crime and i think way too often you can hide behind the knowing. Its hard to prove someone actually knew, but it isnt hard to prove that 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 fellows. I agree with you. I think that individual prosecution particularly in the white collar area has a significant effect on behavior. But the difficulty we have is achieving the level of criminal intent and i think theres a way we can rectify that lowering the standard and still having the deterrent. Thank you, mr. Chairman. Thank you. Senator corker. Thank you for your desire to serve 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 who are with you today. We welcome them and glad theyre participating. We talked a little bit about Public Companies and the fact that there arent Many Companies going public today as used to be the case. I wonder if you would expand on that and share why you believe that is the way it is today . Thank you. I will im kind of a im more of a picture person than a written person so im going to use my hands. I hope thats okay. The life cycle of a company is kind of gets started and people have a good idea, are 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, youre adding employees and doing things and over time get up here in success. My experience is that 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 robust private Capital Markets and the cost 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. Then up here they may be coming a Public Company, but oftentimes thats 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 having a chance to participate in that growth as investors. And theyre not doing it again just to crystallize it, theyre not doing it because its too costly to become a Public Company. I think i agree theres numbers of reasons having served on some Public Company boards i cant imagine desiring to go public as a first choice, but thats changed over time, especially in the last decade. The sec has functioned in a very partisan way. It seems like everything ends up being voted on down party line. It wasnt that way many many years ago. As chairman im sure you dont want to operate that way. Can you observe why it has been that way and tell me what you plan to do as chairman to try to get things decided along the basis of whats good for the country and the sec and all of us who youre protecting instead of just sort will ideology. I dont want to speculate about why its been that way. Ive seen it. I agree with you that we want you to speculate, though. Okay. Okay. People have fundamental disagreements, but my job has been my job for 20 years has been to reach consensus. People dont do transactions unless they agree to do transactions. I believe in consensus. I would like as chair to have unanimous votes on important matters. What is it that has caused it to be the way that is right now. You know youre going into it. Youve what is it seriously thats caused it to function along party lines . You know what, i will speculate. I think its just not the commission, but theres been 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 as we have a lack of consistency, right . Every time theres a swing in the balance of power, the sec in the direction it takes swings and therefore probably keeps more people from wanting to go public. Im glad youve observed that. I hope you will change that when you become chairman. I want to close with this. I know 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 would be a Shopping Center regulatory body i think i would be really good because i know the business. I know that youve represented numbers of large clients and my guess is some of them were jerks. You watched you watched you watched some of your clients do some really jerky things and then you watched some of them do some really great things. My sense is that someone like you who has represented people the broad array of people that youve represented really knows the good actors from the bad actors more so than the people that come from the outside. I know some folks were academics, but you bring a lot of real life experience. Im glad youre willing to do this and i look forward to your service. Thank you. A lot of bad practices that went on that 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 arose out of what happened during the financial meltdown. The acting associate attorney general at the Justice Department at the time said and i quote this resolution, referring to the settlement agreement, holds Goldman Sachs accountable for its conduct in falsely assuring investors that securities it sold were sound morninga mortga mortgages. This was a serious breach of trust with respect to goldmans clients. You mentioned at the outset you wanted to put an end to shady practices. Would you agree that what goldman did during that period in falsely assuring investors that securities had sold were backed by sound mortgages when it knew they werent and it was a shady practice . I think that settlement speaks for itself. 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 that were the basis of the Justice Department finding of misconduct . My understanding was that was a mortgage a case of selling Mortgage Securities. I can tell you i did not work on any Mortgage Securities deals for any client im very any mortgage security deal for any client prior to the financial crisis. It was not part of my practice. Got it. So you were not involved in advising some of the 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 Mortgage Backed 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 Mortgage Backed securities were not part of my not part of my practice. All right. Just to pick up on what the senator said and ive heard my republican colleagues say it many times that we think that a lot of these settlement agreements were nobody is held personally accountable and liable actually did not create the kind of deterns that we want. I hope Going Forward the American Public will see people not just using investors money to pay settlements, but held personably accountable. Do you think that a stockholder would have an interest in knowing that the company that theyre vested in is spending 5 million to elect Hillary Clinton or donald trump . Do you think thats something that would of interest to a stockholder . After all my understanding is disclosure agreements to the public includes things like the salaries that are paid to the top managers and potential conflict of interests between folks of the company and others. Do you believe that thats something that stockholders should have information about . The touch tone for stockholder information is materialality. 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 Shareholder Resolution and proxy process to require it if they want to. I think theres a risk if they find out if its disclosed. Thats something investors should know upfront so they can take into account that information. I look forward to continuing that conversation because there are a number of things mandated and we can follow up on that conversation. Thank you. Thanks, very much, mr. Chairman. Mr. Clayton im delighted that youre willing to serve. I think youre an outstanding based on your background and expertise and knowledge. Im pleased that you have some experience overseas. It gives you a comparative basis to help inform your judgment about our regulations. Im not saying all that because youre a pennsylvanian, but it doesnt hurt. You mentioned earlier and i think we all know that for decades the u. S. Capital markets have been the envery of the world, but our lead is diminishing. You suggested that its because at this point in the growth cycle its become too costly for Many Companies to go public, to become public issuers of securities. I want to drill down a little bit. Isnt it really too costly where does the cost come from . The cost is complying with the regulations, isnt that the principal cost . Yes, senator, i believe that regulations broadly is the principal cost. So thats whats changed. Certainly its changed and we see a corresponding