Securities Industry Commentator by Bill Singer Esq

November 10, 2023


SEC Charges Former Co-CEOs of Tech Start-Up Bitwise Industries for Falsifying Documents While Raising $70 Million From Investors / All Bitwise personnel lost their jobs in May 2023 when the scheme was exposed (SEC Release)

SEC Charges Connecticut Investment Adviser with Stealing Clients’ Money (SEC Release)

SEC Obtains Judgment Against Former Hedge Fund Trader Related to Hedge Fund Valuation Scheme (SEC Release)

In the Matter of the Application of Alpine Securities Corporation for Review of Action Taken by the National Securities Corporation (SEC Opinion)

In the Matter of the Application of Alpine Securities Corporation for Review of Action Taken by the National Securities Corporation (SEC Order)

“Fall Feelings: Treasury Markets’ Efficiency and Resiliency” Remarks before SIFMA by SEC Chair Gary Gensler 

Remarks at the Practicing Law Institute’s 55th Annual Institute on Securities Regulation by SEC Commissioner Mark T. Uyeda

Remarks to SEC Regulation Outside the United States: Fifth Annual Scott Friestad Memorial Lecture by SEC Commissioner Mark T. Uyeda


Federal Court Orders Former New York City Resident to Pay Over $2.6 Million in Monetary Sanctions for Fraudulent Solicitation and Misappropriation in a Commodity Pool Scheme (CFTC Release)


FINRA Censures and Fines Six Rep/One Branch Firm for Form CRS Omissions
In the Matter of Decker & Co, LLC, Respondent (FINRA AWC)

FINRA Censures Three Rep/One Branch Firm That Chaperoned Trades Without a Clearing Firm
In the Matter of Decker & Co, LLC, Respondent (FINRA AWC)

FINRA Censures Robert W. Baird & Co., Inc. for Excess Mutual Fund Charges
In the Matter of Robert W. Baird & Co., Inc., Respondent (FINRA AWC)

FINRA Arbitration Panel Awards Morgan Stanley Nearly $3 Million in Contribution
In the Matter of the Arbitration Between Morgan Stanley, Claimant, v. Christopher Robert Armstrong and Randall Brian Kiefner, Respondents (FINRA Arbitration Award)

 = = =

UPDATE: Federal Court Confirms Multi-Million Dollar FINRA Arbitration Award for Charles Schwab Against Morgan Stanley ( Blog)
Ya had layoffs at Morgan Stanley. Ya got layoffs at Charles Schwab. The axe has fallen, is falling, and will fall all over Wall Street. While the big boys are trimming their ranks, they're still suing former employees. Sure -- there are times when the recently departed did so in the wrong way and should be sued. I'm not gonna argue against that. On the other hand, it's hard to blame folks for seeing the handwriting on the wall and wanting to get out while the gettin' is still good. All of which makes me laugh when the industry's employers talk about loyalty and unfair competition. Oh well, another day on Wall Street and another lawsuit.

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Couple Charged for Operating Multimillion-Dollar Pyramid Scheme (DOJ Release)
In the United States District court for the Eastern District of Texas, an Indictment was filed charging LaShonda Moore and Marlon Moore with conspiracy to commit wire fraud, wire fraud, and money laundering. As alleged in part in the DOJ Release, the Moores:

co-founded and ran an illegal pyramid scheme called Blessings in No Time (BINT). BINT was allegedly a chain-referral pyramid scheme that targeted the African American community during the COVID-19 pandemic with false and misleading promises that participants could expect 800% guaranteed returns and guaranteed refunds if participants were unsatisfied with the program.

The Moores allegedly organized BINT’s payment scheme with “playing boards” that had eight Fire positions, four Wind positions, two Earth positions, and one Water position. As alleged, players in the Fire position advanced on the board by paying at least $1400 to the person in the Water position and recruiting two new Fire-level participants, at which point the cycle would repeat.  In other words, eight new participants had to be recruited into the scheme for a single earlier participant to receive a return on their initial investment. The Moores allegedly placed themselves and their family members in the Water position on multiple playing boards to receive the payments from participants in the Fire position and collected a substantial sum from participants’ monthly user fees, which were required for participation in BINT. 

Bill Singer's Comment: What's wrong with some Earth, Wind & Fire and a lovely fantasy -- and don't forget to add Earth (who was tone deaf and couldn't make it into the 1970s band). Every man has a place, in his heart there's a space. And the world can't erase his fantasies. Take a ride in the sky, on our ship, Fantasy. All your dreams will come true, right away

Former Malibu Resident Sentenced to More Than 15 Years in Prison for Conning Investors with Bogus Promises of Discounted Alibaba IPO Shares (DOJ Release)
In the United States District Court for the Central District of California, Frank Harold Rosenthal, 48, pled guilty to two counts of wire fraud, and he was sentenced to 188 months in prison and ordered to pay $1,182,500 in restitution. As alleged in part in the DOJ Release:

From November 2013 to April 2015, Rosenthal falsely claimed to have inside connections at Goldman Sachs that would provide him with special access to purchase shares of Alibaba, a Chinese e-commerce company, at a discount before its initial public offering.

Rosenthal used a middleman to carry out his scheme, lying to the middleman and pressuring him to solicit funds from his relatives and acquaintances for the purportedly lucrative investment opportunity.

To lend legitimacy to his fraudulent scheme, Rosenthal negotiated and drafted loan agreements and promissory notes with the victims that promised the victims significant returns on their loans and investments.

After obtaining their money, Rosenthal lulled his victims by, among other things, falsely stating that the Alibaba shares he supposedly would purchase with their money were locked up and could not be immediately sold.

Instead of using victims’ funds to purchase shares of Alibaba, Rosenthal used the money to support his lavish lifestyle, which included the $16,000 monthly rent of a Malibu home. To avoid detection and forestall threatened legal action by the victims, Rosenthal used some of the funds received from early victims to pay off later ones in a Ponzi-style arrangement. 

Rosenthal “carefully crafted a ruse to steal money” using “clever inducements” that made it difficult for victims to discover the fraud and insulated [Rosenthal from] having to regularly deal with his victims by abusing the reputation of good character and business judgment of the victims’ trusted friend and relative” to perpetrate the fraud, prosecutors argued in a sentencing memorandum. “[Rosenthal] enhanced the attractiveness of his scheme by making up friends in high places, complete with fake emails, to create the further appearance of exclusivity and success.” 

Brockport man pleads guilty to his role in in multi-million dollar investment scam (DOJ Release)
In the United States District Court for the Western District of New York, Halford W. Johnson pled guilty to conspiracy to commit securities fraud.  before U.S. District Judge Lawrence J. Vilardo. The charge carries a maximum penalty of five years in prison. As alleged in part in the DOJ Release:

[B]etween September 2013, and April 2018, Johnson conspired with co-defendant Darin R. Pastor to defraud multiple investors through a publicly traded company named Creative App Solutions, Inc., whose stock was registered with the United States Securities and Exchange Commission. On September 6, 2013, Pastor paid approximately $1,774.10 to purchase approximately 3,548,200 shares of Creative App Solutions’ stock. Pastor became the CEO and changed the company’s name to Capstone Financial Group, Inc. Johnson was appointed Chief Financial Officer of Capstone.

From September 2013, through March 2017, approximately 95 investors purchased Capstone stock for $19,807,303. Johnson and Pastor fraudulently represented to investors and potential investors that Pastor had substantial personal wealth. For instance, they created a Wikipedia page for Pastor claiming that he had a net worth of hundreds of millions of dollars. They also mislead investors and potential investors to believe that their money would be used by Capstone to fund business deals that would generate substantial profits and increase the value of Capstone stock. These business deals included the building of a gas-to-liquid fuel production facility, the selling of gold to Hong Kong and Australian based companies, the selling of livestock, and multi-million-dollar investments by other companies in Capstone, all of which projected revenues of hundreds of millions of dollars.

Defendant Pastor used millions of dollars of investors’ money to pay his personal expenses and fund a lavish lifestyle for himself and his wife, including:

    • repaying his personal debt to a securities firm;
    • purchasing a house in Clarence, NY, for $1.5 million;
    • purchasing a house in Florida for a relative;
    • purchasing jewelry worth $294,640; and
    • paying for his destination wedding in the Caribbean.

In December 2016, Capstone filed a Form 15 with the SEC terminating Capstone’s duty to file periodic and current reports with the SEC. Johnson and Pastor told investors that this meant Capstone was “going dark.” In April 2017, Capstone offered to buy back shares of Capstone stock from its investors and pay them at least four times the amount they initially paid for the stock. Johnson and Pastor knew that Capstone did not have sufficient money to pay the investors who had accepted the stock buyback offer. In order to further lull investors into believing that Capstone would fulfill its buyback agreements, Capstone made partial payments to investors totaling $6,728,500. The total loss to investors is $19,807,303.

Defendant Pastor was also charged but died in March 2023.

Former Florida Attorney Sentenced To 14 Years In Federal Prison For Racketeering Relating To Operation Of His Tallahassee Law Firm And Investment Companies (DOJ Release)
In the United States District Court for the Northern District of Florida, Phillip Timothy Howard, 62, pled guilty to racketeering (RICO); and he was sentenced to 14 years in prison plus three years of supervised release, and ordered to pay $12.64 million in restitution. As alleged in part in the DOJ Release:   

[B]etween December 2015, and January 2018, Howard, a Florida attorney, along with associates and employees of his Tallahassee law firm (Howard & Associates, P.A.) engaged in a criminal Enterprise to defraud his clients of funds from an NFL class-action lawsuit. In addition to his law firm, Howard used several Tallahassee investment companies (Cambridge Capital Group, LLC; Cambridge Capital Wealth Advisors, LLC; Cambridge Capital Advisors, LLC; Cambridge Capital Funding, Inc., Cambridge Capital Group Equity Option Opportunities, L.P.; and Cambridge Capital Partners, L.P.) under his control to steal from clients. Howard, and others conducted and participated in the affairs of the Enterprise, through a pattern of racketeering activity, namely, wire fraud and money laundering. As part of his representation, Howard fraudulently enticed his clients to invest their retirement funds with his investment companies while failing to disclose the structure of the Enterprise, the conflicts of interest, the criminal background of persons associated with or employed by the Enterprise, and the true nature of the investment companies’ funds.

Despite reassuring investors that their money was secure, Howard never informed them that almost none of the investment funds yielded a return and failed to disclose that the investment funds had been commingled with funds used to operate his law firm and to issue payroll for its staff, pay Howard’s personal mortgages, and otherwise personally enrich Howard.

. . .

In addition, the former NFL player investors were provided fraudulent quarterly and year-end investment statements which indicated that investor funds were allocated into two separate investment funds, including a fund designed specifically to invest in equities. In reality, there were no separated, dedicated investment funds, and the bank accounts for the Enterprise had little or no money. Howard and others fraudulently obtained over $4 million through such conduct.

. . .

Additionally, Howard sought third-party lenders that would be willing to lend money to Howard’s former NFL clients in advance of their potential NFL concussion settlements as part of the NFL class-action lawsuit, and to Howard as litigation funding for the NFL class-action lawsuit. To obtain such funds for himself and his clients, Howard provided false and fraudulent information, including numerous material misrepresentations and omissions, to the lenders. Howard and others fraudulently obtained and attempted to obtain approximately $8 million from third-party lenders through such conduct.

Howard also solicited investment in a real estate project located in Jacksonville, Florida, and in doing so, promised the investor certain investment returns within a specified period. After the investor transferred money to the investment company, Howard and an employee falsely told the investor that additional money was needed to close the real estate deal. In reliance on this false promise, the investor transferred additional proceeds, only to be told several months that the real estate investment funds were secure and would be returned to her.  Howard fraudulently obtained and attempted to obtain over $520,000 from this investor through this conduct.

