[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]
CAPITAL MARKETS AND EMERGENCY
LENDING IN THE COVID-19 ERA
=======================================================================
VIRTUAL HEARING
BEFORE THE
SUBCOMMITTEE ON INVESTOR PROTECTION,
ENTREPRENEURSHIP, AND CAPITAL MARKETS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
JUNE 25, 2020
__________
Printed for the use of the Committee on Financial Services
Serial No. 116-98
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
42-942 PDF WASHINGTON : 2021
HOUSE COMMITTEE ON FINANCIAL SERVICES
MAXINE WATERS, California, Chairwoman
CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina,
NYDIA M. VELAZQUEZ, New York Ranking Member
BRAD SHERMAN, California ANN WAGNER, Missouri
GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri BILL POSEY, Florida
DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado ANDY BARR, Kentucky
JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado
BILL FOSTER, Illinois ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio FRENCH HILL, Arkansas
DENNY HECK, Washington TOM EMMER, Minnesota
JUAN VARGAS, California LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina
RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee
KATIE PORTER, California TREY HOLLINGSWORTH, Indiana
CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois JOHN ROSE, Tennessee
AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin
BEN McADAMS, Utah LANCE GOODEN, Texas
ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia
JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina
STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota
Charla Ouertatani, Staff Director
Subcommittee on Investor Protection, Entrepreneurship,
and Capital Markets
BRAD SHERMAN, California, Chairman
CAROLYN B. MALONEY, New York BILL HUIZENGA, Michigan, Ranking
DAVID SCOTT, Georgia Member
JIM A. HIMES, Connecticut STEVE STIVERS, Ohio
BILL FOSTER, Illinois ANN WAGNER, Missouri
GREGORY W. MEEKS, New York FRENCH HILL, Arkansas
JUAN VARGAS, California TOM EMMER, Minnesota
JOSH GOTTHEIMER. New Jersey ALEXANDER X. MOONEY, West Virginia
VICENTE GONZALEZ, Texas WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam TREY HOLLINGSWORTH, Indiana, Vice
KATIE PORTER, California Ranking Member
CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio
SEAN CASTEN, Illinois BRYAN STEIL, Wisconsin
ALEXANDRIA OCASIO-CORTEZ, New York
C O N T E N T S
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Page
Hearing held on:
June 25, 2020................................................ 1
Appendix:
June 25, 2020................................................ 51
WITNESSES
Thursday, June 25, 2020
Clayton, Hon. Jay, Chairman, U.S. Securities and Exchange
Commission (SEC)............................................... 5
APPENDIX
Prepared statements:
Clayton, Hon. Jay............................................ 52
Additional Material Submitted for the Record
Sherman, Hon. Brad:
Written statement of the Council of Institutional Investors.. 63
Written statement of the Credit Union National Association... 88
Letter to Chairman Clayton from various undersigned
organizations.............................................. 90
Written statement of the National Association of Securities
Professionals.............................................. 111
Written statement of the North American Securities
Administrators Association, Inc............................ 116
Written statement of Principles for Responsible Investment... 129
Huizenga, Hon. Bill:
Written statement of the U.S. Chamber of Commerce............ 145
Clayton, Hon. Jay:
Written responses to questions for the record submitted by
Chairman Sherman........................................... 151
Written responses to questions for the record submitted by
Representative Himes....................................... 158
Written responses to questions for the record submitted by
Representative Cleaver..................................... 161
CAPITAL MARKETS AND EMERGENCY
LENDING IN THE COVID-19 ERA
----------
Thursday, June 25, 2020
U.S. House of Representatives,
Subcommittee on Investor Protection,
Entrepreneurship, and Capital Markets,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 12:06 p.m., in
room 2128, Rayburn House Office Building, Hon. Brad Sherman
[chairman of the subcommittee] presiding.
Members present: Representatives Sherman, Maloney, Himes,
Foster, Meeks, Vargas, Gottheimer, San Nicolas, Porter, Axne,
Casten; Huizenga, Stivers, Wagner, Hill, Mooney, Davidson,
Hollingsworth, Gonzalez of Ohio, and Steil.
Ex officio present: Representatives Waters and McHenry.
Also present: Representatives Dean, Garcia of Texas; and
Budd.
Chairman Sherman. The Subcommittee on Investor Protection,
Entrepreneurship, and Capital Markets will come to order.