reduction in public issuance, big ipos. I would argue other adoption of new technologies 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 certainly number of decades weve had a dramatic transformation of the ownership of american companies, a democratization if you will, if you go back 80 years, im pretty sure its true that a small percentage of wealthy americans owned all of our companies. If you look today, our companies, the people who own the stock in our big companies, are very often very ordinary americans who own it through their pensions, 401 k plans, ira plans the universities they send their kids too have it in their endowment and those are a huge share of ownership. Isnt that true . It is true and its changing the Shareholder Company dynamic. If a company decides it has excess cash and it doesnt believe it can generate a market return on that cash, isnt it a 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 perfectly reasonable consideration. Senator, it is a perfect reasonable consideration, yes. I think some of our greatest investors most respected in veste invester say if you cant use the cash wisely give it back. One of my criticism of the sec in recent years is that it has not done a good job on the Capital Formation portion of its mission and i think weve passed some good legislation at times and i think the sec has implemented some of these legislative changes with rules that are way too cumbersome. Im thinking of a 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 its difficult to write a regulation and as we talked about know all of its effects. Sometimes i think it takes too long because you worry about all of those effects. At some points you have to move forward. After you move forward, you have to examine whether you got it right. And thats the way i look at these things. Its not im done, out the door, we tried to do it as well as we could, lets look back and see if we got it right. I think thats a sensible approach. I look forward to working with you on it and i think i finished in my time limit. You did. Thank you very much. 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 took a number of Enforcement Actions to protect the homeowners in my state and 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 take money from shareholders without holding individuals responsible. I want to follow up on those comments and have some questions as well. In fact, in a speech just before he left the department of justice, attorney general holder described current law saying the buck still stops nowhere. Responsibility remains diffuse and executive insulated that misconduct has become the culture. Do we need to change the law to ensure that individuals you want to go after arent insulated from accountability. Okay. Thank you. When Companies Make illicit profits there should be deterrence 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 as we work all of us work together, that will be in my mind. I appreciate that. That goes back to what my colleague was getting to when she was talking about mens rea. The attorney general suggested that Congress Change the law to provide for strict liability for Financial Service executives. In other words, executives should be liable for misconduct that occurs under their watch whether or not they had intent or knowledge of the wrongdoing. Do you agree with that proposal . Again, its not for me to make the law. Its for me to enforce the law. I dont understand the exact contours of that proposal. If that if that can you say it again . Sure. So as i think this is what we talked about and this is a new realm. I get it youre stepping into a different role as an enforcer. This is an enforcement mechanism that you are going to have authority over and these are decisions you are going to have to make. So it just comes down to the issue of strict liability. In other words, canni executive or do you believe executives should be held liable for misconduct whether they had the spent or knowledge of wrongdoing. Whether it was reckless. Whether they intentionally did it or whether it was reckless disregard, do you agree with this proposal there should be strict liability and they should be held accountable. Strict criminal liability, im not im not sure about that. Its not something ive really thought about, but it strikes 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. Im just curious your thoughts on how you intend 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 the staff. I have a lot of respect for the people at the sec that ive interacted with clootdiincludine enforcement staff and i do have more familiarity with prosecutors working with prosecutors and in particular investigations than most transactional lawyers and i hope to bring that experience to bear. Thank you. Mr. Clayton, i see my time is up. I look forward to additional questions if theres time. I appreciate your willingness to step up for Public Service. Thank you. Senator kennedy. Thank you, mr. Chairman. Mr. Clayton, how are you . Im well. Im in the cheap seats. You went to penn . I did. Undergrad. Undergrad. And cambridge. I did. In england. Yes. What did you study there . I studied economics. What did you study there. I studied economics. Are these your children. Did he look you in the eye. He did. Good. Im jasper. Im hailey. Did they instructions about how to behave and not make faces and stuff today. You dont have to answer that. Let me ask you about kromwell. Its a big place. One of the premier firms in the world. You dont get to pick your clients, do you . If a client comes in and says im in trouble and i need help you dont say i dont like the color of your suit, go away. General not. How long you have been there . Over 20 years. Would you consider yourself a securities expert . If anyone can be, i think so. Since youre going to be run the the sec, id like you to know something about securities law. I want to ask you about a matter thats important to many states, but also louisiana. Are you familiar with a gentleman by the name of Allen Stanford . Does that ring a bell in the ponzi scheme. I am. He at one point was in 2008 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 3501718. He defrauded in a ponzi scheme about 7,800 investors. 2,000 were from louisiana. Their life savings. The Securities Investor Protection corporation, sipc, denied coverage of them. Sec sued the ipc. I think a federal judge threw it out. Obviously i was disappointed in that. Heres my question. I wrote it out so i would be precise. What do you intend to do to ensure that investors who lose cash and securities in a failed brokage are victims of a ponzi scheme like this financial scheme, the one i just talked about, receive fair treatment in event they have to turn to the sicp for help, which was created to help them . Senator, i am familiar with the stanford matter and people like Allen Stanford and other fraudsteres who we can name need to be dealt with sternly, severely. As far as their victims and the sipc, i am familiar with this issue and there is a line at 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 Allen Stanford. Okay. Thats fair enough. Let me use my last minute to make an observation. I think this is a really important nomination. Im impressed 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 middle class americans every day that the problem as they say it is we have too many undeserving people at the top getting bailouts and too many undeserving bottom getting handouts and the folks in the middle get stuck with the bill and they cant pay it anymore because their Health Insurance has gone up and their kids tuition has gone up and taxes have gone up but what hasnt gone up is their income. I believe in sufficient markets and supporting formation, but i have lived long enough to understand human nature. Some people cheat. They cheat in all walks of life and all professions, but when people cheat in securities matters a lot of people get hurt. I hope youll be mindful of that. I know you will be. Im out of time. Thank you. Its nice to meet your wife. Thank you, senator. 