California Man Sentenced To 102 Months In Prison For Multimillion-Dollar Stolen Identity Scheme (DOJ Release)
In the United States District Court for the Southern District of New York, Russell Dwayne Lewis, 53,  a/k/a “Clifford Ari Getz,” a/k/a “Clifford Ari Getz Cohen,” a/k/a “Ari Getz,” a/k/a “Aryeh Getz” pled guilty to two counts of wire fraud and one count of aggravated identity theft; and he was sentenced to 102 months in prison plus three years of supervised release and ordered to pay $3,788,143.58 restitution and to forfeit the same amount of ill-gotten gains. As asserted in part in the DOJ Release:

Between 2016 and 2020, RUSSELL DWAYNE LEWIS, a/k/a “Clifford Ari Getz,” a/k/a “Clifford Ari Getz Cohen,” a/k/a “Ari Getz,” a/k/a “Aryeh Getz,” engaged in a series of brazen schemes to misrepresent his identity, his wealth, and his professional and personal background in order to defraud multiple individuals and at least one corporate entity.  LEWIS used aliases for years, utilizing the name, birth date, and social security number of real individuals to perpetrate his schemes.  LEWIS told increasingly outrageous lies to individuals around him, including a close friend of many years, an individual who turned to him for his claimed expertise in astrology, and representatives of a major company he falsely purported to intend to purchase.

LEWIS repeatedly and falsely claimed that he was a billionaire businessman in order to commit several different frauds, including by soliciting “investments” from his victims totaling millions of dollars over the course of years.  As part of his fraudulent investment schemes, he defrauded and attempted to defraud friends, associates, and representatives of a major corporation.  In particular, LEWIS stole more than $3 million from one victim, more than half a million dollars from another, and fraudulently attempted to acquire a corporate entity in bankruptcy proceedings for $290 million.

This case resulted in LEWIS’s third felony conviction for fraud and theft offenses. 

Former Assistant Branch Manager at Tulare Credit Union Pleads Guilty for Stealing over $60,000 from Members’ Accounts to Spend on TikTok (DOJ Release)
Monday, November 6, 2023
In the United States District Court for the Eastern District of California, Esther Andrade Olson, 49, pled guilty to embezzling over $60,000 from multiple members’ accounts at a Tulare-based credit union where she was previously employed. As alleged in part in the DOJ Release:

[O]lson, while serving as an assistant branch manager, made several unauthorized withdrawals from four members’ accounts from July through August 2022.  Olson made unauthorized cash withdrawals by bringing up the victims’ accounts while assisting other credit union members who were at the teller window to make it appear as though she had legitimate reasons to access the credit union’s cash stores.  When confronted by credit union officials, Olson claimed that one of the victims was “doing some remodeling,” but told another employee that she was “done” and abruptly resigned from her position.  Olson spent most of the money that she stole on TikTok, gifting much of the funds to an out of state individual with hundreds of thousands of followers on TikTok.

Bill Singer's Comment: Clearly a case that should fall under the "Stupidity Enhancement" provisions of the Federal Sentencing Guidelines. To paraphrase the timeless elegance of Thomas More: "It profits a man nothing to give his soul for the whole world, but for TikTok?”


SEC Charges Former Co-CEOs of Tech Start-Up Bitwise Industries for Falsifying Documents While Raising $70 Million From Investors / All Bitwise personnel lost their jobs in May 2023 when the scheme was exposed (SEC Release)
In the United States District Court for the Eastern District of California, the SEC filed a Complaint that charges former Bitwise Industries Inc. Co-Chief-Executive-Officers Jake Soberal and Irma Olguin, Jr. with violating the antifraud provisions of the federal securities laws. Soberal and Olguin have each agreed to the entry of a partial judgment, subject to court approval, imposing permanent and conduct-based injunctions as well as an officer and director bar, and reserving the issues of disgorgement, prejudgment interest, and a civil penalty for further determination by the court. A parallel criminal action was filed against Soberal and Olguin. As alleged in part in the SEC Release:

[S]oberal and Olguin made material misrepresentations and falsified documents concerning Bitwise’s cash position and historical financial performance while raising approximately $70 million from investors in 2022. According to the complaint, Soberal and Olguin created and provided investors with falsified bank records and a fake audit report that showed, respectively, inflated cash balances and higher revenues than Bitwise actually generated. Soberal and Olguin’s alleged misrepresentations and falsified materials painted Bitwise as a healthy, growing business with favorable financial performance. In reality, and as Soberal and Olguin allegedly knew, Bitwise faced constant cash shortages and was often on the brink of failure because it was unable to generate sufficient funds from its operations. As alleged, Soberal and Olguin’s scheme came to light in May 2023 when Bitwise failed to make payroll and abruptly furloughed—and then terminated—all of its hundreds of personnel.

SEC Charges Connecticut Investment Adviser with Stealing Clients’ Money (SEC Release)
In the United States District Court for the District of Connecticut, the SEC filed a Complaint that charges John A. Masanotti, Jr. and Middlesex Mortgage Group, LLC with violating Section 17(a) of the Securities Act; Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder; and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Mary A. Ferrara (Masanotti's spouse) is named as a Relief Defendant. As alleged in part in the SEC Release:

[F]rom at least January 2016 through the present, Masanotti deceived multiple investors – mainly seniors – into giving him hundreds of thousands of dollars each. Masanotti promised to invest the money in a pooled investment vehicle that he called the “Middlesex Fund” or the “MMG Fund” (the “Fund”), which was to be advised by Masanotti and Middlesex. Many of the Middlesex investors liquidated securities they held in retirement accounts to invest in the Fund. According to the complaint, Masanotti did not invest his clients’ money in the way he promised. Rather, as the complaint further alleges, Masanotti was actually using most of the investors’ money to make Ponzi-like payments to investors or to enrich himself, paying personal expenses such as mortgages on properties in his wife’s name in Darien, Connecticut and Bonita Springs, Florida, personal credit card debt, luxury vehicle payments and a country club membership.

SEC Obtains Judgment Against Former Hedge Fund Trader Related to Hedge Fund Valuation Scheme (SEC Release)
The United States District Court for the Southern District of New York entered a Final Consent Judgment against Jeremy Shor that permanently enjoins him from violating the antifraud and other provisions of the federal securities laws. As alleged in part in the SEC Release:

[P]remium Point engaged in a fraudulent valuation scheme that resulted in the inflation of the value of private funds Premium Point advised by hundreds of millions of dollars from at least September 2015 through March 2016. The scheme relied on a secret deal where in exchange for sending trades to a broker-dealer, Premium Point received inflated broker quotes for mortgage-backed securities, as well as the use of “imputed” mid-point valuations, which were applied in a manner that further inflated the value of securities. This practice boosted the value of many of Premium Point’s holdings and further exaggerated returns in order to conceal poor fund performance and attract and retain investors.

The SEC’s complaint charged Shor with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder and Sections 17(a)(1) and (3) of the Securities Act of 1933, as well as with aiding and abetting violations of Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8(a)(2) thereunder.

The SEC previously charged Premium Point, along with Shor, Premium Point’s CEO and chief investment officer Anilesh Ahuja, and a Premium Point portfolio manager Amin Majidi, with fraud on May 9, 2018, later amending its complaint to add Premium Point trader Ashish Dole as a defendant. On September 20, 2022, the SEC obtained final judgments on consent enjoining Premium Point and Ahuja from violating the antifraud and other provisions of the federal securities laws and ordering Ahuja to pay a civil penalty. The SEC obtained final judgments on consent enjoining Majidi and Dole from violating the antifraud and other provisions of the federal securities law on April 11, 2023.

As set forth in the Syllabus:
Member of registered clearing agency filed application for review under Section 19(d) of the Securities Exchange Act of 1934 asserting that components of daily deposit that agency required it to post were improper prohibitions or limitations of access to clearing services. Held, because Section 19(d) is not available as a means to review a member firm’s challenges to generally applicable rules establishing these charges and subsequent events have mooted member’s claims, application for review is dismissed.
In part the SEC Order states [Ed: footnotes redacted]:
Today, we issue two orders concerning Alpine’s two applications for review. First, in a separate opinion and order, we dismiss Alpine’s first application for review because Exchange Act Section 19(d) is not available as a means to challenge the generally applicable rules Alpine seeks to challenge and because the rule change challenged here moots Alpine’s earlier challenge. 
Second, in this order, we deny the stay request Alpine filed with its second application for review because Alpine has not established that it is entitled to that extraordinary relief. Based on the record and briefing to date, Alpine is not likely to succeed on the merits of its application. Exchange Act Section 19(d) is not available as a means for Alpine to pursue its challenge because Alpine challenges a generally applicable rule change addressing the Volatility Charge, rather than “‘limits [on] any person’ with regard to accessing [NSCC]’s services,” within the scope of Section 19(d). Alpine also has not established that it is likely to prevail on its alternative formulation of its claims as challenging various alleged unauthorized actions by NSCC. Nor has Alpine demonstrated that it will suffer irreparable harm in the absence of a stay. And granting a stay could provide Alpine an unfair advantage over competing NSCC members and hamper NSCC’s ability to mitigate risk. For all of these reasons, Alpine’s motion is denied.
at Pages 3 - 4 of the SEC Order

Good afternoon. Thank you, Ken. As is customary, I’d like to note that my views are my own as Chair of the Securities and Exchange Commission, and I am not speaking on behalf of my fellow Commissioners or the staff.

It’s good to be with the Securities Industry and Financial Markets Association. Fall is in the air. Halloween is behind us. Football is on TV. The Texas Rangers won the World Series for the first time. Thus, Ken’s home state won two years in a row, though I’m assuming you were more excited by the Houston win.

It’s also the time of year many of us from the official sector, academia, and the markets gather to talk about the Treasury markets at the New York Federal Reserve conference. Given a scheduling conflict this year, I’m giving my speech on this topic here with you.

I’d note that my first speech in public service 25 years ago was with your predecessor, the Bond Market Association. What was it about? You guessed it, the Treasury markets.[1]

You might ask—why has this guy given so many speeches, then and now, on the Treasury markets?

Foremost, it’s because the Treasury markets are the base upon which so much of our capital markets are built. They are integral to how the Federal Reserve conducts monetary policy. They are how we, as a government and taxpayers, raise money. We are the issuer.

At $26 trillion,[2] they represent approximately 95 percent of U.S. gross domestic product (GDP). When I first was with you 25 years ago, they were just 44 percent of U.S. GDP.[3]

Beyond being the base of our capital markets, how we conduct monetary policy, and how we fund our government, these markets also have three relevant characteristics: deep participation of both bank and nonbank intermediaries, use of leverage, and repeated jitters over the decades.

Bank and Nonbank Intermediation

First, the Treasury markets long have been characterized by both bank and nonbank intermediation. When I started on Wall Street, the participants largely were commercial bank and investment bank dealers, many of which were primary dealers as well as many other nonbank dealers.

Between 1982 and 1985, a dozen nonbank Treasury dealers failed, including Drysdale Government Securities, Lombard-Wall, and E.S.M. Government Securities. These failures sent shudders not only through the Treasury markets but into the banking system. Congress responded in 1986 and passed the Government Securities Act, which provided the U.S. Department of the Treasury and the SEC with regulatory authorities for these markets.

As electronification of the markets has increased in the last 20 years, principal-trading firms as well as hedge funds have been participating to a greater degree. In 2019, principal-trading firms represented approximately 61 percent of the volume on the interdealer broker (IDB) platforms in the Treasury markets.[4]

Leverage in the System

Another relevant characteristic of these markets is the use of leverage by intermediaries. Such intermediaries and other market participants often fund their positions in Treasuries in the repurchase agreement (repo) markets. The resulting leverage often is facilitated by prime brokerage relationships between hedge funds and nonbank intermediaries on the one hand and banks and broker-dealers on the other.