Without objection, the Chair is authorized to declare a
recess of the subcommittee at any time. Also, without
objection, members of the full Financial Services Committee who
are not members of the subcommittee are authorized to
participate in today's hearing, as long as they participate
virtually. And they will be recognized after members of the
subcommittee have been recognized.
Members who are participating via the Webex platform are
reminded to keep their video function on at all times, even if
they are not being recognized by the Chair.
Members who are participating via the Webex platform are
also reminded that they are responsible for muting and unmuting
themselves, and that they should mute themselves both before
and after the time that they are allotted. But in addition to
that, consistent with regulations accompanying H. Res. 965,
staff will also be muting Members when they are not being
recognized.
Members are reminded that all House rules relating to order
and decorum apply to this hybrid hearing.
In addition, the Chair informs members participating in
person that, in enforcing the order and decorum in this hearing
room, the Chair has the duty to protect the safety of the
Members. Last week, the Attending Physician provided the
following guidance: ``For U.S. House of Representatives'
meetings in limited enclosed spaceS--and this is one--such as a
committee hearing room, for greater than 15 minutes, face
coverings are required.'' Accordingly, the Chair will treat
wearing masks as a matter of order and decorum, and all Members
should wear masks at all times in this room. Members who do not
wish to wear masks may participate virtually through the Webex
platform.
Today's hearing is entitled, ``Capital Markets and
Emergency Lending in the COVID-19 Era.''
Mr. Huizenga. Mr. Chairman? I have a point of inquiry on
that.
Chairman Sherman. Yes?
Mr. Huizenga. It was my understanding, based on the rules,
that masks were required unless you were speaking, and during
your question period. That was my understanding, so I just want
to make sure it is clear for our--
Chairman Sherman. It is the strong preference of the Chair
that we wear the masks even while speaking, but that rule will
be less enforced than at other times.
The reason for that is, if you are not wearing a mask
before you speak, you may not be called on in order. But, once
I call on someone, we will rely upon your dedication to the
health of yourself but, more importantly, everyone else in the
room, and urge you to continue wearing your mask.
You are, as we have seen from a number of instances, more
likely to spread the disease when speaking than when not
speaking. So I would urge you to do so, but my tools for
enforcing that are more limited.
Mr. Huizenga. Thank you, Mr. Chairman. I appreciate that.
And to my Members, I advise your comfort level, and then,
as we are dealing with this, much like the rules on the House
Floor, if you are speaking, I think we are free to add to the
comfort level, being able to deal with that.
So, thank you. I yield back.
Chairman Sherman. Okay.
Accordingly, the Chair will treat wearing masks as a matter
of order and decorum, and all Members should wear masks.
Members who do not wish to wear masks, as I have said before,
may participate virtually.
I will now recognize myself for 4 minutes.
Mr. Clayton, I am glad you are here. I hope you are here 6
months from now. It has been suggested that, as part of the
President's decision to fire the U.S. Attorney for the Southern
District in New York, you would be called upon to fill that
position.
I rarely quote Senators, because they are rarely a source
of wisdom, but in this case, Chuck Schumer stated that, ``Jay
Clayton can allow himself to be used in this brazen Trump-Barr
scheme to interfere with the investigations by the U.S.
Attorney for the Southern District of New York, or he can stand
up, withdraw his name from consideration, and save his
reputation.''
I don't always take advice from Senators, but in this case,
I would commend it to you, especially in light of the fact that
Senator Lindsey Graham has pretty much indicated that, ``you
are with us for the duration.'' So, keeping your name there
simply weakens your gravitas with regard to the SEC and doesn't
allow you to reduce your commute.
The COVID-19 pandemic has resulted in unprecedented
volatility in U.S. markets, yet the markets have remained open;
they are functioning. I know the Chair will tell us everything
his staff has done to achieve that result, and that the SEC
Division of Enforcement and Office of Compliance Inspections
and Examinations have also moved aggressively to stop COVID-19-
based investment scams and have already suspended trading of 30
companies.
We are in a time of emergency, so I would hope that the SEC
would use its limited bandwidth to do two things: one, the
things that are necessary because of the emergency; and two,
the things that are bipartisan. Accordingly, I would hope that
you would curtail the efforts on the Proxy Advisor Rule and the
rules that would narrow disclosure related to mergers and
acquisitions.