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 read you a little bit about an article in the Indianapolis Star recently about a worker who is losing his job, the jobs are going to mexico. He did his job great. Hes presently training whats called team montery. Its mexican workers that have come to indiana to take the job skills away. Let me tell you about john feltner who is the individual here. Johns 21yearold son austin, because he knows his dad is going to lose his job, his 21yearold son has taken off time from study criminal justice at ivy tech to manage a pizza shop so 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. She said at this point this is not doable. Shes now gone to a fouryear program in nursing, which is still a great thing, but like your dream was to become a lawyer and you had a wonderful grand dad 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 town of cocoa mow at the time there was the economic collapse, the transmission plant went from 5,000 people to less than 100. Unemployment in elk heart county went to 22 . Thats county wide. Thats not one town or two towns. Thats county wide. Thats the real world effect of what happens. I have 2,100 workers that have been fired from carrier to pay for a stock buyback. They fired these workers and shipped the jobs to mexico because that 3 an hour wage would help them make a few more pennies to pay for the stock buy back. 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 we talked about all those things. I want to know your general insight and experience advising and counseling clients on stock buy backs. Senator, as we talked about in your office, im not familiar with the indiana, but there are pennsylvanias just like a cousin to us. Yes. Reading, pa is a place im very familiar with. Look, this is the issue of jobs going overseas and how thats related to the operation of a company, what choices the management makes is difficult. I dont like these results any more than you do. I dont like it at all. Stock buy backs, there are times when stock buy backs make sense. That is clear. Company has excess cash. They dont know what to do with it. They dont have a good place to put it. They should return it to their shareholders. 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 a range of consequences and there are a lot that as a citizen i dont like. As far as the sec goes, i am happy to talk about that as well. 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 speculators. Thats what this was. What happened in 07 and 08 is credit agencies that abandoned ship and sold their expectation for a few extra bucks. Ridiculous debt collaboration that was allowed to go on. If it was stopped, those 5,000 people at the chrysler transmission plant wouldnt have lost their jobs. So youre the sheriff. Besides being a great dad, you have the opportunity to be a sheriff. And we are very very hopeful you can fill that role. Thank you. As i my families are 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 really bad for every day americans. And what you do will help to determine that. Thank you. Thank you. Senator heller. Mr. Chairman, thank you and thanks for holding the hearing and good to see you. I welcome your family also. Its good to see everybody here and 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 civics Stock Exchange and became an institutional broker and worked in a third market, but subsequently a few years later i became secretary of state of nevada and ended up regulating the the securities industry for our state and had real working relationships with the industry and saw some real bad players. I think senator kennedy talked about a few of them. My colleague from indiana talked about a few of them. 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 merle lynch. I guess my question to you is your commitment to working with these states. Not all regulators are in a particular office. They are every state does have regulators. Theres kind of been a back and forth. I want to get your feel for working with these states on some of these issues and helping regulate their industries. I am very interested in working with the state securities commissions and the many others who have jurisdiction over the securities markets, including state law enforcement, the department of justice, the sec. To your point, it is also my experience that the bad actors theyve been bad for a long time until theyre caught. Early on detection would be much better than later and where that comes from, if it comes from the states or it comes from self regulatory organizations or state law enforcement, im all for it. The word that comes to mind is restitution. First of all, less damage, but the larger the chance of restoring these individuals that have been defrauded. Do you have any views on that . 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 Allen Stanford like we talked about or a bernard may dof. I do think some of the reforms that weve seen around custody and tracing will help prevent that. That is my view. 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. It was proposed regulations that would effect the Mining Industry in the state of nevada. Im appreciative of the senators working with me on this particular issue. All were trying to do is align the Disclosure Requirements with Global Standards so that our domestic minds have economic competitiveness and were afraid were going to lose out. What im asking from you is if i could get your commitment that youll work with this committee and work with my office as we look at these new regulations and 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. Thank you. My time has run out. Thank you for being here. Thank you. Its good to see you again mr. Clayton. A big part of the job on 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 in deciding the sec chair will play a Critical Role in deciding what the enforcement position of the sec will be. In recent history republican commissioners have favored weaker enforcement and while democratic commissioners have sought tougher enforcement. The chair is often the deciding vote. If the chair cant vote and the remaining commissioners split along party lines, then major Enforcement Actions dont go forward and serious wrongdoing may go unpunished. Its important to think about how often the sec could be caught in such a deadlock. Under the president s executive order for ethics theist if two years of your tenure as sec chairman, you would have to recuse yourself from participating in any enforcement matter involving a former client of yours. Thats about half of your term as chair. So based on your personal client disclosures then for half your tenure as sec chair, you would not be able to enforce the law against several big banks including Goldman Sachs, bark y barkleys and ubs. Is that right . Yes. Those banks have repeatedly violated securities laws in the past few years, but if they violate security laws again in your first two years as sec chairman, you cant vote to punish them. I think thats a problem. But its just the tip of the iceberg. Youre recusals would not be limited just to your own former clients. The ethics executive order also requires you to recuse yourself for two years from any manner in which your former law firm sullivan and cromwell represents a party. Thats a leading new York Law Firm with a very long list of wall street clients. So for half your term as 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 believe thats a fair summery, senator, yes 12. Thank you. More potential cases with deadlock and no enforcement. Thats a problem. 