This is not a new phenomenon. In fact, looking back at the 1980s when Drysdale Government Securities failed, that event led to a loss of nearly $300 million for Chase Manhattan bank.[5] When E.S.M. Government Securities failed, it led to the closing of savings banks in Ohio.[6] You can see why Congress reacted.

Where are we today?

A May 2023 Federal Reserve Financial Stability Report noted that “hedge fund leverage remained elevated.”[7]

As noted in the 2022 Financial Stability Oversight Council (FSOC) annual report, such leverage can create risks for financial stability.[8]

Many hedge funds are receiving the vast majority of their repo financing in the non-centrally cleared market.[9] 

In a study of non-centrally cleared bilateral repo data collected in June 2022, the Office of Financial Research (OFR) said that 74 percent of pilot volume was transacted at zero haircut.[10]

Needless to say, it’s not lost on any of us how leverage can lead to instability. I lived through one of those events. In 1998, Long-Term Capital Management (LTCM) was teetering when Treasury Secretary Bob Rubin sent me to Greenwich, Conn. It turns out, LTCM had approximately $1.2 trillion in derivatives and a $100-plus billion balance sheet backed by only $4-$5 billion of net asset value.

Jitters Over Time

Third, this is a market that has been characterized by jitters over time. I’ve mentioned already the 1980s jitters that led to the Government Securities Act. There were jitters emanating out of the repo markets in 2007 and 2008 that contributed to the 2008 crisis.[11]

Working on the Biden-Harris transition, the very real disruptions in the Treasury markets in 2020 were very much on the minds of all of us who, subject to Senate confirmation, were coming into new roles in the U.S. government. In March of 2020, at the onset of the Covid-19 pandemic, in what’s come to be known as the “dash for cash,” many investors moved assets from certain money market funds and even government securities into cash.

This was on the heels of very significant problems in 2019 in the Treasury repo markets. Further, we had the flash rally in 2014.

Part of the reason we’ve seen jitters is that these three characteristics are related. We have bank and nonbank intermediaries using leverage, particularly in the prime brokerage relationships, and when stress enters the system, the result can be instability.  

We saw some of this again this year during the regional bank crisis in March of 2023. In fact, we saw once-in-a-generation volatility, particularly in the short end of the curve, that we hadn’t seen since the aftermath of the 1987 stock market crash. Though that 1987 crash related to the equity markets, it’s a reminder about how instability can come from leverage—in that case, leverage had built up in trades of stock futures versus underlying cash.

I recall that day in 1987 well. It was the day after my 30th birthday when the Dow fell nearly 23 percent.[12] That afternoon, I was in a conference room at the Wall Street Journal meeting with the Dow Jones CEO at the time, Warren Phillips. Along with another investment banker, we were advising on a financial transaction. We were interrupted, as Mr. Phillips needed to make a decision about whether the Journal would run a two-column or full-banner headline to mark Black Monday (it ended up two columns).[13]

Three years later, that other investment banker became a Treasury official. One of the first problems he had to contend with was Treasury market jitters emanating from the Salomon Brothers bid rigging scandal.[14] That banker who became a Treasury official later became Chair of the Federal Reserve; he’s Jay Powell.

Muscle Memory and Interest Rates

Before I turn to the work we’re doing on Treasury market reforms, I want to mention one other point. As this audience knows, we’re living through a transitional time regarding monetary policy. It’s not only that short-term rates have gone up in Europe and the United States, but central banks have been transitioning away from what’s known as quantitative easing. With this lessening of central bank involvement in the longer end of the yield curve, we’ve also seen increasing term premiums and volatility.

I’ll digress one more time back to when I started on Wall Street. I was just 21, and my folks came up for a visit. We walked around the firm—I was hoping my parents, neither of whom went to college, would be proud. My mom, Jane, looked concerned. She said, “Gary, I don’t think this is a career. I don’t see anyone over 40 in the whole place.”

I’ve recently been thinking of that story because, whether you are in New York, London, or Singapore, there aren’t that many people who were trading in the markets before the 2008 crisis and the intervening period of low interest rates and quantitative easing. In essence, there’s not much muscle memory predating 2008.


In the last two and a half years, with Secretary Yellen’s guidance, there’s been a lot of collaboration between the Treasury, Federal Reserve, Federal Reserve Bank of New York, SEC, and Commodity Futures Trading Commission, as captured in the Inter-Agency Working Group Report released yesterday.[15]

I’m going to focus on four of those initiatives.

Registration of Dealers

First, following the 1986 Government Securities Act, rules were put in place to register government securities dealers. In the ensuing decades, numerous firms have registered with the SEC, but some market participants acting in a manner consistent with dealers have not.

To fill this regulatory gap, the SEC proposed rules that would further define a dealer and a government securities dealer.[16] Market participants acting as de facto market makers in the business of providing liquidity in Treasuries or other securities would register with the SEC and comply with securities laws.

When dealers or government securities dealers register, they become subject to a variety of important laws and rules that help protect the public, promote market integrity, and facilitate capital formation.

Registration of Trading Platforms

Second, the Commission proposed rules to require platforms that provide marketplaces for Treasuries to register as broker-dealers and comply with Regulation ATS.[17] Reflecting what I mentioned regarding the electronification of and other significant changes to platforms in recent decades, the proposal also would modernize the rules regarding the definition of an exchange.

This update would close a regulatory gap among platforms that act like exchanges but are not being regulated like exchanges.

Central Clearing

Third is our proposed rule to enhance central clearing.[18] This is not a new topic. In fact, a 1969 Joint Treasury-Federal Reserve Study of the U.S. Government Securities Markets included a recommendation that: “Consideration should be sought in expanding clearing arrangements for U.S. Government securities.”[19]

Clearinghouses came to the Treasury markets in 1986. By 2017, however, only 13 percent of Treasury cash transactions were fully centrally cleared.[20] A Federal Reserve staff analysis of primary dealer repo and reverse repo transactions during the first half of 2022 found that “approximately 20 percent of all repo and 30 percent of reverse repo is centrally cleared via FICC.”[21]

Reduced clearing increases system-wide risk. Currently, IDBs often are bringing just one side of the trade into central clearing if the counterparty is not also a member of the clearinghouse.[22]

Thus, working along with Treasury and the Federal Reserve, we proposed rules to broaden the scope of transactions required to be brought into central clearing. Further, members of a clearinghouse no longer would be able to net their customers’ margin against their own proprietary trading (also known as the house’s trading).

Our proposal would require clearinghouses to ensure that their members clear all of their repo transactions, both sides of any cash trades executed on an IDB platform, and certain additional cash transactions.

Data Collection

Fourth, let me turn to data collection. After the 2008 crisis, Congress recognized it was important to have more transparency regarding private funds.

In 2011, along with the CFTC, we adopted rules on data collection from private funds, what’s known as Form PF. Ever since, Treasury, OFR, and the FSOC have had a better understanding of these markets.

Yet private funds have evolved significantly in the last 12 years. In May, the SEC finalized a rule requiring, for the first time, that large hedge fund and private equity fund advisers make current reports on certain events to the Commission.[23]

We also have a joint proposal with the CFTC regarding Form PF updates, which would greatly enhance the view of the Commissions and FSOC into private funds’ leverage as well as provide a clearer picture of counterparties.[24] I look forward to completing this project.

Further, in July, we adopted rules with regard to money markets, including amendments to Form N-MFP that will provide more granular information about money market fund activity in the repo market.[25]

Before I close, I want to note the SEC recently adopted amendments to Rule 15b9-1 extending FINRA oversight to more broker-dealers.[26] This will bring more data into the Trade Reporting and Compliance Engine (TRACE). I also am pleased by Treasury and FINRA’s ongoing efforts to enhance post-trade transparency in the Treasury markets, which the SEC is reviewing.[27]


Halloween is behind us. Texas had another good year in the World Series.

Thinking back, my mom was right. I left Wall Street at 39 and was giving that first speech to your predecessor at 40.

Twenty-five years later, we can’t stop our focus on reforms to bring greater efficiency and resiliency to the highly consequential Treasury markets. I’m encouraged by the multi-agency collaboration to reform these markets for the 2020s.

[1] See Gary Gensler, “Assistant Secretary for Financial Markets Gary Gensler Addresses the Annual Meeting of the Bond Market Association” (March 6, 1998), available at

[2] See U.S. Department of the Treasury, “U.S. Treasury Monthly Statement of the Public Debt (MSPD)” available at

[3] See Federal Reserve, “Federal Debt Held by the Public as Percent of Gross Domestic Product” available at

[4] See Federal Reserve, “Principal Trading Firm Activity in Treasury Cash Markets” (Aug. 4, 2020), available at

[5] See “How Drysdale affair almost stymied US securities market” (May 27, 1982), available at

[6] See “E.S.M. Collapse: A Lesson In Safety” (March 8, 1995), available at

[7] See Federal Reserve, “Financial Stability Report” (May 2023), available at

[8] See U.S. Department of the Treasury, “Financial Stability Oversight Council Releases 2022 Annual Report” (Dec. 16, 2022), available at

[9] As a 2021 G30 report put it, “In principle, if all repos were centrally cleared, the minimum margin requirements established by FICC would apply marketwide, which would stop competitive pressures from driving haircuts down (sometimes to zero), which reportedly has been the case in recent years.” See Group of 30 Working Group on Treasury Market Liquidity, “U.S. Treasury Markets: Steps Toward Increased Resilience” (2021), available at In addition, as a 2021 Federal Reserve Board report said, “Most of hedge fund repo is transacted bilaterally, with only 13.7% of the repo centrally cleared.” See Federal Reserve Board Division of Research & Statistics and Monetary Affairs, “Hedge Fund Treasury Trading and Funding Fragility: Evidence from the COVID-19 Crisis” (April 2021), available at

[10] See Office of Financial Research “OFR’s Pilot Provides Unique Window Into the Non-centrally Cleared Bilateral Repo Market” (Dec. 5, 2022), available at

[11] See National Bureau of Economic Research, “The Repo Market and the Start of the Financial Crisis” (December 2009), available at

[12] See Federal Reserve History, “Stock Market Crash of 1987” (Nov. 22, 2013), available at

[13] See “Remembering Black Monday Crash of 1987” (Oct. 19, 2012), available at

[14] See House Energy & Commerce Subcommittee on Telecommunications & Finance, “Salomon Brothers & Trading of Government Securities” (Sept. 4, 1991), available at

[15] See U.S. Department of the Treasury, “Inter-Agency Working Group Releases New Report on Treasury Market Resilience Efforts” (Nov. 6, 2023) available at

[16] See Securities and Exchange Commission, “SEC Proposes Rules to Include Certain Significant Market Participants as ‘Dealers’ or ‘Government Securities Dealers’” (March 28, 2022), available at

[17] See Securities and Exchange Commission, “SEC Proposes Amendments to Include Significant Treasury Markets Platforms Within Regulation ATS” (Jan. 26, 2022), available at 

The Commission also issued a supplemental release to the proposal to address comments from various market participants. See also Securities and Exchange Commission, “SEC Reopens Comment Period for Proposed Amendments to Exchange Act Rule 3b-16 and Provides Supplemental Information” (April 14, 2023), available at

[18] See Securities and Exchange Commission, “SEC Proposes Rules to Improve Risk Management in Clearance and Settlement and to Facilitate Additional Central Clearing for the U.S. Treasury Market” (Sept. 14, 2022), available at

[19] See “Report of the Joint Treasury-Federal Reserve Study of the U.S. Government Securities Market” (April 1969) available at

[20] See Treasury Market Practice Group, “White Paper on Clearing and Settlement in the Secondary Market for U.S. Treasury Securities” (July 11, 2019), available at