Today, we are going to be dealing with a number of bills,
including: Ms. Velazquez's bill to require public companies to
disclose risks to the supply chain, disruptions and impacts and
what impact they may have on their workforce; Ms. Dean's
legislation to reverse the Federal Reserve's and Treasury's
decision to open Federal Reserve lending facilities only to
corporations with credit ratings from certain agencies or
having at least one of those certain credit-rating agencies,
when, in fact, the SEC has determined that a longer list of
agencies have expertise; Ms. Wexton's bill to require
disclosure of products likely to be manufactured using forced
labor from the Uyghur internment camps--and this is a group, of
course, that the President was so anxious to sell out, but I
don't think that should be our policy; and Mr. Meeks'
legislation to temporarily suspend rulemaking by Federal fiscal
regulators unrelated to the COVID-19 crisis.
We will also discuss a number of issues that I have
legislation on, along with my bipartisan cosponsors. Among
these are: the need for continued public disclosure of those
unique risks that companies have because of COVID-19; the
ongoing barriers to the Public Company Accounting Oversight
Board (PCAOB) and its effort to audit the auditors and make
sure that investors are protected; continued challenges with
the flawed Current Expected Credit Losses (CECL) accounting
standard, and that the overall push at the Financial Accounting
Standards Board (FASB) needs to be controlled by the SEC to
move from historic accounting and reporting what has happened
in transactions that have been completed, to moving to having
the accountants project what is likely to happen or to
determine what future values of certain assets will be; and the
misguided decision by the Fed and Treasury to exempt companies
receiving taxpayer dollars from the rules we put in the
Coronavirus Aid, Relief, and Economic Security (CARES) Act
regarding dividend payments and stock buybacks and executive
compensation. And we will also be dealing with the loan
covenant issue that arises at this time.
I look forward to hearing from Chairman Clayton on these
issues.
And I will now yield 4 minutes to the ranking member of the
subcommittee, Mr. Huizenga.
Mr. Huizenga. Thank you, Mr. Chairman. I appreciate you
holding today's hearing, ``Capital Markets and Emergency
Lending in the COVID-19 Era.''
I will note that this hearing is not about the Southern
District of New York. And now that that box has been checked, I
hope we can move along to the work of Chairman Clayton.
The last several months have upended the livelihood and
well-being of millions of American families throughout the
United States. With almost every State under stay-at-home
orders, everyone has been affected by the pandemic. Not only
has this affected our daily lives, but it has certainly
impacted our capital markets as well.
Undoubtedly, these have been uncertain times for American
investors and market participants. During the first quarter of
2020, the pandemic caused severe economic and capital market
shocks. This turmoil was evidenced by sharp price declines, yet
spikes in volumes in equity markets, which closed the first
quarter with their worst performance since the financial
crisis. Additionally, the ultimate symbol of these
unprecedented times was the March 23rd closing of the floor of
the New York Stock Exchange, which was the first time the floor
was closed while electronic trading continued.
Although we saw significant market volatility early in the
crisis, I believe that capital markets have been generally
resilient. Our capital markets have undergone the toughest
pandemic stress test to date, and I am pleased to report that
they seemed to pass with flying colors.
As we are beginning to emerge from the depths of this
health crisis, we have a unique opportunity to carefully assess
the actions taken to address the pandemic and its impact. We
should take stock of the lessons learned in how we might
improve and modernize moving forward.
We need to find more ways to jump-start our economy, help
grow our small businesses, and reduce unnecessary regulatory
costs and burdens on our public companies. We must also improve
and expand access to the capital markets for both businesses
and investors in order to better put their money to work.
There is no doubt that many of COVID-19's impacts will be
long-lasting, and that will necessarily influence how America
conducts business in the foreseeable future.
Chairman Clayton, I look forward to hearing from you today
on ways to reignite the economy and help businesses get back up
and running, as well as to get Americans back to work, not to
mention what you often talk about as, ``protecting Main Street
investors.'' And we need those folks to increase savings and
retirement returns for these Main Street Americans.
So I am looking forward to hearing from you, as we have
chatted in the past. Many things are happening, and I hope that
we will be able to capture some of the temporary reforms and
streamlining, as economists talk about reducing that friction
between transactions in a way that certainly keeps investors
safe, facilitates the markets, and increases the value and the
importance here in the United States.
And, with that, Mr. Chairman, I yield back.
Chairman Sherman. Thank you.
At this point, I would normally yield to the Chair of the
Full Committee, if she were available. But instead, I will go
to the ranking member of the Full Committee, and the Chair of
the Full Committee will be recognized either after the ranking
member or after the witness.