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 simple hire sullivan and cromwell to represent them before the agency and then you couldnt vote for enforcement against that company, is that right . Im not sure about that, senator. Well, you do know the rule if they are represented by sullivan and cromwell in front of the agency, then youre going to be banned from being able to vote against them . If they are represented by sullivan and cromwell in front of the agency, i would not be ab will to participate. That was my point. So more cases more cases potentially that you cannot 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 is not a theoretical problem. Recusals were a very big issue for the outgoing sec chair mary joe white. She came from a major law firm. In her short time heading up the sec she had to recuse 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 more severe than chair whites. With you as sec chair it looks like wall street can breathe a little easier knowing 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 that could have been selected to head the sec, you were the right person for this job . Thank you. I want to say that the question of whether im recused from a matter doesnt mean that there will be deadlock. I do i do believe that the current i dont quite understand that. If theres not a majority to go forward on an enforcement action, if the other commissioners split 22, that is a deadlock. I if you are reconfuused that leaves four commissioners, two democrats and two republicans. You come here today and say im going to go for stronger enforcement. Youre not going for stronger enforcement if you cant vote. Im not sure about that characterization. The characterization of a deadlock. No the characterization of who goes for more enforcement. I believe on Enforcement Matters the commission is almost always yunanimous. Im going to yield. I want to underline the point that holding wall street firms accountable is 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. I think that raises a very serious concern about your nomination to be senator rounds. Thank you. Thank you, mr. Chairman. Sir, id like to 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 no. Id like to give you an 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. In that particular case then it would be a matter of making a determination yes or no and in this country in most cases we dont decide on a split vote whether its whether theyre guilty or not and make the assumption that theyre guilty because theres a split vote involved in it, fair enough . I think thats fair, senator. 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 on the part of a company whos being brought before compared to the rest of the job . I would not expect that it would be any meaningful amount of time, senator. If there were parts of the in 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 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 recusals that i have to do will not impact that. Are you a republican . No, im an independent, sir. It seemed to me that the republicans are lax on enforcement. Would you see republicans as being lax on enforcement . No, i do not see it that way. I think sometimes people of different parties may have different enforcement priorities, but i would not say republicans are lack on enforcement. Would you see your role in terms of being independent and being nominated for this particular position to be an arbitor to finding Common Grounds with enforcement and the layout of penalties that for organizations that are found to be in violation of the law or the rules . Yes. If i wanted to say what i thought my if i had to pick a single strength that i would believe i would bring to this position in that regard, it does go back to what i what i said at the beginning and it being a transactional lawyer building a consensus is what your job is. People have different views. They want to get to a place that is 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 wanted to add to that add all . No, i really thank you for the time. Thank you. Thank you, mr. Chairman. Senator mendez. Congratulations on your nomination. Since we met in february, theres been quite a bit of activity at the sec of particular concern to me as acting chair efforts to scale back the authority of the commissions Enforcement Division. He unlaterally reopened the Comment Period to worker pay rashio. I want to focus on the enforcement and then youll turn to the other matter. In 2009 the former sec chair gave enforcement staff subpoena power. Before this only the commission had the power. This empowered senior enforcement attorneys to quickly escalate kwirryes. When we met and discussed enforcement issues you said that bad yaactors have caused this country billions. Unfortunately acting chair has taken steps to curb the Enforcement Divisions authority by revoking the subpoena authority from 20 enforcement officials and limiting it only to the enforcement director. Thats a major reversal from post crisis policy designed to assist the commission in initiating investigations and going after bad actors. 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 . I have no idea whether they have abused their subpoena authority or not. Youre a practitioner before them. Do you have a sense they have abused their authority for the 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 s. E. C. Were you consulted 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 have to discuss this with both commissioners and with let me ask you this. Does taking away subpoena power from senior enforcement attorneys better protect investors and deter misconduct . Thats i dont know the answer to that question. Really . No, i dont. Forgetting about just the proposition that takes 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 those are good questions. Well, the question 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 that authority was the Better Process of making sure that we build on the successes of empowerment at the s. E. C. s enforcement staff. At the end of the day, we need an s. E. C. And a chair whos going to be a cop at the beat. What we had one time was they were asleep at the switch. Let me ask you i have another concern about the unilateral decision to open a new public common period on the rule of requiring Public Companies to disclose the ratio of their total cea compensation to median worker pay. A rule adopted by the Commission Nearly 18 months ago. App year and a half ago. In addition to obstructing the limitation of a congressionally mandated rule, one that i in addition to obstructing the limitation of a congressionally mandated rule, one that i authored l mm m year and a half. In addition to obstructing the limitation of a congressionally mandated rule, one that i authored in in dodd frank seemingly only to 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 shareholders evaluation of executive compensation. In fact, yesterday a coalition of a hundred investors and investor organizations representing 3 trillion in assets under management wrote to the acting chair expressing support for the ceo to worker pay ratio rule and urged the s. E. C. To maintain the current effective day for a 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 acting chair is the acting chair. Thats a decision for him to make. But youre going to be if confirmed the new chair. Do you think would you do that . Would you have done that . I do not know enough about the well, thats not acceptable. What do you mean you dont know . You dont know about ceo pay worker raises . This is a major issue thats been debated for some time. It has been and its a congressionally mandated provision. One that has for 18 months been rule. So arbitrarily decision of the chair, youll be the next chair if confirmed to ultimately undo that. Seems to tell me you dont know . You dont know is not acceptable. Thats not what im saying. Im saying i dont know what motivated chairman im asking you what you would do. If you were sitting there right now, would you have done that . I cant answer that question because i dont have the benefit of the interaction with the staff that the chairman had and the history with the rule he had. Its already been done for 18 movants. Im sorry, mr. Clayton, but those answers are unacceptable. Thank you. Thank you, mr. Chair. Mr. Clayton, thank you for being here. I sometimes go into these committees and it reminds me of a far side comic, the caption read the floggings will