Tags: SEC | JOBS Act | Dodd-Frank | Walter

Why the SEC Hasn’t Implemented the JOBS Act

By    |   Tuesday, 23 April 2013 02:11 PM

Last Wednesday, the House Financial Services Committee’s Subcommittee on Oversight and Investigations, chaired by Patrick McHenry, R-N.C., held a hearing to determine why the Securities and Exchange Commission (SEC) has taken more than a year to implement Title II of the Jumpstart Our Business Startups (JOBS) Act, which lifts the ban on general solicitation of investors in private securities offerings, provided that the prospective investors are “qualified” by meeting standards as to net worth and sophistication.

Title I of the Act, which permits “emerging growth companies” to go public without meeting the disclosure and internal control standards that otherwise apply to public companies, has already been implemented.

To delve into the reasons for the delay in implementing Title II, McHenry called upon SEC Commissioner Elisse Walter to explain why it is taking so long, using several internal Commission documents as props for what McHenry acknowledged was a show, and he expressed his hope that Walter would enjoy it.

This hearing, together with two other contemporaneous hearings, provides a window into the dysfunctional regulatory process that marks the financial services industry. For many years, Jerry Hawke, a leading banking lawyer who served as Comptroller of the Currency, would routinely include a statement in his speeches that while no one would have designed the system of financial regulation as it is, it works.

If anyone could credibly make that claim today, it would be the industry lawyers who indirectly write the laws and who have become ever more adept at managing the implementation process, or as I call it, the “limplementation,” to suit the needs of paying clients.

Thus, last Thursday the Senate Banking Committee jawboned Ed DeMarco, who has regulated Fannie Mae and Freddie Mac as conservatorship since the fall of 2008 in an acting capacity, without Senate confirmation. This Tuesday, the same committee will receive a semi-annual report from Richard Cordray, an able Ohio politician who has aspirations to run for governor.

Cordray is a recess appointee as director of the Consumer Financial Protection Bureau (CFPB) established under the Dodd-Frank Act, again without Senate confirmation, while opponents litigate the legitimacy of his service, contending that the Senate was not in recess when he was appointed, as a federal court has ruled with regard to another appointment made on the same day.

The SEC has had three chairmen in the past six months, as Mary Schapiro retired and was replaced temporarily by Walter, and a new chairman, Mary Jo White has taken over the agency. White is married to John White, a former division chief at the SEC who practices law with a leading Democratic Wall Street firm.

Over the past century-plus, and especially since the New Deal, the U.S. government has come to rely on legions of “expert” bureaucrats, including commissioners, judges, “czars” and their staffs, to conduct the business of government. As the number of agencies has proliferated, the prevalence of “acting” officials suggests that the number of jobs has long since exceeded the number of honest and competent people to fill them. Sometimes it seems that, with a handful of exceptions, there are two types of agency appointees: incompetent ones, and competent ones serving in jobs for which they are not competent.

Much as congressional Democrats offered the prospect of principal reductions of mortgage principal as an election-year gift to delinquent borrowers last year, only to run into DeMarco as an obstacle, Republicans offered the JOBS Act, with some Democratic support, as a means of showing during an election year their zeal for casting aside regulatory impediments to the opportunity for startup companies to raise capital from the public, but found Schapiro blocking their way.

When McHenry and his Republican colleagues demanded explanations of apparent contradictions disclosed in internal emails, Walter was ready to respond that she agreed with both sides of the debate. She said that she acknowledged that the JOBS Act required action by the Commission, but the law also provides that investors must be accredited, and comment letters expressed a disparity of views as to how important this is and how it should be done.

Democrats took the opportunity to decry the fact that congressional Republicans have opposed funding the SEC and Commodity Futures Trading Commission enough to enable the agencies to implement the Dodd-Frank Act.

Ironically, at the same time the Republicans and industry lobbyists had geared up to oppose the implementation of Dodd-Frank at the agencies and in the courts, once they passed the JOBS Act, they wanted regulations promulgated within the prescribed 90 days.

In response to a question from McHenry as to how long the Commission takes to produce a final rule from the point where the staff has drafted an outline of the terms of a regulation, Walter said there is no set time. By the way, anyone who has followed the SEC knows that the regulatory process can take many years, and the Commission often provides exemptions and no-action letters to well-represented clients even when regulations are adopted. Certainly McHenry should know this.

In the case of the JOBS Act regulations, the Republicans wanted the SEC to move ahead without a comment period, and it had a division chief on its side who said she did not expect much to be learned from a comment period. After the SEC proposed the rule with a comment period, it received 220 comments, and Walter testified that it is committed to finishing the process and resolving the issues that have been raised.

She noted that the Commission’s Investor Advisory Committee, established by the Commission under the Dodd-Frank Act, has formally expressed its concern that the JOBS Act could lead to an increase in investor fraud, and the Commission has to take this view into account.

Watch this space for further developments in the debate over implementation of Dodd-Frank, mortgage finance reform and the JOBS Act, as both parties see political advantage in contesting these matters in public. Otherwise, they would resolve these controversies behind closed doors.

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Last Wednesday, the House Financial Services Committee’s Subcommittee on Oversight and Investigations held a hearing to determine why the SEC has taken more than a year to implement Title II of the Jumpstart Our Business Startups (JOBS) Act.
SEC,JOBS Act,Dodd-Frank,Walter
Tuesday, 23 April 2013 02:11 PM
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