I now recogize Ranking Member McHenry for 1 minute.
Mr. McHenry. Sure. And I am happy to take her time, but not
her perspective. Thank you.
Thank you, Chair Clayton, for being here. I know there is
exciting news about you, and what the Securities and Exchange
Commission is doing, so I am glad we can talk about those
things here today.
I commend your leadership and the Commission's diligence
during these tough times. The constant, focused work that you
all have been doing is commendable. This gives assurance to
markets and to the American people that our government can
actually function, even in a time where we have to be socially
distant.
We need to ensure that regulators like the SEC are focused
on policies to make our markets stronger, more attractive, and
more competitive to see our way through this economic challenge
borne out of this health crisis.
I know the Commission has made a lot of progress on
proposals to stimulate the economy and economic growth, and to
prioritize targeted reforms to address the current needs
related to the virus.
So, thank you for your leadership, thank you for being
here, and thank you for your good work.
Chairman Sherman. Thank you.
Again, I will reserve 1 minute for the Chair of the Full
Committee, Chairwoman Waters.
Now, we welcome the testimony of our distinguished witness,
Jay Clayton, Chairman of the U.S. Securities and Exchange
Commission.
Chair Clayton has served as Chair of the SEC since 2017.
And, during that time, he also has served as a member of the
President's Working Group on Financial Markets, the Financial
Stability Oversight Council, and the Financial Stability
Board--clearly a package of responsibilities that exceeds an
interest in anything else that he is considering doing.
Chair Clayton has testified before this committee before,
so I don't believe he requires more of an introduction.
The witness is reminded that your oral testimony will be
limited to 5 minutes. And without objection, your written
statement will be made a part of the record.
You are now recognized for 5 minutes.
STATEMENT OF THE HONORABLE JAY CLAYTON, CHAIRMAN, U.S.
SECURITIES AND EXCHANGE COMMISSION (SEC)
Mr. Clayton. Thank you, Chairman Sherman, Ranking Member
Huizenga, and members of the subcommittee. I appreciate the
opportunity to testify today.
Before I begin discussing the work of the Commission, I
would like to address briefly the recent news regarding my
potential nomination to be the U.S. Attorney for the Southern
District of New York.
I have a long-held, deep respect for the work of the
Southern District, which is recognized throughout our nation
and internationally for enforcing the law and pursuing justice
without fear or favor. My deep personal respect is largely the
result of many years of working with the Southern District and
its distinguished alumni, including senior personnel at the
SEC.
I recognize that the nomination process is multifaceted and
uncertain. It is clear the process does not require my current
attention. In short, I am fully committed to and focused on my
role at the SEC.
I could not be more proud of the work of my colleagues over
the past 3 years on behalf of Main Street investors and our
market. There is much more to accomplish in an environment that
emphasizes a commitment to respect, diversity, inclusion, and
opportunity for all, and I look forward to continuing to lead
the Commission.
Today, my testimony will focus solely on the work of the
SEC, and in particular, the SEC's important work in responding
to the effects of COVID-19.
Our efforts have focused, first and foremost, on the health
and safety of our employees and of all Americans. Since early
March, the agency has remained fully operational in a mandatory
telework posture, thanks to the dedicated women and men of the
agency who have risen to the occasion, demonstrated flexibility
and resiliency, and proven why their work is so important to
Main Street investors and to our market.
In these times of economic stress and market volatility
brought about by our collective, unprecedented health and
safety response to COVID-19, the Commission has focused
significant resources on ensuring that our markets continue to
function as expected: facilitating timely, decision-useful
disclosure; and maintaining our enforcement, examination, and
investor protection efforts.
We have worked closely with our fellow regulators over the
past few months, and I believe our collective efforts to
preserve the flows of credit and capital in our economy has
significantly mitigated the potential economic consequences of
COVID-19.
I would be remiss here if I did not mention the prompt,
decisive action of the Federal Reserve, the Treasury, and
Congress. From my vantage point, these efforts were necessary
and had their intended stabilizing and other effects.
Here, I note that despite the extraordinary volumes in
volatility we have seen over the past few months, the pipes and
plumbing of our securities markets have functioned largely as
designed and, importantly, as market participants would expect.
We are continuing to monitor market prices, capital flows,
liquidity, and availability of credit in our efforts to assess
the functionality and resilience of our capital market. We have
been closely engaged with our fellow authorities and market
participants in this regard and have provided targeted relief
and guidance where appropriate.