continue until morale improves. I thank you for your patience. I want to ask you a question. The primary mission for the s. E. C. Is protecting investors. That more or less enforcement. Maintain fair and orderly and efficient markets and to facilitate Capital Formation. Do you have any sense of how well the s. E. C. Has done the last 20 years . You pick your time horizon. Senator, i think on the let me focus on 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. Tell me a little bit. That spans a couple of administrations. What were the highs and lows . Just briefly. Ive got a couple of other questions i want to ask. In particular, i believe, for medium sized companies, companies that are in their growth phase, it has been more we have made it more difficult and less relatively attractive for them to be Public Companies. I think that almost all what do we have to do to get on a positive trajectory . That 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 cask you. Why do you think it is im trying to get the number in front of me so 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 believe that that statistic should be telling us something. And i think its whats it telling us . I think its i think it is 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 number of different financial institutions. Bank of america probably being the one i spent the most time with. Is it fair to say 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, senator. At every level. At every level. I know that one thing so, you know, its not a matter of going willynilly. I was the 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 Processing 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 schemes that promote responsible Capital Formation. You know, theres Something Else that i feel like sometimes im living a reality tv version of atlas shrug. There are a lot of people in this congress that just want to beat down job creators and employers. And i just decided just on the fly and im glad my staffs able to respond to my random requests. But just take a look at Goldman Sachs. People want to demonize Goldman Sachs. Thats an easy thing to do, right . Beat up on a financial institution. An institution thats committed to let me look at the general numbers here. They have 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 am i right . Between now and 2025 for nonprofits. Demonizing employers that employ the little guy isnt looking out for the little guy. Ive heard Marketing Department recently using looking out for the little guy. Look, 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 demonizing businesses that have to be held accountable. You find a bad actor, everybody thinks i Like Pharmaceuticals. I Like Pharmaceuticals that are responsible. Ones who are bad, id like to see them go to jail. 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 theyre all bad, you are hurting the little guy. And i hope youll go to the s. E. C. , promote responsible Capital Formation, and do a good job. And i think that you will. And jasper and wyatt, and hailey, i think your dads going to do a good job. Thank you. Thank you. Senator shotts. Thank you, mr. Chairman. Mr. Clayton, there are 20 mandates by dodd frank that the s. E. C. 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 s. E. C. Will halt all work on dodd frank. What would be the rule on not under a statute . Rules required under a statute . Rules required under a statute, rule making should go forward with rules required under a statute. And at what point does a delay become a refusal to implement the law . I think that depends on the context, senator. Well, im giving you this context. A sevenyearold law. 20 of the rules not yet implemented. The acting chairman refusing to move forward on kbleimplementat of the rules. Stumbling and bumbling. Im not sure i would characterize it that way, but i understand your point. But im asking what you think. Again, as i said with senator menendez, in terms of a specific rule making, i dont have the benefit of the interaction with the staff and the comment letters and what the when and i hope i do become chairman, assessing the rule making calendar, prioritizing, and moving forward is something i very much intend to do. Do you think the s. E. C. Has the authority to refuse to implement a rule required by the law . Do i think i think a rule making required by law should go forward. Thank you. I want to ask a sort of an uncomfortable question. You and i had a good conversation. I also have young kids. 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. They always do. But thank you for that. I appreciate the conversation you had with senator warren regarding recusals and conflicts of interests. Theres a sort of other aspect of this. Take Mary Jo Whites situation who recently returned to the firm she left to join the s. E. C. While at the s. E. C. She had to recuse herself from dozens of s. E. C. Actions as you would. This made it harder for the s. E. C. 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 that 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 leaves me with a challenging question to ask. I in no way mean to impugn your integrity, but is it fair to say you have colleagues at companies and institutions that are subject to the s. E. C. s oversight . Yes. And it is a fair question. 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 whether my term is hopefully a full term, a lots going to change. If thats the case. Even if its a i mean, your whole life changes when you do Something Like this. I am severing all ties to the firm. Im divesting myself of all the financial assets. 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 opportunity 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 its an appropriate precedent to set. Im you know, that said, i am committed to this job. Sure. I understand. And i think from the standpoint of not this panel or the people in this audience or even the people watching on cspan, its not unreasonable to worry about someone who comes from industry whos social, whose professional network in that industry to be put in front of being the cop on the beat, its not purely a matter of whether theres a square conflict and whether you do the recusals properly. But whether those relationships infuse all of your thinking about your own life and about the decisions before you. Thank you, mr. Chairman. Senator perdue. Thank you, mr. Chairman. Mr. Clayton, thank you for your forbearance and willingness to step out midcareer to do Something Like this. As a past Public Company ceo, ive had a personal relationship with the s. E. C. 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 of our lifetime 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. Eight years of a democratic president. This is not a partisan question. But our number of ipos, initial Public Offerings, has decreased somewhere between well, its gone from average 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 is my second question i want to come back to your usa 10k. Can you speak to the reduction in Public Offering and the number of Public Companies we have today, whats causing that . What do you think the s. E. C. Can do to help us become more competitive with the rest of the world . Yes, senator. And i agree with you. I believe that a reduction in the number of Public Companies which is a 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. The price is there. Our equity markets have become very efficient. You can invest. You can divest very easily. Who chooses to become a Public Company . The 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 when you make the decisions, they look at the landscape now and say its just too burdensome. And 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 of the Capital Markets. What im concerned about, the private markets are also an 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 in regard to the Global Investment and the flow of capital around the world. In my time remaining, i have one quick question. You wrote an article i think you cowrote it. Usa 10k. In there you make a lot of comments. One that speaks to me heart is one of the reasons i got involved in running for the senate is im concerned about our current financial situation. And you talk about complexity risk and the current state of affairs. Can you just speak to that briefly . Here i have a problem with regulations that are unnecessarily complex. 