[21] See Federal Reserve, “Insights from revised Form FR2004 into primary dealer securities financing and MBS activity” (Aug. 5, 2022), available at

[22] See U.S Department of the Treasury, “Inter-Agency Working Group on Treasury Market Surveillance Releases Staff Progress report that Reviews Potential Policies for Bolstering the Resilience of Treasury Markets” (Nov. 8, 2021): “… the expansion of PTFs’ role in the interdealer market beginning in the mid-2000s resulted in a decreasing fraction of interdealer trades being centrally cleared. In recent years, approximately one-half of interdealer cash trades (representing about one-quarter of the total cash market) have been centrally cleared, compared with central clearing of virtually all interdealer trades (representing about one-half of the total cash market) before the entry of PTFs in the interdealer market.” In addition: “Overall, the Treasury Market Practices Group has estimated that 13 percent of cash transactions are centrally cleared; 68 percent are bilaterally cleared; and 19 percent involve hybrid clearing, in which one leg of a transaction on an IDB platform is centrally cleared and the other leg is bilaterally cleared” available at

[23] See Securities and Exchange Commission, “SEC Adopts Amendments to Enhance Private Fund Reporting” (May 3, 2023), available at

[24] See Securities and Exchange Commission, “SEC Proposes to Enhance Private Fund Reporting” (Aug. 10, 2022), available at

[25] See Securities and Exchange Commission, “SEC Adopts Money Market Fund Reforms and Amendments to Form PF Reporting Requirements for Large Liquidity Fund Advisers” (July 12, 2023), available at

[26] See Securities and Exchange Commission, “SEC Adopts Amendments to Exemption From National Securities Association Membership” (August 23, 2023), available at

[27] See Securities and Exchange Commission “Release No. 34-98859; File No. SR-FINRA-2023-015” (Nov. 3, 2023), available at

Thank you, Keir [Gumbs], for that kind introduction. It is nice to see you, Meredith [Cross] and Joan [McKown], all of whom I have known for most, if not all, of my time at the Commission. Congratulations to each of you for chairing what is one of the premier securities regulation conferences in the country.

Yesterday at this conference, leading practitioners and members of the Commission staff discussed a variety of issues affecting public companies. Today, I will add my thoughts. As you might expect, my remarks today reflect my individual views as a Commissioner of the SEC and do not necessarily reflect the views of the full Commission or my fellow Commissioners.

Since becoming Commissioner sixteen months ago, the SEC has finalized five rulemakings affecting public company disclosure – pay versus performance,[1] clawbacks,[2] amendments to rule 10b5-1,[3] share repurchases,[4] and cybersecurity.[5] The Commission also has climate-related disclosure and SPACs as pending proposals[6] and human capital management[7] and corporate board diversity[8] on the rulemaking agenda. Given the current emphasis on additional public company disclosure, I will share four thoughts about disclosure rulemaking.

    1. Determining the Purpose of Rules

First, the initial first step of any rulemaking is to answer the question: what problem is the Commission trying to solve?[9] Sometimes, Congress may have directed the Commission to issue a rule. Other times, market events may raise new concerns or vulnerabilities that have not been previously addressed. More recently, for public company disclosure rulemakings, the answer is often that investors desire the additional information.

Protecting investors is part of the Commission’s mission and we should listen to them. However, such demands for disclosure should not be taken at face value. In that respect, the Commission should undertake at least two forms of critical analysis before proceeding.

First, the Commission should evaluate the costs for disclosing the additional information. These costs include direct costs, such as fees paid to attorneys and other outside advisors, as well as opportunity costs, such as management’s time and efforts that could have been focused on other projects accretive to the bottom line. These costs ultimately reduce the company’s earnings that are available to shareholders. The question should not merely be whether investors want the information, but rather to what extent are investors willing to pay for that information.

Investor demand for specific types of information tends not to be universal. Hence, a free rider problem exists when only a few investors desire such information, but the cost of disclosing that information is borne by all shareholders. As a result, the investors who did not seek the information are effectively subsidizing the investors who requested that information.

This free rider problem is worsened when there is a desire to have consistent and comparable information across all public companies.[10] For instance, investors at one company may find certain information important when making an investment decision. However, at a different company, investors might find that type of information to be meaningless because of differences in the company’s industry, business model, or regulatory environment, among other reasons. While consistency and comparability may be nice ideals when considered in a vacuum, the costs to achieve such ideals can be exorbitant.

In rulemaking, the Commission has statutory obligations to consider costs and any effects on efficiency, competition, and capital formation.[11] These obligations are especially important where the costs to prepare the disclosure are significant and mutualized among all investors, but the benefits would accrue only to a select subset.

Second, when considering investors’ demand for disclosure, the Commission should analyze why they are requesting the information from public companies. Being an investor simply means owning stock in a company, but an investor does not necessarily seek certain information to help it value the company’s stock. Investors may have different purposes or reasons for asking for the information. For example, an investor may want the information in order to sell investment products or services based on it. Or an investor may want the information to use in private negotiations with the company. Or an investor may want the information because it seeks to use the disclosure as a means to drive social change.

Using the Commission’s disclosure regime to address social issues under the guise of stock ownership raises concerns. The Commission is an independent regulatory agency, and none of the Commissioners have been elected by the American people. On the other hand, the legislative branch, elected by the voters, has a broad range of powers and authorities for addressing society’s problems. Using the Commission’s disclosure rules to address these social problems is not only ineffective and inefficient, it is also outside of the Commission’s statutory authority and expertise. The Commission must be especially mindful of how it exercises its rulemaking authority due to its limited political accountability.

While it may be difficult to determine the reasons for why certain investors demand particular information from public companies, the Commission has tools to conduct this analysis, including investor testing as authorized by the Dodd-Frank Act.[12] This analysis, together with consideration of the costs of providing the information, can help the Commission identify the specific problem that it is trying to solve at the outset of a rulemaking.

    1. Re-proposing Rules

Once the Commission has answered the question of what problem it is trying to solve, it then must conduct an effective rulemaking process. In my view, the notice and comment process of a rulemaking is an invitation to have a conversation between the regulator and the public. Rules should not be adopted without informed engagement with stakeholders. Sometimes, this process starts through public roundtables, requests for information, or an advance notice of proposed rulemaking, before the Commission issues a proposing release. But most times, the engagement does not start until the proposal is posted to the Commission’s website.

This brings me to the second topic. The Commission does not always get the original proposal right and sometimes must contemplate making significant changes to the proposal — a version 2.0 so to speak. In this situation, an important decision to make is whether to re-propose a rule and provide a revised economic analysis. Re-proposing a rule is also appropriate when significant time has passed since the original proposal.[13] However, the Commission has rarely re-proposed rules in recent years, even when both conditions were present. As a case study, let us examine the pay versus performance rule.

The Dodd-Frank Act directed the Commission to adopt a rule requiring public companies to disclose “the relationship between executive compensation actually paid and the financial performance of the [company].”[14] The Commission finalized this rule in August 2022, about two months after I became a Commissioner. As it so happens, I had previously reviewed the proposed rule in April 2015,[15] when I was counsel to Commissioner [Michael] Piwowar. Despite the seven-plus years between proposal and adoption, the only step taken by the Commission in the interim was to reopen the comment period in January 2022 for a brief 30 days.[16] The lack of an updated economic analysis in the reopening notice was notable and not consistent with the Commission’s stated focus on obtaining robust data.[17] Just as troubling is how the final rule significantly changed the calculation of “compensation actually paid” and the treatment of equity awards, without seeking public feedback on this revised methodology.

The implications of this change were reflected in the pay versus performance disclosure during the past proxy season, which was the first one following the rule’s effective date. Approximately 34% of companies subject to the new rule reported a negative amount for the principal executive officer’s “compensation actually paid” in one of the three years included in the new pay versus performance table. [18] Although the statute’s focus is on the relationship between an executive’s “compensation actually paid” and the company’s financial performance, it is hard to believe that Congress would have expected the Commission to adopt a rule where more than one-third of companies explain this relationship by reporting a negative number.

How did these negative numbers come to be? The answer lies in how equity awards are valued as part of the “compensation actually paid.” Under the proposed rule, companies would have used the fair value, as of the vesting date, of any awards that vested during the year.[19] This amount could not have been negative. However, the final rule required companies to use the change in fair value of awards from the beginning of the year though the end of the year or the vest date during the year.[20] If a company’s stock price were to decline during that period, then any associated decline in fair value could result in negative “compensation actually paid.”

In the 2015 proposing release, the Commission discussed the approach of including equity awards based on changes in fair value and noted that such changes could result in a negative number.[21] Of the more than 150 comments received on the rulemaking,[22] only two commenters supported this approach.[23] The only mention of this approach in the 2015 proposing release was as an “implementation alternative”[24] in the economic analysis section.[25] When an alternative is buried deep in the economic analysis, I wonder how widely it was noticed by the public. More importantly, because the 2022 reopening notice lacked an updated economic analysis, commenters were not reminded of this alternative from nearly seven years before. Unsurprisingly, the Commission did not receive a lot of feedback on this alternative during the reopened comment period.

If the Commission had re-proposed the rule in 2022 with the modified calculation of “compensation actually paid” based on changes in fair value, would things have come out differently? While we may never know, doing so would have at least offered market participants an opportunity to focus on the issue. The Commission would then have had a broader set of views on the approach’s advantages and disadvantages. Some commenters might have discussed whether the potential for disclosure of negative “compensation actually paid” is useful to investors.

The takeaway from the Commission’s process for proposing and adopting the pay versus performance rule is a stark reminder not to take procedural shortcuts. This process was far from rulemaking best practices[26] and the consequences are apparent in the results. In reporting on pay versus performance disclosure, one publication questioned whether shareholders might interpret negative “compensation actually paid” as if the CEOs theoretically owed their companies money[27] and another observed that “the new ‘compensation actually paid’ in not compensation actually paid.”[28]

It is bad enough that the disclosure may not be understandable or material,[29] but even worse, preparing the disclosure may impose significant costs on companies. Much of these costs arise from hiring consultants to make the equity award fair value calculations not otherwise required by the Commission’s prior executive compensation rules. According to one trade association survey, over 50% of companies expect to spend at least $40,000 on consultants to make these calculations.[30] A rule that is both costly and ineffective is something that a regulator must avoid.[31]

Hopefully, the Commission will consider learning from the lesson of the pay versus performance rulemaking as it moves forward with other rulemakings, including climate-related disclosure. This proposal has received over 16,000 comments.[32] The volume of comments is not surprising given the proposal’s expansive nature and the hundreds of requests for feedback contained in it. Most commenters did not focus on, or address, every single issue or alternative raised in the proposal. Before the Commission adopts any final rule that significantly deviates from the proposal, it should seriously consider re-proposing the rule with revised rule text and an updated economic analysis. Doing so would provide the public with an opportunity to focus on aspects of the proposal that they did not initially consider, and perhaps more importantly, submit feedback on any revised requirements. Such a re-proposal may ultimately help the Commission craft a better rule for all market participants. The Commission should do everything possible to not promulgate a rule that is costly and ineffective, as doing so might be indicative of a flawed process that raises the question of whether the rule is arbitrary and capricious under the Administrative Procedure Act.

    1. Scaling Rules

In the rulemaking process, appropriately scaling the rule’s application to companies based on their size and maturity as a public company is as important as not taking procedural shortcuts. Hence, scaling rules is the third topic.