We have also been assisting issuers in fulfilling their
obligations to provide materially accurate and complete
disclosures. And I have urged both corporate and municipal
issuers to provide investors with as much information as
practicable regarding their current and anticipated financial
and operating status.
In addition, we have maintained our strong enforcement and
investor protection efforts, especially in the area of COVID-
related fraud and misconduct. For example, the Commission has
issued over 30 trading suspensions and brought a number of
enforcement actions alleging fraud based on COVID-related
claims.
Finally, while the agency is engaging in numerous COVID-19
initiatives, we have also continued our traditional, mission-
oriented agency functions, including rulemaking, investor
outreach, and others.
Thank you again for the opportunity to testify about the
work of the women and men of the Commission, and I look forward
to your questions.
[The prepared statement of Chairman Clayton can be found on
page 52 of the appendix.]
Chairman Sherman. Thank you.
We do have a minute available for the Chair of the Full
Committee, but I am told--and this does surprise me--that she
would prefer that I not yield her a minute.
Mr. Huizenga. Mr. Chairman?
Chairman Sherman. She is nodding, and--
Mr. Huizenga. Mr. Chairman, a point of inquiry?
Chairman Sherman. Yes?
Mr. Huizenga. My understanding is that the second vote has
just been called. Can you lay out for the Members and for the
witness your intention of how we are going to be--
Chairman Sherman. It is our intention to keep this hearing
going, that Members will leave when their appropriate time is
to vote. The Chair will leave, and I know that a number of my
colleagues are here with names that are different parts of the
alphabet, and so we will just keep going. But I realize that
there will be a vote, maybe two, that will interrupt our
proceeding.
Mr. Huizenga. Thank you for the clarification.
Chairman Sherman. Thank you. I now recognize myself for 5
minutes for questions.
Small businesses, Mr. Chairman, are very important. You
just adopted probably the most popular program we are involved
in, the Paycheck Protection Program (PPP), that is going to
cost the Federal Government half-a-trillion dollars--well worth
it. But it is important that we do everything possible so that
small businesses can get capital in ways that don't cost the
Federal Government money.
As you know, I remain concerned about the inclusion of
business development companies (BDCs) in the SEC's Acquired
Fund Fees and Expenses (AFFE) rule, and that the rule has had
the unintended effect of BDCs being excluded from many major
indexes. This has harmed their ability to raise capital and
harmed their ability to fund small businesses.
Mr. Stivers and I have introduced legislation to fix this,
and I know you are working to address it as well in the
proposed Fund of Funds Rule. Are you confident that the SEC
will solve this problem in such a way that BDCs will be
included in these indexes?
Mr. Clayton. Index inclusion is not something that we can
mandate, but I am confident that the women and men in our
Investment Management Division are aware of this issue. We have
been looking at that treatment.
And et me just say this: In fee disclosure, comprehensive
improvement is appropriate. And if you look at our Regulatory
Flexibility Agenda, we have both Fund of Funds and Investor
Experience on that agenda. I intend to finish those rulemakings
and proposals before the end of the fiscal year, and I expect
that AFFE modernization, I will call it, will be addressed
therein.
Chairman Sherman. You can't mandate inclusion in indexes,
but you can create a rule that you know will have a certain
effect on inclusion in indexes. I think small businesses are
perhaps even more important to our economy than the Real Estate
Investment Trusts (REITS) that already enjoy a rule that
includes them.
The second question is about electronic delivery. I would
like to hear from you about your next steps in evaluating
electronic delivery of investor documents. Is the SEC looking
at expanding electronic delivery for documents beyond the
shareholder reports?
And as my colleagues have heard me say, if you mail it to
me, I will lose it. If you email it to me, then, if some
witness in this room is particularly boring, I can look at it
on my iPad while I am in this room, but much more likely,
because we only have interesting witnesses here, when I have a
spare minute somewhere, I can find it by searching for emails
from that company.
So, where are we on electronic delivery?
Mr. Clayton. My view on this has been further shaped by the
work we have done in this COVID environment. It is clear that
we live in an electronic communication world. Let me say that I
am of the view that anyone who wants paper, should be able to
get paper, but what this period has shown us is the importance
of electronic delivery and the effectiveness of electronic
delivery.
Chairman Sherman. Okay.
I now want to address the fact that companies based in
China and I think also Belgium are being traded on our stock
exchanges but the investors don't get the protection of the
Public Company Accounting Oversight Board (PCAOB) auditing
their audit.
