July 8, 2016

Senator Warren Calls on SEC to Justify Disclosure Effectiveness Initiative

Steven Lofchie Commentary by Steven Lofchie

Senator Elizabeth Warren argued that "the SEC has spent precious agency resources on a voluntary effort to reduce disclosure that appears to be aimed at addressing a problem – investor 'information overload' – that does not exist." In a letter addressed to SEC Chair Mary Jo White regarding the SEC's "Disclosure Effectiveness Initiative," Senator Warren urged SEC Chair Mary Jo White to refocus the agency's "efforts on the interests of investors, not the large corporations that are seeking to limit disclosures."

Specifically, Senator Warren argued:

  • the Disclosure Effectiveness Initiative went "well beyond any congressional mandate" by taking the narrow authority in the JOBS Act "and transform[ing] it into a comprehensive review of disclosure requirements";

  • the Disclosure Effectiveness Initiative was "designed to reduce disclosures to ease the burden on issuers – not to address actual investor concerns" by focusing "on reducing disclosure in the name of protecting investors from a nonexistent problem: 'information overload'";

  • the SEC failed to finalize twenty mandatory disclosure rules under the Dodd-Frank Act, and pursue other investor priorities, while working on this voluntary initiative; and

  • the SEC should focus its attention on reforms that benefit investors, particularly by working with the investor community to effectively implement the Fixing America's Surface Transportation Act.

Senator Warren charged that:

The [SEC] has defied the will of Congress and its mission to protect investors and instead has pursued an agenda aligned with the narrow interests of the U.S. Chamber of Commerce and big business.

Senator Warren also requested that Ms. White respond to several questions about the implementation of the Disclosure Effectiveness Initiative and FAST Act mandates by August 1, 2016.


From a political perspective, Senator Warren's interests seem focused on disclosures that she thinks may be politically beneficial. This is evident in the types of disclosures for which she advocates, particularly the disclosure of political contributions. According to Senator Warren, over one million "investors" wrote to the SEC supporting disclosure in this category. That is a number more likely the result of a political letter writing campaign than of a movement of concerned investors.

From a financial regulatory perspective, Senator Warren raises a valid question: what disclosures do investors want? According to the Senator, investors are seeking more disclosure on "social" issues, including (other than political contributions) climate change. (See also SEC Approves Concept Release on Corporate Disclosure Requirements, especially relating to the views expressed by SEC Commissioner Stein.) The best answer to the question is to ask investors directly what they want. The best means to do this is through the proxy process and not through the political process (which simply reveals what politicians want disclosed).

From a legal perspective, Senator Warren correctly cites Section 108 of the JOBS Act as focused on the disclosure requirements applicable to emerging growth companies. However, it is not possible to examine disclosure relevant to these companies without examining the disclosure system generally – the issues that affect emerging growth companies affect larger companies as well. See pages 2-7 of the SEC's Staff Report. In the context of the broader set of applicable rules, there is more than enough mandated disclosure to achieve the Senator's objectives.

Unfortunately, the tactics that Senator Warren uses to pursue her political agenda often include inappropriate attacks on the ethics of those who disagree with her. For specific examples of this conduct, see the commentary on Senator Warren Asks CFTC to Withdraw EEMAC Report on Position Limits. Senator Warren and SEC Chair White may have a disagreement concerning what should be the priority of the SEC. However, it is unreasonable and unnecessary to make unsupported allegations that Chair White is somehow a pawn of "big business." This type of rhetoric makes it very difficult, if not impossible, to have a real debate on the substance of financial regulation.