The Commission introduced scaled disclosure based on a company’s size in 1992 with a category of companies called “small business issuers.”[33] In 2007, the Commission replaced the concept of “small business issuer” with “smaller reporting company.”[34] Currently, a company qualifies as a smaller reporting company if its public float is less than $250 million.[35] A company can also qualify if it generated less than $100 million in annual revenues and had a public float of less than $700 million.[36]

In its 1992 proposal to provide scaled disclosure requirements, the Commission recognized that smaller companies “are disproportionately affected by the complexities in the disclosure requirements.”[37] Despite this longstanding view and commenters’ concerns about outsized costs, the Commission did not provide scaled disclosure relief in its recent rulemakings for cybersecurity,[38] share repurchases,[39] amendments to rule 10b5-1,[40] and clawbacks.[41]

Even if disclosure requirements are not scaled, the Commission could stagger a rule’s compliance date for smaller reporting companies. This approach allows such companies to benefit from the time and efforts of larger companies to comply with the new rules. For example, law firms, auditors, and other advisors may have already gained familiarity with new policies or new disclosure language used by larger clients. Smaller reporting companies using those same advisors may be able to reference those policies and disclosures when they begin to comply with the new rule, thereby reducing costs. Despite these potential benefits, the Commission did not provide staggered compliance dates in the share repurchase[42] and clawbacks[43] rulemakings.

Similar to smaller reporting companies, emerging growth companies can benefit from scaled disclosure requirements. Generally, an emerging growth company is a company that has been public for not more than five fiscal years and has not exceeded $1.235 billion in annual revenues.[44] The primary rationale for scaled disclosure for emerging growth companies is to give them an “on-ramp” for compliance with disclosure requirements as they mature into seasoned public companies.[45] Despite this rationale and past bipartisan Congressional support[46] for emerging growth companies, the Commission similarly did not provide any scaled disclosure in its rulemakings for cybersecurity,[47] share repurchases,[48] amendments to rule 10b5-1,[49] and clawbacks.[50]

While scaling disclosure for smaller reporting companies and emerging growth companies is an important consideration, the Commission should think about whether further scaling is appropriate for other public companies as well. For instance, the Commission should consider applying scaled disclosure using the model of a triangle. Companies at the base of the triangle would be the smallest and least seasoned public companies. The companies in the middle are larger and more seasoned. Finally, the companies at the top of the triangle are the largest seasoned companies. As a company ascends the triangle, it should provide more disclosure to investors.

Using the Commission’s current categories for public companies, smaller reporting companies and emerging growth companies would be at the triangle’s base, accelerated filers would be in the middle, and large accelerated filers would be at the top. This approach considers the disproportionate costs affecting smaller companies and the need to provide an “on-ramp” to newly public companies. It also recognizes that not all seasoned companies are equal in terms of legal and financial reporting personnel, budgets for outside counsel, auditors, and advisors, and board and management time to devote to the Commission’s ever-growing disclosure requirements.

Today, an accelerated filer with a $250 million public float would be subject to the same disclosure requirements as a large accelerated filer with a $250 billion public float. However, the accelerated filer is likely to have much fewer resources to comply with those requirements. By mandating certain disclosure from only large accelerated filers, the triangle approach creates a new “middle class” of public companies. From an investor protection perspective, all public companies would continue to be subject to the Commission’s antifraud rules,[51] as well as the requirement to disclose material information necessary to make any required statement not misleading.[52]

To create this triangular model, the Commission would need to make two changes to existing rules. First, based on the number of companies in each category, the current pool of public companies does not form a triangle. Rather, it forms a distorted hourglass. Approximately 56% of companies are smaller reporting companies or emerging growth companies, 7% are accelerated filers, and 34% are large accelerated filers. [53]

These percentages are not surprising given that the public float threshold of $700 million for qualifying as a large accelerated filer[54] was established in 2005.[55] At the time, approximately 18% of reporting companies had a public float of at least $700 million.[56] Today, the top 18th percentile for reporting companies’ public float is approximately $3.2 billion; if the threshold was adjusted to that amount, over 50% of the current large accelerated filers would no longer be treated as such. [57] Accordingly, to create a triangular structure, the Commission should increase the threshold so that the number of accelerated filers is relatively higher than the number of large accelerated filers.

Additionally, the Commission should evaluate whether to limit certain disclosure only to large accelerated filers. Currently, only one requirement differentiates large accelerated filers – the 60 day deadline for filing Form 10-K.[58] The Commission should review its disclosure requirements and identify rules that should apply only to the largest seasoned companies.

A triangular approach to scaled disclosure reflects the idea that the public markets should not be simplistically divided between small companies and large companies. Establishing a meaningful “middle class” of companies that are subject to many, but not all, of the Commission’s disclosure requirements recognizes the resource constraints that these companies have relative to the largest companies, without sacrificing the federal securities laws’ antifraud protections afforded to all investors.

    1. Considering the Cumulative Costs of Rules

The fourth topic is the importance of assessing the cumulative costs – both human and financial – of the Commission’s rules with respect to public company disclosure. When the Commission makes this assessment, it does so in a vacuum and considers only the rulemaking at issue. To obtain a true sense of how much the new regulations will cost public companies, there should be a review of the cumulative costs of all rules.

For public companies with a December 31 year-end, the compliance date of rulemakings covering pay versus performance, clawbacks, amendments to rule 10b5-1, share repurchases, and cybersecurity will take effect between the 2023 proxy season and the 2025 proxy season. Here is a summary of what companies are facing:

    • 2023 proxy season: pay versus performance began to apply;[59]
    • February 2023: the new requirements for rule 10b5-1 plans and reporting of dispositions by gift on Form 4 began to apply;[60]
    • April 2023: the new requirements for Section 16 reporting of rule 10b5-1 plan trades commenced;[61]
    • July 2023: disclosure of rule 10b5-1 plans and “non-Rule 10b5-1 trading arrangements” that were adopted or terminated during the prior quarter must be included in Form 10-Q or 10-K;[62]
    • December 1, 2023: companies listed on the NYSE and Nasdaq must have adopted their clawback policies;[63]
    • December 18, 2023: Form 8-K reporting for material cybersecurity incidents begins;[64]
    • 2024 proxy season, including the 2023 Form 10-K:
      • New disclosure of cybersecurity risk management, strategy, and governance;[65]
      • New disclosure of share repurchases, including adoption or termination of rule 10b5-1 plans for issuer share repurchases and reporting of daily repurchase data;[66] and
      • New disclosure of any efforts to claw back compensation and filing of the clawback policy;[67]
    • 2025 proxy season, including the 2024 Form 10-K:
      • New disclosure of insider trading policies and procedures and filing of the insider trading policy;[68] and
      • New disclosure of policies relating to the timing of stock option grants and associated tabular disclosure for potential spring-loading and bullet-dodging grants.[69]

If that were not enough for public companies and their advisors, changes to long-standing Commission staff positions on rule 14a-8[70] contributed, in part, to a significant increase in shareholder proposals during the 2023 proxy season,[71] and there may be even more proposals for the upcoming season.

For each rulemaking, the Commission estimates the additional hours that the new requirements will impose on preparing a filing and allocates those hours between internal resources and outside professionals. When computing the costs for outside professionals like law firms, the Commission uses an hourly rate of $600,[72] which I view as unrealistically low. This rate was increased last year, starting with the clawbacks rule adoption.[73] For the sixteen prior years, the hourly rate for computing costs for outside professionals was $400.[74]

Aggregating the hours and costs across the five recently adopted rulemakings, the Commission estimates that the new rules will impose a mere 120 additional internal hours and about $24,000 of outside advisor fees, annually per company.[75] These estimates represent a worst-case scenario where all possible disclosure requirements are triggered, including having a material cybersecurity incident required to be reported on Form 8-K, engaging in share repurchases, adopting or terminating rule 10b5-1 plans, and clawing back compensation. Obtaining an accurate hours and cost estimate across all companies is extremely difficult. However, based on anecdotal feedback from public companies and their advisors, the actual internal hours and outside advisor fees for these rulemakings are likely to be much higher.

Just as the omakase menu at a Michelin-starred sushi restaurant will take longer and cost more to prepare than the mass-produced packages of sushi sold at a grocery store, drafting high-quality disclosure also imposes more time and costs on companies compared to preparing boilerplate disclosure. If the Commission expects to be served non-boilerplate disclosure[76] akin to the same care and attention to detail as a master sushi chef selecting the freshest ingredients at the Toyosu fish market,[77] then it should ensure that its disclosure rules’ hours and cost estimates reflect that quality.

Another way that the Commission may be overwhelming companies’ ability to produce quality disclosure is by setting compliance dates for multiple new disclosure rules over the same one or two proxy seasons. Drafting such disclosure, especially for the first time, requires significant involvement from in-house counsel and other personnel within the company. The Commission estimates that 75% of the hours required to prepare new disclosure falls on company personnel,[78] whose time is generally already constrained during proxy season.[79] When the Commission imposes multiple new disclosure requirements on top of those existing demands, company personnel may be hamstrung in their ability to craft the new disclosure without boilerplate language. Given the tight deadlines and resource constraints, it would not be surprising if companies rely more on boilerplate disclosure that provides little or no benefit to investors.

    1. Conclusion

To conclude, the Commission might better accomplish its mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation by re-evaluating its approach to rulemaking for public company disclosure. By applying one or more of the considerations I discussed, the Commission can hopefully adopt rules that are effective, not costly, and of benefit to investors, markets, and issuers alike.

Thank you.

[1] Pay Versus Performance, Release No. 34-94074 (Aug. 25, 2022) [87 FR 55134 (Sept. 8, 2022)] (the “Pay Versus Performance Adopting Release”), available at

[2] Listing Standards for Recovery of Erroneously Awarded Compensation, Release No. 33-11126 (Oct. 26, 2022) [87 FR 73076 (Nov. 28, 2022)] (the “Clawbacks Adopting Release”), available at

[3] Insider Trading Arrangement and Related Disclosures, Release No. 33-11138 (Dec. 14, 2022) [87 FR 80362 (Dec. 29, 2022)] (the “Rule 10b5-1 Adopting Release”), available at

[4] Share Repurchase Disclosure Modernization, Release No. 34-97424 (May 3, 2023) [88 FR 36002 (June 1, 2023)] (the “Share Repurchases Adopting Release”), available at On October 31, 2023, the U.S. Court of Appeals for the Fifth Circuit (the “Court”) found that the Commission acted arbitrarily and capriciously, in violation of the Administrative Procedure Act, with respect to this rule when it did not respond to certain rulemaking comments submitted by the petitioners in the case and failed to adequately substantiate some of the rule’s benefits and costs. See Chamber of Com. of United States v. SEC, No. 23-60255 (5th Cir. Oct. 31, 2023). The Court remanded the matter to the Commission to correct these defects within 30 days. This speech does not consider any future impact arising from this case.

[5] Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, Release No. 33-11216 (July 26, 2023) [88 FR 51896 (Aug. 4, 2023)] (the “Cybersecurity Adopting Release”), available at

[6] The Enhancement and Standardization of Climate-Related Disclosures for Investors, Release No. 33-11042 (Mar. 21, 2022) [87 FR 21334 (Apr. 11, 2022)], available at

[7] Commission Agency Rule List – Spring 2023, Human Capital Management Disclosure, available at

[8] Commission Agency Rule List – Spring 2023, Corporate Board Diversity, available at

[9] See Memorandum from the Division of Risk, Strategy, and Financial Innovation and the Office of the General Counsel to Staff of the Rulewriting Divisions and Offices (Mar. 16, 2012), available at

[10] Seee.g., the Pay Versus Performance Adopting Release at 55135 (“We have elected not to pursue a wholly principles-based approach because, among other reasons, such a route would limit comparability across issuers and within issuers’ filings over time…”); the Clawbacks Adopting Release at 73137 (“The disclosure requirements in the rules are intended to promote consistent disclosure among issuers as to both the substance of a listed issuer’s recovery policy and how the listed issuer implements the policy in practice.”); the Share Repurchases Adopting Release at 36036 (“The amended disclosure requirements are expected to benefit investors…by providing investors with more comprehensive and comparable disclosures about share repurchase…”); and the Cybersecurity Adopting Release at 51899 (“[I]nvestors need more timely and consistent cybersecurity disclosure to make informed investment decisions”).