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. Complexity and third, it creates an opportunity for got ya. Thats not what we meant. We meant this. My view of regulation is to the extent practical and you cant do this in all cases. Reducing complexity. Clarity are very important. If people know the rules with b 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 s. E. C. Create and maintain a level playing field. I think with your background, i think 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. Good morning, mr. Clayton. Ive got a couple areas i want to bounce around here, so ill try to be fast in my questions. If you could try to be somewhat fast on your answers. Ive been very interested in the emerging challenges around Cyber Security. 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 their quarterly s. E. C. Filing. And i dont want to just pick on yahoo. The remarkable stat is theres 9,000 publicly traded Companies Less than a hundred over the last decadeplus that have ever reported any kind of cyber breach or violation as Material Information. You know, as more and more Companies Get more and more often threatened by this type of activity is subject to this kind of attack. Do you think the s. E. C. Ought to take a fresh look at reporting around the whole threat of Cyber Security . Senator, let me give you my personal view. I think it answers your question. I dont think that the American Public we can whit thal down to the american investing public particularly outside of particularly the ordinary investor has as great an appreciation for the cyber risks that our businesses face today. I would just hope, you know, 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 whole question of materiality, if yahoo had 500 million there was a question the breach actually exceeded a billion. How thats not material, it would be is just beyond belief. I think itd be inappropriate for me to comment on a specific case or specific matter. But 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 was around equity Market Structure. They showed 839 different fee schedules that were come that are composed of 372,000 different availablevariables. In effect, there was a way for Market Makers to bespoke transactions really gear towards people who were going to make the Biggest Commission off of this. It was not by any means a level playing field. One of the things that we pushed very hard, the former chair but weve really not seen it, is move forward on a make or take it pilot. So we can bring more clarity to make sure all bid ners a 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 that i was really glad to meet with you i learned things. This is a case where ive learned something in the interim thanks to your questions. The equity Market Structure working group at the commission is doing a, you know i think is doing a good job of bringing the fact there is a great deal of complexity. We dont know whether it is as efficient as it should be or fair as it should be. And i do want to work on this. I would like that. To me, seeing that structure, seeing this chart that to me it looked like it was a total ability to gain the system that really allowed Market Makers to give to a preferred broker and frankly was by no means it was no means the level playing that i think we all want. I want to get in my last question here. I know that youve represented valeant and persian square. And there was potential Insider Trading in conjunction with the allergan bid. As a matter of fact, the federal judge in california ordered both to make additional disclosures on their shareholder documents. In a sense, they it seemed like they were almost begging the s. E. C. 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 around shortterm versus longterm. There is a role for activist investors. But in the United States, we still have under 13d what i think is a very antiquated tenday reporting period. So someone can aggregate that 5 of the stock, report it after they got that ten days. Then you get another ten days for somebody else to be able to in alliance as kind of coinvestors aggregate without the level of exposure. Youve got to report this within two days in uk. Hong kong i think has a requirement of instantaneous disclosure. To me 13d and the ability for these investors to kind of aggregate shares and then provide kind of an aggressive activist type sometimes play well. But i dont think we are serving the rest of the investors well. Do you have any comments on 13d and how we might be able to get this kind of information faster out . And then also the notion of whether the s. E. C. Ought to take a look at that the judges decision on the persian square case. I tried to get a lot in there. Yeah. 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 the contours of the debate. I look forward to working on it. 13d . 13d, i also understand that debate. You want to incentivize people who see something wrong with a company to come in and say, you know, youre not doing a good job. On the other hand, you dont want to give them an unfair advantage. And in particular i understand your question about the whatever we want to call it. The domino effect, the group effect. Thank you. Senator reed. Well, thank you very much, mr. Chairman. I apologize. My tardiness. I was leading along with senator mccain a hearing. So im sorry. Its probably more important. No, its not. Its not. Welcome to you. Welcome to your family. I particularly want to salute your fathers service in vietnam. Thank you, sir, very much. You have said in your public statement, there is zero room for bad actors in our Capital Markets. I am 100 committed to rooting out any fraud in our system. One is shapiro in 2011 that wrote that one of the reasons why theres some inhibitions in doing this is because the authority obtained civil monetary penalties with the effectiveness is theyre capped at a relatively low level given some of the behaviors and some of the resources. Would you be to raising . Senator, im actually, i have to confess. This is the first time ive been asked the question about the penalties. So i am 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. Well, one of the things that most people and 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 they didnt do anything wrong. And they settle for a fraction of what was suggested. They got through the behaviors, people get cynical and skeptical. I would urge you very much to look at that. And following up on senator warners question about Cyber Security, weve also had a specific proposal. Senator collins, myself, and senator warner have a legislative proposal that would require a publicly traded board to have at least one person on the board with Cyber Security expert. And if not, then in their disclosures explain why they dont need it because of steps theyve taken. I want to emphasize it does not require companies to take any actions other than just provide this disclosure. Would you be sympathetic with that legislation . Senator, as i said, i believe in materiality. That said, there are areas that 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 there is oversight at the board level that has a comprehension for Cyber Security issues. I believe that is something that investors that investors should know. Whether companies have thought about the issues. Whether its a particular expertise of the board or not. But i agree that thats something companies should know. Its a very important part of operating a Significant Company. Any Significant Company has cyber risk issues. And thats not just the traditional sort of a Financial Company nowadays or any company. Because the ability to interfere with operations