Senator Warren Asks SEC Whether Public Comments on Proposed Rules May Violate Securities Laws
Commentary by Steven Lofchie
Senator Elizabeth Warren (D-MA) urged SEC Chair Mary Jo White to investigate four companies to determine whether they violated securities laws. Specifically, the Senator maintains that the companies made statements to investors that contradicted their negative comment letters regarding the DOL Conflict of Interest Rule. In their comment letters, the companies asserted that the rule would cause "serious harm to the retirement advice industry."
Senator Warren argued that the "dramatically different public statements" made by the companies violated Securities Act Section 17(a), Securities Exchange Act 10(b) and Rule 10b-5, also known as the "Employment of Manipulative and Deceptive Practices Rule." Although an SEC investigation would not require a demonstration that investors relied on these "untrue statements," she said, it would clarify whether any violations occurred.
According to the Senator:
[B]oth sets of industry claims – that the proposed rule will harm them and their business model, and that the proposed rule will not harm them and their business model – cannot possibly be true. And if one these public statements is materially false, it would appear to violate long-standing interpretations of our securities laws.
In addition, Senator Warren asked the SEC to brief her staff on its interpretation of the securities laws' application to the companies' public statements on pending rules or legislation, including press statements and official comments to government agencies.
Senator Warren requested that Chair White respond by April 11, 2016.
Commentary
Senator Warren rightly addresses contradictions in the assertions of critics who oppose regulations she favors. Demonstrating inconsistencies in the statements of an opponent is a fair method of debate and is a powerful way to make a point.
That style crosses the line, however, when the Senator uses tactics that can intimidate and effectively silence those with whom she disagrees. Senator Warren asked the SEC to provide her staff "with a briefing on how the SEC interprets companies' public statements about pending or possible rules or legislation, including official comments to government agencies." In short, the Senator's request for an investigation could lead to criminal proceedings based on mere conflicts in companies' comments on rules proposed by the government. The Senator has called for an investigation into those whose comments are deemed overly harsh by the government, with the implication that the government could find that its critics have broken the law. That is intimidation. And it is a dangerous path.
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Senator Elizabeth Warren (D-MA) and Representative Elijah E. Cummings (D-MD) argued that "insurers and financial firms provide much more optimistic assessments when they speak to their own investors" than in their "dire and unsupported public predictions and official comments to the Department of Labor about the impact of the proposed Conflicts of Interest rule."