[11] See section 3(f) of the Securities Exchange Act of 1934 (the “Exchange Act”).

[12] Dodd-Frank Wall Street Reform and Consumer Protection Act. See Pub. L. No. 111-203, Sec. 912, 124 Stat. 1841 (2010).

[13] The Commission staff’s practice has been generally to recommend re-proposing a rule if more than five years have elapsed since the original proposal.

[14] Pub. L. No. 111-203, Sec. 953(a), 124 Stat. 1841 (2010).

[15] Pay Versus Performance, Release No. 34-74835 (Apr. 29, 2015) [80 FR 26329 (May 7, 2015)] (the “Pay Versus Performance Proposing Release”), available at

[16] Reopening of Comment Period for Pay Versus Performance, Release No. 34- 94074 (Jan. 27, 2022) [87 FR 5751 (Feb. 2, 2022)], available at

[17] See Mark T. Uyeda, Statement on the Final Rule Related to Pay Versus Performance (Aug. 25, 2022) (“Pay Versus Performance Open Meeting Statement”), available at

[18] Based on companies’ XBRL data contained in proxy statements and Forms 10-K filed between January 1, 2023 and September 30, 2023 and compiled by the Commission staff.

[19] The Pay Versus Performance Proposing Release at 26339.

[20] 17 CFR 229.402(v)(2)(C)(1)(ii) and (iv).

[21] The Pay Versus Performance Proposing Release at 26357-26358.

[22] See Comments on Proposed Rule: Pay Versus Performance, available at

[23] The Pay Versus Performance Adopting Release at n. 208. See letter from Infinite Equity, dated Mar. 3, 2022, available at; letter from Technical Compensation Advisors, dated July 6, 2015, available at; and letter from Technical Compensation Advisors, dated Mar. 4, 2022, available at

[24] Implementation alternatives are now referred to as “reasonable alternatives” in the economic analysis section of Commission rulemaking releases.

[25] The Pay Versus Performance Proposing Release at 26357-26358.

[26] I have previously discussed the poor process with respect to other aspects of the pay versus performance rulemaking. See supra note 17 and accompanying text. See also Mark T. Uyeda, Remarks at the “SEC Speaks” Conference 2022 (Sept. 9, 2022) (“2022 SEC Speaks Remarks”), available at and Mark T. Uyeda, Remarks at the APABA-DC Awards and Installation Reception (Oct. 19, 2022), available at

[27] Opinion Lex, Executive Pay: New Formulas Could Fuel Confusion, Financial Times (May 24, 2023), available at

[28] Jackson Fordyce and Geoff Colvin, A New SEC Rule is Supposed to Reveal the Truth about CEO Compensation. One CEO’s Negative $644 Million in Pay Shows How It Falls Short, Fortune (Mar. 20, 2023), available at

[29] However, at least one compensation consultant has stated that, based on its analysis of pay versus performance disclosure from 188 companies in the S&P 500, the rule “provides an effective means to evaluate the alignment of pay and performance.” See Ira T. Kay, et. al., Utilizing Compensation Actually Paid to Evaluate Pay and Performance (June 27, 2023), available at

[30] Based on survey data provided by the Center On Executive Compensation.

[31] I have previously explained how I analyze regulations using a two-by-two matrix where one axis is whether a regulation is effective or ineffective and the other axis is whether a regulation is costly or not costly. See 2022 SEC Speaks Remarks.

[32] See Comments for The Enhancement and Standardization of Climate-Related Disclosures for Investors, available at

[33] See Small Business Initiatives, Release No. 33-6949 (July 30, 1992) [57 FR 36442 (Aug. 13, 1992)], available at

[34] Smaller Reporting Company Regulatory Relief and Simplification, Release No. 33-8876 (Dec. 19, 2007) [73 FR 934 (Jan. 4, 2008)], available at

[35] 17 CFR 240.12b-2.

[36] Id.

[37] Small Business Initiatives, Release No. 33-6924 (Mar. 11, 1992) [57 FR 9768, 9770 (Mar. 20, 1992)]

[38] The Cybersecurity Adopting Release at 51920.

[39] The Share Repurchases Adopting Release at 36045.

[40] The Rule 10b5-1 Adopting Release at 80383. While this rule did not include an express exemption for smaller reporting companies, such companies can provide the new disclosure required by Item 402(x) of Regulation S-K on a scaled basis consistent with the Commission’s approach to scaled executive compensation disclosure for smaller reporting companies.

[41] The Clawbacks Adopting Release at 73127.

[42] The Share Repurchases Adopting Release at 36028-36029.

[43] The Clawbacks Adopting Release at 73111.

[44] See 17 CFR 240.12b-2. The revenue threshold is required to be indexed for inflation every five years. See section 2(a)(19)(A) of the Securities Act.

[45] Rebuilding the IPO On-Ramp, IPO Task Force (Oct. 20, 2011) at 19, available at

[46] The Jumpstart Our Business Startups Act, which introduced the concept of emerging growth companies and scaled disclosure for such companies, passed the House of Representatives by a vote of 390 to 23 and the Senate by a vote of 73 to 26.

[47] See the Cybersecurity Adopting Release.

[48] See the Share Repurchases Adopting Release.

[49] See the Rule 10b5-1 Adopting Release. See also supra note 40 for a discussion of scaled executive compensation disclosure available to smaller reporting companies and therefore, emerging growth companies.

[50] The Clawbacks Adopting Release at 73127.

[51] See, e.g., section 10(b) of, and rule 10b-5 under, the Exchange Act.

[52] See 17 CFR 240.12b-20.

[53] Based on companies’ XBRL data contained in Forms 10-K filed between October 1, 2022 and September 30, 2023 and compiled by the Commission staff. The percentage of accelerated filers exclude accelerated filers that also qualify as smaller reporting companies or emerging growth companies. Approximately 3% of companies are non-accelerated filers that do not also qualify as either a smaller reporting company or an emerging growth company. Foreign private issuers filing on Form 20-F were not included as part of this analysis because Form 20-F does not offer scaled disclosure for smaller reporting companies. Accordingly, their inclusion would have altered the baseline of companies eligible for each filer category.

[54] See 17 CFR 12b-2.

[55] Revisions to Accelerated Filer Definition and Accelerated Deadlines for Filing Periodic Reports, Release No. 34-52989 (Dec. 27, 2005) [70 FR 76625 (Dec. 27, 2005)], available at

[56] Id. at 76636.

[57] Based on companies’ XBRL data contained in Forms 10-K filed between October 1, 2022 and September 30, 2023 and compiled by the Commission staff.

[58] General Instruction A(2)(a) of Form 10-K.

[59] The Pay Versus Performance Adopting Release at 55162.

[60] The Rule 10b5-1 Adopting Release.

[61] The Rule 10b5-1 Adopting Release at 80393.

[62] Id. Smaller reporting companies do not need to comply with this requirement until January 2024, at the earliest. Id.

[63] See Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Adopt New Section 303A.14 of the NYSE Listed Company Manual to Establish Listing Standards Related to Recovery of Erroneously Awarded Incentive-Based Executive Compensation, Release No. 34-97688 (June 9, 2023) [88 FR 38907 (June 14, 2023)], available at and Notice of Filing of Amendment No. 1 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment No. 1, to Establish Listing Standards Related to Recovery of Erroneously Awarded Executive Compensation, Release No. 34-97687 (June 9, 2023) [88 FR 39295 (June 15, 2023)], available at

[64] The Cybersecurity Adopting Release at 51924. Smaller reporting companies do not need to comply with this requirement until June 15, 2024. Id.

[65] Id.

[66] The Share Repurchases Adopting Release at 36029.

[67] The Clawbacks Adopting Release at 73111

[68] The Rule 10b5-1 Adopting Release at 80393.

[69] Id.

[70] 17 CFR 240.14a-8.

[71] See Mark T. Uyeda, Remarks at the Society for Corporate Governance 2023 National Conference (June 21, 2023), available at

[72] See the Cybersecurity Adopting Release at n. 538, the Share Repurchases Adopting Release at n. 554, the Rule 10b5-1 Adopting Release at n. 580, and the Clawbacks Adopting Release at n. 549.

[73] See the Clawbacks Adopting Release at 73133.

[74] See Executive Compensation and Related Person Disclosure, Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158, n. 574 (Sept. 8, 2006)], available at

[75] These estimates reflect the Commission’s assumption that the following activities will allocated 75% internally and 25% to outside professionals (charging $600 per hour): (1) 28 hours for the disclosure required by Item 402(v) of Regulation S-K; (2) 25.4 hours to file the clawback policy and provide the disclosure required by Item 402(w) of Regulation S-K; (3) 20 hours to provide the disclosure required by Items 402(x), 408(a), and 408(b) of Regulation S-K in Form 10-K and 30 hours to provide the disclosure required by Item 408(a) of Regulation S-K in three Form 10-Qs; (4) nine hours to provide the disclosure required by Items 408(d), 601(b)(26), and 703 of Regulation S-K in Form 10-K and 27 hours to provide the same disclosure in three Form 10-Qs; and (5) nine hours to provide the disclosure required by Item 1.05 of Form 8-K and ten hours to provide the disclosure required by Item 106 of Regulation S-K. See the Paperwork Reduction Act section of the Pay Versus Performance Adopting Release, the Clawbacks Adopting Release, the Rule 10b5-1 Adopting Release, the Share Repurchases Adopting Release, and the Cybersecurity Adopting Release.

[76] Seee.g., the Cybersecurity Adopting Release at 51931 (“[W]e believe that [the new disclosure requirements for cybersecurity risk management, strategy, and governance in] Item 106 [of Regulation S-K] requires sufficient specificity, tailored to the registrant’s facts and circumstances, to help mitigate any tendency towards boilerplate disclosures.”) and the Share Repurchases Adopting Release at 36024 (“We expect issuers to provide the required disclosure without relying on boilerplate language…”).

[77] Before moving to Toyosu, the Tokyo fish market was more commonly known as the Tsukiji market.

[78] See the Cybersecurity Adopting Release at 51938, the Share Repurchases Adopting Release at 36051, the Rule 10b5-1 Adopting Release at 80424, the Clawbacks Adopting Release at 73133, and the Pay Versus Performance Adopting Release at 55189.

[79] To the extent companies outsource more than 25% of the workload to outside advisors, then the Commission’s fee estimates are even more understated. 

Remarks to SEC Regulation Outside the United States: Fifth Annual Scott Friestad Memorial Lecture by SEC Commissioner Mark T. Uyeda

Good morning and thank you, Jim [Burns], for that introduction. I am pleased to be part of the 2023 conference on SEC Regulation Outside the United States to deliver the Fifth Annual Scott Friestad Memorial Lecture.

I had the privilege of working with Scott Friestad at the Securities and Exchange Commission for nearly a dozen years. I arrived at the SEC in October 2006 to serve as counsel to Commissioner Paul Atkins. This was about 18 months after Scott had been promoted to Associate Director in our Division of Enforcement. At the time, each Commissioner had three counsels and, in our office, each one of us handled a third of the Enforcement recommendations.

I was first introduced to Scott by one of my fellow counsels – Dan Gallagher, who would later serve as an SEC Commissioner from 2011 to 2015. From time to time, Scott’s enforcement cases would be assigned to me. Scott would patiently explain the enforcement process as well as the limitations on what enforcement could do. Most importantly, Scott stressed the need to exercise appropriate judgment and discretion in exercising the Commission’s enforcement authority. 

Subsequently, I returned to the executive staff in 2013 as counsel to Commissioner Michael Piwowar. Once again, I worked with Scott on enforcement recommendations from his group. It was during this period that I became aware of his illness and I was greatly saddened by his passing in 2018. My favorite memory of Scott is crossing paths on the way to or from getting lunch in Union Station, where Scott was often accompanied by his close friends and co-workers Tom Sporkin, Greg Faragasso, and John Polise.

