Legal Alert

Securities Enforcement Update: SEC Agenda Will Focus on Transparency

November 14, 2017

In a Nov. 8, 2017, speech at the Practising Law Institute on Securities Regulation, Securities and Exchange Commission (SEC) Chairman Jay Clayton previewed the SEC’s near-term agenda. In his published remarks, Clayton reiterated the SEC’s commitment to the “Main Street” investor and stressed the need for increased transparency of the securities markets for investors.

Clayton noted that the SEC would be taking a “hard look” at the proxy process in public company governance, though the issue is not on the SEC’s near-term rulemaking agenda. Clayton expressed the SEC’s concern that retail investors are underrepresented in corporate governance and suggested that lack of retail participation in the proxy process may be a symptom of an overly complicated proxy process in need of an update. While acknowledging the costs to issuers associated with shareholder proposals, Clayton underscored the need for retail investors to have a “seat at the table” in corporate governance.

Observing that “where opacity exists, bad behavior tends to follow,” Clayton noted that many recent SEC enforcement actions arise from a lack of clear disclosure of fees and expenses. He stated that, while the SEC would continue to pursue enforcement actions in situations involving improper or hidden fees, the SEC is also examining whether more can be done to clarify fee disclosures to retail investors, thereby deterring and reducing opportunities for misconduct.

Clayton also expressed the SEC’s continued concern about the lack of transparency in offerings involving penny stocks, restricted securities and initial coin offerings. With respect to penny stocks, he observed that the lack of reliable financial and other key information about penny stock issuers, coupled with the risk of poor recordkeeping and lack of transparency associated with “insufficient” custody arrangements, can make it difficult for investors to evaluate the potential risks and rewards of such investments. Clayton observed that similar opacity may exist for investors purchasing restricted securities, and he stressed the continuing need to monitor distribution of these securities and encourage diligence on the part of transfer agents in this area.

With respect to initial coin offerings, Clayton commented on the lack of information available to individual investors about the online platforms through which initial coin offerings occur. He expressed particular concern regarding the information disparity between individual investors and management or other initial coin offering insiders, and noted that individual investors often do not appreciate that this informational gap exists. Accordingly, Clayton re-emphasized the need for these platforms to register or seek exemptions from registration.

Clayton concluded his speech by discussing plans for a searchable SEC website through which investors would be able to view individuals with “bad actor” violations. He stated that this tool would be intended to provide investors with information regarding an individual’s prior actions, including with respect to individuals who are no longer registered with the SEC. 


McGuireWoods’ securities and enforcement attorneys will continue to monitor and report on important developments for broker-dealer and investment advisers. For further information, please contact the authors or any member of the McGuireWoods team.