through the internet is significant. Let me ask a question about Climate Change. And its interesting. Black rock who is one of the Worlds Largest Asset Managers have just indicated that they would expect companies such as Real Estate Companies would have a demonstrated influence in how climate risk affects their business and how Given Company will address it. Which raises again similar issues. Should these companies that are exposed to Climate Risks specifically be required to make d disclosures in their documents . I know that the s. E. C. Has issued guidance in this area. In particular, not on the impact of Climate Change itself on businesses, but potential regulations and other activities. And let me say this. Public companies should be very mindful of that guidance as theyre crafting their disclosure. And ill just say this is more of a footnote than anything else. Interesting time when the secretary of defense seems to be the most fervent believer in Climate Change and the representative of the Environmental Protection agency doesnt believe it at all. Placing companies in an awkward position of who do you believe. I tend to believe the secretary of defense. Lets stop there. Final point we talked about in our office which is intentions are one thing, resources are another. And resources will affect your behavior. And as i observed, one of the impressions i had up to the collapse in 07 and 08, they didnt have the budget to go out there and wall street knew it. So they knew there was a lot of behaviors that might be in the murky area. But the likelihood of one being discovered, two being prosecuted or anyone held accountable is virtually nil because the resources werent available. Right now the s. E. C. Is operating on 1. 6 billion. Theyve asked for 1. 7 billion. But looking at the skinny budget, domestic agencies are being decimated. So what happens when youre presented with a budget which you think is absolutely inadequate for the technology wit, for the enforcement personnel, et cetera. I think that will transfer quickly into wall street generically speaking into the sense that theres no sheriff. In terms of using resources with iresources, im very interested. In the area of enforcement and i do look forward to discussing this with the staff at the s. E. C. And the prosecutors who i know will if confirmed cooperate with, i do believe that individual accountability has a greater deterrent effect across the system. I look forward to pursuing that. On the question of budget and resources, now, i know lots of instances where new ceos have had to go into a particular situation they wish they had more money. Wish they had less money. One of the things that i would have to do here a 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. And mr. Clayton, that concludes our first round. We have had just a couple of senators ask for a second round. And so we will do that for i think we have three senators who have asked to do so. And i will forego my second round although ill probably make some wrapup comments at the end. Lets start the second round right now. Thank you, mr. Chairman. I appreciate your indulgence. I know senator warren does. And i have to go to agriculture after this for the confirmation hearing for the secretary designee there. So again, thank you for answering the questions that you have so far. Youve clearly thought a lot about the foreign corrupt practices act. As a lawyer in private practice, how would you advise a client interested in complying with the act if that client was weighing going into business in azerbaijan with a politically connected family known to be corrupt and tied to the Iranian Revolutionary guard . And you know thats not just a what if, thats a real case. No, i think that is a real case. And im going to not comment on a real case, but im going to comment on the question of how do you advise a client whos subject to the foreign corrupt practices act who may be entering into business in a country that is well known for corruption. I think you have to tell that client to think long and hard about whether you want to have the potential exposure to and 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 made since just not to participate. Im sure you know that the president was involved in that situation. In 2012 he said the fcpa was a horrible law that should be changed because it puts u. S. Business at a huge disadvantage. I know youve had some similar kinds of thoughts, but i just i think all of us want you to understand how important it is with a president like no other in terms of family investments, in terms of the president s family has gone overseas to do more investing while u. S. Taxpayers have paid to protect his families 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. And im hopeful that the standard will be high. We should send the 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 country. Its bad for investors. But 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 really want to know is that were doing what we can to prevent the bust that can ensure their safety in retirement. Make sure the systems not rigged against them. In this senate about what happened in 2007, 08, and 09. And i think most americans share that concern and wonder about the collective amnesia of too many of our policy holders. So my question is this, mr. Clayton. What do you tell people about investing in a market where companies can stay private longer, 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 do think it is a problem. And i do think its a problem thats not well known. If you have fewer Public Companies getting on the growth phase, and these are all here, thats fewer returns for people who participate in the public markets. You know, people who participate in the private markets are capturing those returns. I do want to see more Public Companies. In terms of, you know, your other questions around amnesia, i can tell you i dont have amnesia. I worry about where the risks are today. You know, the risks in 2007, 2008 were in one aspect of our economy. And it got away from us. Very much got away from us. I worry about where those risks are housed today. And making sure that we dont have a repeat of that type of situati situation. Go back to thank you for answering the collective amnesia part of it. We talked and you said you Want Companies when i said they stay private for longer and you answered that well enough. But more and more Companies Limited 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 issues of companies, you know, two things. Its well disclosed and well understood thats where we are. The ability of companies to come to the market with structures like that is a function of does it make sense. I also believe its a function of whats the supply of Public Companies coming to the market. My sense and i could be completely off on this because i havent tested it with experts and things like that. 