With Scott’s legacy in mind, it would be appropriate to share some thoughts about the use of the Commission’s enforcement authority. These remarks reflect my individual views as a Commissioner of the SEC and do not necessarily reflect those of the full Commission or my fellow Commissioners.

The focus on enforcement, however, should not be viewed as diminishing a variety of important SEC issues facing global market participants. For example, foreign investment advisers have faced numerous hurdles in registering with the SEC, the pending move to T+1 settlement in the equity markets raises potential mismatches with foreign jurisdictions that will need to be resolved, and some of the SEC’s shortened filing deadlines may present challenges for those in foreign time zones.

The legal system of the United States has its roots in the laws of England. Most notably, the Magna Carta, issued in 1215, expressed the idea that a country should be governed by the rule of law.[1] The declaration that “no free man shall be seized, imprisoned, dispossessed, outlawed, exiled or ruined in any way, nor in any way proceeded against, except by the lawful judgment of his peers and the law of the land” runs through key parts of the U.S. Constitution, including the Fourth, Fifth, Sixth, Seventh, Eighth, and Fourteenth Amendments.

As the civil regulator for the federal securities laws, the SEC invokes the sovereign power of the United States in administering and enforcing such laws and the regulations thereunder. Indeed, enforcement is one of the SEC’s major activities and the Division of Enforcement is one of its largest operating units. The Enforcement staff, which consists of more than 1,300 individuals, conducts investigations into possible violations of the federal securities laws and litigates the Commission’s civil enforcement proceedings. The U.S. Congress has given the SEC a robust set of investigatory tools and the power to seek a variety of remedies, including injunctions, disgorgement, bars, and civil penalties.

The power and role of the SEC in carrying out enforcement actions cannot be understated. For example, the legal standard for a government regulator like the SEC to issue an administrative subpoena is “official curiosity.”[2] Unlike criminal prosecutors and the police, civil regulators do not need to have any evidence, akin to probable cause, before issuing subpoenas. According to a 1950 decision of the U.S. Supreme Court, administrative agencies have a “power of inquisition” whereby they can “investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not.”[3] This is a low threshold and, thus, the protection against potential abuse is largely left to the discretion and judgment of the investigating agency.

While it is important for government regulators to pursue bad actors, the ease at which an official investigation can be launched suggests that there ought to be objective and articulable standards to guide the exercise of such power by enforcement staff.

A key concept under the rule of law is that similarly situated people should be treated similarly. However, when there is a low threshold to launching an investigation that lacks sufficient guardrails, the potential for abuse increases. For instance, it would be inappropriate to single out otherwise lawful financial products that might be viewed disfavorably. Targeting lawful, but disfavored, products and conduct with investigations and administrative subpoenas based on the “official curiosity” standard runs the risk of turning the SEC into a merit regulator – which was an approach that the U.S. Congress did not take in enacting the federal securities laws. 

At times, it may be appealing to set regulatory policy through enforcement actions. But the SEC ought to be reluctant to pursue that approach, especially when it effectively creates new definitions or interpretations that affect conduct not previously deemed unlawful. If there are regulatory provisions that are unclear and/or ambiguous, the Commission and its staff can and should provide clarity to market participants, which can occur in the form of rules, interpretations, guidance, and no-action letters. This clarity should be provided before resorting to enforcement actions. The SEC’s enforcement efforts should be limited to enforcing the rules as written, and should not create novel and innovative interpretations that broaden the scope of these rules and the Commission’s jurisdiction over markets and their participants.

In addition, U.S. law generally requires that, when engaging in rulemaking, a federal agency must give notice of the proposed rulemaking and solicit comment from interested parties on the proposed rule.[4] This process has been described as “notice and comment.” 

However, enforcement actions are not subject to notice and comment. The only individuals involved in the discussions are the enforcement staff, the defendants, and their counsel. The language of enforcement orders is negotiated among them, and the full context of those discussions may not be included. While some may view an order as providing guidance on the SEC’s views, it may be difficult to ascertain how the order might apply to other situations as it is limited in scope to the facts and circumstances of the specific case. Thus, using enforcement actions as a method to set regulatory policy means that the public is denied a chance to provide input. 

Today, I want to discuss three areas where insufficient clarity may result in a lack of understanding, and potentially fair notice, of novel interpretations that the SEC has undertaken in recent enforcement actions. These areas are: (1) the scope of the definition of a dealer under the Securities Exchange Act of 1934; (2) cryptocurrencies; and (3) off-channel communications by broker-dealers.

Definition of a “Dealer” Under the Securities Exchange Act

Section 3(a)(5)(a) of the Exchange Act defines a dealer as, “any person engaged in the business of buying and selling securities for his own account, through a broker or otherwise.” If a person is a dealer, then that person must register with the SEC as a dealer and become a member of a self-regulatory organization like FINRA unless an exception otherwise applies. In addition, the person must become a member of SIPC, adhere to a comprehensive regulatory regime, including the net capital rule[5] and Consolidated Audit Trail reporting, and be subject to examination by the SEC and FINRA. For individuals, the compliance costs could be disproportionately large relative to their financial activity.

Traders are specifically excluded from the dealer definition and are defined as “a person who buys and sells securities for his or her own account, either individually or in a fiduciary capacity, but not as part of a regular business.”[6] Thus, it is important for a person to know whether he or she is a dealer and, if so, whether an exception like the trader exclusion is applicable.

In August 2022, the Commission filed a case against Crown Bridge Partners, LLC (“Crown Bridge”) and its two members, who were brothers, alleging that they “engaged in the buying and selling large volumes of penny stocks for their own account.”[7] Crown Bridge would purchase convertible notes from penny stock issuers, hold the notes for a period of time, and subsequently convert the notes into unrestricted, newly issued shares of stock at a discount to the prevailing market price and resell those shares into the market.

In an effort to comply with the registration requirements under the Securities Act of 1933, Crown Bridge conducted its activities in accordance with Rule 144. This rule provided Crown Bridge with a safe harbor from the statutory definition of being an “underwriter,”[8] which allowed the firm to resell shares from converted notes without the need to register the resales under the Securities Act.

Having taken apparent care with its regulatory obligations for the resales of shares under the Securities Act, it is unclear whether Crown Bridge also assessed whether it needed to register as a dealer under the Exchange Act. Had the members of Crown Bridge searched the SEC’s website, they might have come across a document posted as the “SEC’s Guide to Broker Dealer Registration.”[9] The Guide notes that individuals who buy and sell securities for themselves generally are considered traders and not dealers.[10] The Guide says that the following individuals and business may need to register as a dealer depending on a number of factors: a person who holds themselves out as being willing to buy or sell a particular security on a continuous basis; a person who runs a matched book of repurchase agreements; or a person who issues or originates securities that he also buys and sells. The Guide also includes a list of questions one should ask themselves to determine whether they are acting as a dealer, including:

Do you advertise that you are in the business of buying or selling securities?

Do you do business with the public – either retail or institutional?

Do you make a market in, or quote prices for both purchases and sales of, one or more securities? 

Do you provide services to investors, such as handling money and securities, extending credit or giving investment advice?

Do you write derivative contracts that are securities?

It would be understandable if Crown Bridge, after reviewing the Guide, were to conclude that their conduct did not require them to register with the Commission as a dealer since they were using their own money and did not provide services to clients or do business with the public.

Nonetheless, the SEC sued Crown Bridge for unregistered dealer activity. The case was ultimately settled.[11] Was fair notice of this interpretation given to market participants? Would there have been better ways to communicate the SEC’s views prior to instituting an enforcement action? Questions and challenges to this approach have been raised. The Crown Bridge case is only one of a number of similar cases brought by the SEC in recent years, some of which are currently pending in the judicial system.[12]


Let’s turn to one of the most discussed areas of the U.S. federal securities laws when someone mentions regulation by enforcement: cryptocurrencies and digital assets. For years, market participants have expressed concern about a lack of regulatory guidance in the crypto space. Let’s be clear about it – enforcement actions are not well-suited for providing guidance. By their very nature, enforcement actions are post hoc actions. However, one of the primary responsibilities of a regulator is to set clear expectations on permitted and prohibited conduct in advance so that law-abiding market participants can comply ex ante

Accordingly, the Commission should consider proposing rules or issuing interpretive guidance with respect to cryptocurrencies and digital assets. It’s unfortunate that, despite the large number of rule proposals issued by the SEC during the last two years, cryptocurrency was not among them. A responsible regulator considers how the laws and rules apply to new types of securities and then develops or modifies those provisions so that the regulatory requirements can be satisfied. 

Importantly, the federal securities laws only apply when the instrument at issue is a security; therefore, providing clarity on the jurisdictional status is imperative. What is, and what is not, a security can be a difficult analysis – not just for market participants, but also for the courts who must analyze the investment contract test described by the U.S. Supreme Court in a 1946 decision.[13] In SEC v. W.J. Howey Co., the U.S. Supreme Court held that an investment contract means a contract, transaction, or scheme whereby a person invests money in a common enterprise and is led to expect profits from the efforts of the promoter or a third party.

The SEC could have proactively contributed to the creation of a body of law regarding cryptocurrencies and digital assets. Unfortunately, the SEC did not take this approach and instead is pursuing a case-by-case approach through enforcement actions. As a result, it will take years to reach any type of legally-binding precedent, as matters will need to wind their way through the courts before reaching the court of appeals level.

Off-Channel Communications

The third area is the large number of off-channel communications cases that have been brought over the last two years under Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder. This rule requires broker-dealers to create, and preserve in an easily accessible place, originals of all communications received and copies of all communications sent relating to the firm’s business. This is an area where market participants, regulators, and investors might have benefitted had the SEC issued additional guidance on what is included in the phrase “communications…relating to the firm’s business.” The world is very different from a technological perspective today than it was when these rules were first adopted in 1997.[14]

There was a time not too long ago when employees, for the most part, physically sat in offices and spoke to their co-workers in person. Almost all communications, as Bloomberg columnist Matt Levine points out, were informal and not recorded and the SEC, therefore, only had access to a limited portion of communications by brokerage firms.[15] None of those verbal communications were business records that were required to be maintained. 

The question becomes, what is considered to be a business communication? A paragraph from one SEC settlement order says that “a senior executive of [the Firm’s] broker-dealer entity exchanged text messages with over two dozen other [Firm] employees, including superiors and at least five employees who reported to him.”[16] In a separate order, a paragraph reads, “a managing director and head of trading communicated by text message and WhatsApp with at least 14 other [Firm] employees, including at least five whom he supervised.”[17] Notable is that neither of these paragraphs discloses the content of the communications the firms are alleged to have sent that ultimately caused a violation of recordkeeping provisions.

If co-workers text each other about having lunch – is that a business record? What if they discuss business at lunch but the text message makes no mention of the business to be discussed? Ensuring that the SEC’s rulebook evolves with technological developments would help management and compliance professionals know what standards they need to meet and will help prevent enforcement actions going forward.

The civil penalties associated with these settled actions have been astonishing, particularly since no investor harm has been identified. In September 2022, the Commission announced civil penalties against a small number of firms for $1.1 billion.[18] Given the size of these amounts, perhaps there should have been more transparency on how the penalty amounts were calculated. The penalties are not the only cost to the firms entering into settlement agreements, because detailed undertakings were also included and those will impose significant costs as well.


“With great power comes great responsibility.”[19] Regulators with enforcement power would do well to remember that. Effective deterrence requires persons to understand what conduct is prohibited. The mere fact that the law might allow the SEC to do something, does not mean that the SEC should. Regulators should be expected to exercise appropriate judgement in carrying out its investigative and sanctioning authority and to have an articulable basis for those decisions. Simply citing “official curiosity” should not be sufficient for jumping to enforcement actions when laws are unclear or have been reinterpreted.