Senators Kennedy and Van Hollen in the Senate, and myself
and Mr. Gonzalez here in the House, have put forward
legislation. I hope that we derive legislation that achieves an
important goal, and that is: If the audit is only 20 percent,
30 percent not subject to PCAOB, that is allowed, but when you
start having an audit that is more than that, you are asking
people to make investments without that protection. And if you
are going to invest in--this is the Investor Protection
Subcommittee. So, I look forward to working with you to make
sure those who invest in American stock exchanges are
protected.
And I would also hope that, in evaluating whether to impose
the requirement, in measuring what portion of the audit is
unavailable to the PCAOB, that you would not look at audit
hours. Because I want to make sure that there is no reason to
change the numerator, change the denominator by having auditors
do more or less. We want more auditing, and then we want the
auditors being audited.
So, I look forward to working with you on that.
And I will now recognize the ranking member of the
subcommittee, the gentleman from Michigan, Mr. Huizenga, for 5
minutes.
Mr. Huizenga. Thank you, Mr. Chairman.
And it seems we may have swapped notes and questions here.
My first two questions were exactly about the digitization
efforts and assessing the impacts on business continuity plans
and making permanent changes to investor preferences.
I think you answered that with, ``if you want paper, you
should be able to get paper.''
To expand a little bit on where the Chair was going on the
PCAOB, first of all, would it make sense to make clear that the
SEC has full rulemaking authority under the bill to ensure that
multinational corporations doing a small amount of business in
an uninspectable jurisdiction are not intentionally caught up
in the bill?
Mr. Clayton. So, the question is, what scope of authority
would we have in writing the regulations to implement this
bill?
I think, as the bill stands, we believe we have the
authority to do it. Of course, the more intent you express, the
better. But as it stands, we believe we could implement it. But
if you have further nuances, further direction, we would, of
course, welcome that.
Mr. Huizenga. Yes. I just really wanted to find out whether
you felt that you had the proper tools to be able to move
forward on that, so I am glad to hear that.
As we see small, privately-held businesses struggle to stay
afloat during these unprecedented times, some will be looking
to sell their business or be forced to close their doors
altogether. As you know, I have a bill, H.R. 609, which would
allow these small businesses the opportunity to be sold to the
next generation of entrepreneurs while also protecting good-
paying jobs. I hope you will join me in supporting this, and I
believe we need to pass this bill to help these struggling
small-business owners.
Are there some things that we can do to make sure that
those small, privately-held businesses aren't caught up and
treated like a large, publicly-traded company?
Mr. Clayton. Yes. We have an office, thanks to Congress,
the Office of the Advocate for Small Business Capital
Formation. And I am so happy with their work they have been
doing, because their job is to affirmatively recognize that
small businesses are vastly different--in their capital needs,
in their operations--from our public companies.
Just in response to COVID, we have adjusted the
crowdfunding rules, now, let me just say, all without any
degradation in investor protection, but to serve smaller
businesses and to understand that the rules for them raising
capital and access to capital should be different from public
company rules, and they shouldn't require hundreds of lawyer
hours to get through.
Mr. Huizenga. And I believe that sections within the Bar
have supported this in the past. We have seen a number of
efforts. I have passed this bill through the House unanimously,
and then it became partisan somehow. But, nonetheless, I am
hoping that we can count on your support and help in exploring
that.
You have also testified before this and other committees
several times during your tenure as SEC Chair. Members of both
parties on both sides of the Capitol have raised the issue of
the victims of the Stanford Ponzi scheme at nearly all of these
hearings.
You have indicated a willingness to be helpful to these
victims, but over 21,000 of them, including several of my
constituents, have been waiting over 11 years. Can you give
them an update on the status of the Commission's efforts to
help them get their money back?
Mr. Clayton. Let me say this: When you look at the status
of the Stanford victims, you can't reach any conclusion other
than there was a failure in the system. Everything that went on
there had the veneer of legitimacy. Yet, at the end of the day,
they haven't gotten much money.
And we have dedicated substantial resources to try and help
them get more money back. They are never going to be anywhere
close to whole. In fact, they are never going to be anywhere
close to anything close to whole, anything satisfactory. But we
are working on it. We are looking at the remaining claims that
they have and, consistent with our authority and our
independence as an agency, trying to help them as much as
possible.