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. And thats not a good thing . I dont know if its a good thing or a bad thing. But i think thats a change min the balance. Thank you. Senator cortez masto. Thank you, mr. Chair. Mr. Clayton, i know its been a long morning so i appreciate you being here and the answers to your questions. Have two quick ones for you. For the arbitration clauses. In particular dodd frank gave the s. E. C. The authority to rein in the use of the arbitration clauses. Unfortunately the s. E. C. Never so much as studied the issue. So my question to you is if confirmed, will you commit to the reining in of the forced arbitration clauses . Im not going to prejudge and commit to that issue. Its actually i will tell you its an issue that i dont know a great deal about. But i will say that ill commit to working with you and working with the staff to learn more about it. Thank you. Second question, number of my colleagues today covered how your substantial recusals may impede the work of the s. E. C. My specific interest, though, is in transparency. I believe that government doesnt do enough of being transparent enough to the taxpayer to understand what has taken place. In Commission Hearings and any type of process and procedure. And while i certainly dont want market moving information to be disclosed before its right, i think the public should know when anyone recused yourself when an enforcement matter is settled. Will you report 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. Well, 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 recusals, i think the commission has a policy for disclosure of recusals. I look forward to working on that. As far as the particular reason for recusal, its the first time i thought about it. There are things going through my mind like whats the duty to a client, et cetera, those types of things. But i will look into whether the specific reasons for recusal is something that should be disclosed. Thank you. And let me just couch this. Most states in particular nevada have open meeting laws. And they require any type of action taken by a commissioner to be put on the record for the public to understand. And i completely agree with you that during a pending investigation, you want to protect the integrity of that investigation whether its civil or criminal. My question to you, though, was at the end of the enforcement matter, once its settled and done, at that point in time would you be willing to even change a policy if it is different than what im asking you as to identify if you recused yourself on that particular matter . And then why you had to recuse yourself . Im i am have open to having that dialogue with the s. E. C. Ethics officer and people have that 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, and thank you very much for letting us have an extra round here. Last december president elect trumps Transition Team announced that carl icahn would be serving as special adviser to the president on issues related to regulatory reform. Now, as you know, mr. Icahn is a longtime activist investor with holdings of more than 16 billion. He has Massive Holdings in Public Companies like cvr energy and oil refinery and herbal life medical supplement manufacturer. And 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 hes invested in. Now, about two weeks after mr. Icahn was named to this position, you were dominated to lead the s. E. C. And according to news reports, mr. Icahn helped president elect trump choose you. Thats troubling for a number of reasons. Especially considering that the s. E. C. Is actively investigating herballife. One of his largest investments. So mr. Clayton, have you had any conversations or other communications with mr. Icahn since the election on november 8th . The news reports that carl icahn had, i dont know. I have no knowledge that i just asked after my nomination was announced, i had a bit of heads up that it was going to be announced. But 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. And let me guess. He thinks activist investors are a good thing and should be encouraged in the marketplace . I think he thinks that they do well for markets. Yeah. Did he talk about any of his investments . No. All right. So he just talked about generally his view and talked about his view about how the s. E. C. Should no. No real specifics so he just wanted to give the view on activist investors knowing you were the s. E. C. Chair nominee . Correct. And that was the only conversation you had with him or any of his people . No that conversation . That was the only time ive spoken to mr. Icahn or his people before, after were during. And that was the only topic you discussed . He congratulated me. We talked about people we knew in common, that kind of thing. Thats the first time i met him. If you were confirmed, do you agree it would be inappropriate to have any conversations with mr. Icahn about the s. E. C. s regulatory or enforcement plans especially given his massive financial interests in various s. E. C. Decisions . If im confirmed and im in the seat of the chairman of the s. E. C. , 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. Receiving information about what participants in our Capital Markets think about them from all types of people is an important part of the job. But to your point, senator, i agree with you. If theres an Ongoing Investigation and there would be the appearance of impropriety or, you know, even the appearance of impropriety, it may be inappropriate to have that kind of id like you to upgrade that maybe inappropriate to you believe it is inappropriate. Im not going to totally prejudge it, but i totally get your point. Id feel a totally lot happier if you would totally judge that this is inappropriate. Let me go on from there a little bit. In february mr. Icahn purchased a significant stake in bristolmyers. To be clear, he purchased this stake months after he was appointed as a special advise tore the president for regulatory policy. So let me do this as quickly as i can. Mr. Clayton, i just want to ask you generally, can federal governments regulatory decisions affect the value of holdings in a drug company like bristolmyers squib . Yes, senator. Yes. Good. And can the value of those shares be affected by fda policies . Yes. Good. And patent decisions . Yes. And medicare and medicaid decisions . Yes. Yeah, good. Of course they could. 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 bristolmyers. If he chose based on that information, is that potentially a violation of securities laws . As we both know in general. Okay. As we both know, the question of the scope of the securities laws around Insider Trading, et cetera, is its a very facts and circumstances analysis. If he had inside information but it depends on where it came from, what duty types of things. What about the fact it came that 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 so we are assuming a lot, mr. Clayton. And i appreciate that you want to be fair here. I know i need to stop because im over my time and the chair has been very indulgent here. But we are talking about an administration that just has conflicts everywhere. And it is very difficult to determine whether someone is actually working in the interest 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. And 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 we are talking about everywhere else. And 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. And 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. And i want to hear the chair of the s. E. C. Say hes going to look into this and i hope put a stop to it. So i will stop there. Thank you, mr. Chairman. Thank you, senator warren. Mr. Clayton, that concludes the questioning. I do want to make a couple of comments and supplement the record on one issue. Im glad youre still here, senator warren, because 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. And i just have some information here from two articles back in october of 2016 in which reuters in one case and law 360 in another case analyzed all of the Enforcement Actions of the s. E. C. From Mary Jo Whites tenure. It was about a threeyear period of time. There were 1400 defendants over 400 cases. And 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. And so 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. I know you would like to make a response as well and youre welcome to do so. Thats right. And i havent prepared for this, but i do want to say i think we have a New York Times analysis showing in the 48 cases where Mary Jo White recused herself, that the republicans wanted less enforcement. Im not familiar with that article, but you are welcome to and the democrats wanted more enforcement. So, but we can continue to talk about this issue. We will do so. Mr. Clayton, thank you again for your willingness to serve and your participating in this hearing today. I have just one announcement for our members and 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. And once again, thank you for being here. That concludes our business. The hearing is adjourned. [ indistinct conversations ]
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