Determining whether a person’s conduct violates the federal securities laws should not be akin to the Hogwart’s sorting hat from Harry Potter, where one’s fate is predicted, sometimes wrongly, based on which rule or law the SEC plans to enforce in a way that it has not been interpreted before. Market participants should not be engaged in a game of chance – waiting for rules to be retroactively reinterpreted to include their conduct and then being subject to an investigation years later. The SEC requires disclosures and transparency from market participants. Perhaps the SEC owes that same level of transparency to the market with respect to how it interprets its own rules. That transparency will help ensure the rules are applied fairly and evenly to everyone or – as inscribed on the U.S. Supreme Court building nearly 720 years after the Magna Carta – “equal justice under law.”

Thank you for listening and enjoy the rest of the conference. YYY

[1] Magna Carta, Clauses 39-40 (1215); see also Dave Roos, How Did Magna Carta Influence the U.S. Constitution? History, May 10, 2023, available at

[2] United States v. Morton Salt. Co., 338 U.S. 632 (1950).

[3] Id. 642-43.

[4] 5 U.S.C. §§ 551-559.

[5] 17 CFR § 240.15c3-1.

[6] 15 U.S.C. 78c(a)(5)(A) and (B).

[7] Complaint at ¶1, SEC v. Crown Bridge Partners, LLC, Soheil Adhoot and Sepas Adhoot (S.D.N.Y.), available at

[8] 17 CFR § 230.144.

[9] Commission Guide to Broker Dealer Registration (April 2008), available at

[10] Id.

[11] Crown Bridge Partners, LLC, Soheil Adhoot, and Sepas Adhoot, Litigation Release No. 25461 (Aug. 2, 2022), available at

[12] See SEC v. Actus Fund Management, LLC., No. 1:23-cv-111233 (D. Mass.); SEC v. Almagarby, No. 21-13755 (11th Cir.); SEC v. Keener, No. 22-14237 (11th Cir.), SEC v. LG Capital Funding, LLC, No. 1:22-cv-03353 (E.D.N.Y), SEC v. Carebourne Capital L.P., No. 21-cv-02114 (D. Minn.), SEC v. Morningview Financial, LLC, 1:22-cv-08142 (S.D.N.Y), SEC v. Fife, No. 1:20-cv-05227 (N.D. Ill.), SEC v. Fierro, No. 3:20-cv-02104 (D.N.J.), SEC v. GPL Ventures LLC, No. 1:21-cv-06814 (S.D.N.Y.), SEC v. River North Equity LLC, No. 1:19-cv-01711 (N.D. Ill.), and SEC v. Long, No. 1:23-cv-14260 (N.D. Ill).

[13] Securities and Exchange Commission v. W. J. Howey Co., 328 U.S. 293 (1946).

[14]17 CFR § 240.17a-4 (1997); see also Fact Sheet, Final Amendments to Electronic Record Keeping Requirements, available at

[15] Matt Levine, Don’t Do Deals on LinkedIn, Bloomberg (Aug. 8, 2023), available at

[16] In the Matter of SG Americas Securities, LLC, Exchange Act Release No. 98082 (Aug. 8, 2023), available at

[17] In the Matter of SMBC Nikko Securities America, Inc., Exchange Act Release No. 98075 (Aug. 8, 2023), available at

[18] SEC Charges 15 Wall Street Firms with Widespread Recordkeeping Failures, SEC Press Release (Sept. 27, 2022), available at

[19] See Spider-Man (1962); Voltaire; Winston Churchill (1906). Take your pick.



Federal Court Orders Former New York City Resident to Pay Over $2.6 Million in Monetary Sanctions for Fraudulent Solicitation and Misappropriation in a Commodity Pool Scheme (CFTC Release)
The United States District Court for the Eastern District of New York entered an Order of Final Default Judgment against Mark A. Ramkishun that finds him liable for fraudulently soliciting investments in a purported commodity pool and misappropriating pool participants’ funds. The Order and Premanent Injunction prohibits Ramkishun from engaging in conduct that violates the Commodity Exchange Act (CEA), orders him to pay $1,076,758 in restitution and a $1,566,977.07 civil monetary penalty. The order also permanently bans Ramkishun from registering with the CFTC and from trading on any registered entity. As alleged in part in the CFTC Release:

Case Background

In entering this order, the court found Ramkishun, acting as an unregistered commodity pool operator, fraudulently induced individuals in the United States to send him a total of approximately $1.69 million for investment in a supposed commodity pool called Leo Growl LLC. The court further found in the course of soliciting as well as after receiving pool participant funds, Ramkishun knowingly made fraudulent and material misrepresentations and omitted material facts about the use of those funds and the profits pool participants purportedly earned. For example, Ramkishun told some participants they could never lose their underlying investments in the pool. He also fabricated and distributed to pool participants fraudulent account statements showing consistent profits and growing account values based on his trading, when Ramkishun’s trading actually resulted in net trading losses of over $550,000. The court also found Ramkishun used less than half of the pool participant funds for trading and ultimately misappropriated a substantial portion of the funds for personal expenditures and to make Ponzi-type payments to pool participants using funds provided by other participants. In addition, the court found Ramkishun failed to operate the pool as a separate entity from himself and commingled his personal funds with pool participant funds in violation of CFTC regulations.

Parallel Criminal Action

In late 2022, Ramkishun was arraigned on a 56-count indictment, obtained by the Kings County District Attorney’s Office in Brooklyn, New York, based on much of the same conduct alleged in the CFTC’s action.   


FINRA Censures and Fines Six Rep/One Branch Firm for Form CRS Omissions
In the Matter of Decker & Co, LLC, Respondent (FINRA AWC 2022073332301)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Parsonex Capital Markets, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Parsonex Capital Markets, LLC has been a FINRA member firm since 2014 with 6 registered representatives at one branch. In accordance with the terms of the AWC, FINRA imposed upon Parsonex Capital Markets, LLC a Censure, $10,000 fine, and an undertaking to certify compliance with the Form CRS issues cited. As alleged in part in the "Overview" of the AWC:

Since June 30, 2020, Parsonex Capital Markets has omitted required information from the firm’s customer relationship summary (Form CRS). Most significantly, from June 30, 2020, to February 9, 2023, the firm failed to disclose on its Form CRS that a number of
its financial professionals had legal or disciplinary history. Additionally, since April 13, 2023, the firm has failed to update its Form CRS to disclose that its control affiliate has legal or disciplinary history. By filing and delivering to customers a Form CRS that omitted required information and then failing to update it, Parsonex Capital Markets willfully violated Section 17(a)(1) of the Securities Exchange Act of 1934 and Exchange Act Rule 17a-14, and violated FINRA Rule 2010. 

Bill Singer's Comment: Oh my, imagine all of that for a firm with only six -- count 'em: one, two, three, four, five, and six -- registered representatives at one -- count it: one -- branch. How reassuring to see that FINRA is ever-so diligent when it comes to the willful violations of such a small member firm. Surely, FINRA is even-handed and doles out equal attention and retribution to its larger firms. He says with dripping sarcasm. Compliments to Alan M. Wolper, Esq of Ulmer & Berne LLP extracting a fairly reasonable set of sanctions comprising a meaningless Censure (it's just a word), a tepid $10,000 fine, and yet another silly-ass Undertaking. 

FINRA Censures Three Rep/One Branch Firm That Chaperoned Trades Without a Clearing Firm
In the Matter of Decker & Co, LLC, Respondent (FINRA AWC 2020065242201)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Decker & Co, LLC submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Decker & Co, LLC has been a FINRA member firm since 2013 with 3 registered representatives at one branch. In accordance with the terms of the AWC, FINRA imposed upon Decker & Co, LLC a Censure and $35,000 fine. As alleged in part in the "Overview" of the AWC:

In December 2019, and again from April 2020 to June 2020, Decker conducted a securities business while it failed to maintain the required minimum net capital. As a result, Decker violated the Securities Exchange Act of 1934 (Exchange Act) § 15(c), Exchange Act Rule 15c3-1 promulgated thereunder, and FINRA Rules 4110(b) and 2010.

From December 2019 to June 2020, Decker failed to maintain books and records accurately reflecting the firm’s liabilities and net capital levels and filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) reports. As a result, Decker violated Exchange Act § 17(a), Exchange Act Rules 17a-3 and 17a-5, and FINRA Rules 4511 and 2010. 

From April 2020 to at least March 2022, the firm failed to file an application for approval of a material change in business operations to reflect that it would be chaperoning trades without a clearing firm, in violation of FINRA Rules 1017 and 2010.

Finally, the firm failed to conduct required independent testing of its anti-money laundering program for the years 2017 through 2020, in violation of FINRA Rules 3310(c) and 2010. 

FINRA Censures Robert W. Baird & Co., Inc. for Excess Mutual Fund Charges
In the Matter of Robert W. Baird & Co., Inc., Respondent (FINRA AWC 2020068655201)
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Robert W. Baird & Co., Inc. submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. The AWC asserts that Robert W. Baird & Co., Inc. has been a FINRA member firm since 1971 with over 3,500 registered representatives at about 380 branches. In accordance with the terms of the AWC, FINRA imposed upon Robert W. Baird & Co., Inc. a Censure and $519.646.23 in restitution. The AWC asserts in Footnote 2 that:

Before the effective date of this A WC, Baird paid full restitution, plus statutorily calculated interest, to the affected customers and provided FINRA staff with proof of payment and documentation of the methodology used to determine restitution. 

Additionally, the AWC advises that:


In resolving this matter, FINRA has recognized Baird's extraordinary cooperation for having: (I) conducted an internal review to identify potentially disadvantaged customers  nd calculate total remediation, including voluntarily extending the review period beyond FINRA's requested date; (2) investigated the extent to which the firm did not provide rights of reinstatement benefits; (3) implemented remedial measures in its systems to close gaps identified during the review; (4) promptly established a plan to provide remediation and notified and paid restitution to affected customers, including interest; and (5) provided substantial assistance to FINRA in its investigation. 

As alleged in part in the "Overview" of the AWC:

Between January 2015 and March 2021, Baird's supervisory system did not provide certain customers with mutual fund sales charge waivers and fee rebates to which they were entitled through rights of reinstatement offered by mutual fund companies. Consequently, eligible customers across more than 2,300 accounts paid approximately $519,000 in excess sales charges and fees during that period.

Therefore, Baird violated FINRA Rules 3110 and 2010.

FINRA Arbitration Panel Awards Morgan Stanley Nearly $3 Million in Contribution
In the Matter of the Arbitration Between Morgan Stanley, Claimant, v. Christopher Robert Armstrong and Randall Brian Kiefner, Respondents (FINRA Arbitration Award 23-00721)
In a FINRA Arbitration Statement of Claim filed in March 2023, Claimant Morgan Stanley asserted contribution and sought a permanent injunction. Claimant sought "an award against each Respondent in the amount of $1,440,255.30; permanent injunction restraining and enjoining Respondents from dissipating, disposing, or transferring assets, including the money paid to them by Claimant, up to $1,440,255.30 each; interest; and for such other relief as is just and proper."

Respondents generally denied the allegations, asserted affirmative defenses, and filed a Counterclaim asserting malicious prosecution. In May 2022, the Respondents filed a Stipulated Notice of Dismissal with Prejudice of Counterclaim, and, accordingly, ,the FINRA Arbitration Panel made no determination of said claims.

The FINRA Arbitration Panel found Respondents Armstrong and Kiefner each liable for and shall pay to Claimant, as contribution, the sum of $1,440,225.30 each. The sums presently held by Claimant from Respondents in an escrow account are to be used to satisfy this award.