Mr. Huizenga. In my last 45 seconds, I want you to talk
about the trajectory of our overall economy, the health of our
markets, where we are going, and your optimism on that, or
pessimism.
Mr. Clayton. Here is where we are: We have been able to
stabilize our capital markets and the flow of credit in our
economy, thanks to the great work of the Treasury and the
Federal Reserve, in conjunction with this body.
We are still in a period of uncertainty. From my
perspective, we are going to go into second-quarter earnings,
and we are going to find out a lot about how companies are
operating. Hopefully, what we will see is companies adjusting
and continuing to increase their ability to operate.
You are going to see that from public companies. To the
extent that filters down to private companies, that is
terrific, but we do need to do what we can to keep the economy
going, as we learn more about how to deal with the virus
operationally.
That is as quick an answer as I can give you. We have done
well, but we have work to do.
Mr. Huizenga. Thank you.
I yield back. And, Mr. Chairman, I am going to have to
excuse myself, because I am about 5 minutes late for my vote
section. So I will turn it over--
Chairman Sherman. I understand.
Mr. Huizenga. --to the ranking member of the Full
Committee.
Chairman Sherman. And ``S'' will come up in the alphabet
soon, so it will be my turn to vote.
I want to assure the witness that I am getting notes from
staff as to how to conduct the hearing, but I am not using this
iPad to review the investor disclosure materials from any of my
portfolio companies.
Mr. Clayton. If we had addressed the AFFE, you would,
though, right?
Chairman Sherman. I promise you, not while you are here.
I now recognize the distinguished Chair of the Full
Committee, Chairwoman Waters.
Chairwoman Waters. Thank you very much. I appreciate the
opportunity to be here with you today at this hearing.
Chairman Clayton, in the middle of the night last Friday,
Geoffrey Berman, the United States Attorney for the Southern
District of New York, was forced out of his position by
President Trump and Attorney General Barr.
The Attorney General subsequently announced that President
Trump intended to nominate you as Mr. Berman's replacement.
Your actions appear to be a continuation of President Trump's
efforts to squash any attempts to hold him and his enablers
accountable.
As you know, the Southern District of New York has been
instrumental in conducting independent investigations into
President Trump's associates and the Trump organization and is
currently investigating Deutsche Bank, an institution with long
and substantial financial ties to President Trump.
In light of these past actions, I am deeply concerned that
while your nomination to this important post is pending,
President Trump and Attorney General Barr may try to interfere
with your ability to independently and effectively oversee the
Securities and Exchange Commission in its mission of serving as
Wall Street's cop on the beat during a global health pandemic
that has caused one of the worst financial crises of our
lifetime.
Do you plan to continue serving as Chair of the SEC while
you await your confirmation?
Mr. Clayton. Chairwoman Waters, as I mentioned in my
opening statement, I don't think that matter requires my
attention at this time--
Chairwoman Waters. I'm sorry. Would you speak up, please?
Mr. Clayton. I'm sorry. I don't think that matter requires
my attention at this time, and I expect to continue to devote
my full attention to the Commission.
Chairwoman Waters. So, you will continue to serve as Chair
of the SEC while you await the confirmation? You will not step
down? You will not step aside? They will not have someone take
your place in any shape, form, or fashion, as far as you know?
Mr. Clayton. Let me just say, from where I sit right now,
this is not the time to decide about the nomination. I am here
as the Chairman of the SEC. As I look at it, there is no need
for me to pay any attention to the nomination at this time. I
am fully committed to being the Chairman of the SEC.
Chairwoman Waters. And, of course, that would not be your
decision, and I am not asking you if you are making that
decision. I am basically wanting to know, has anybody else said
to you that you would not be serving as Chair while you await
confirmation? Has anyone said that to you? Did the President?
Did Attorney General Barr say that to you? Anybody?
Mr. Clayton. No.
And, look, I have checked this matter with our Ethics
Office and the like. I intend to continue to serve as Chairman
of the SEC and devote my full attention to my duties as
Chairman of the SEC.
Chairwoman Waters. Thank you.
Will you commit today to recuse yourself from any and all
matters before the SEC that directly or indirectly involve
President Trump or which may create the appearance that your
actions serve as a special favor to President Trump in order to
obtain a position that President Trump and Attorney General
Barr have highly politicized?
Mr. Clayton. I am going to continue to do what I have
always done at the SEC, which is to pursue all matters with
independence, and to consult with Ethics on any issues that
would give the appearance of not having independence. But I
will continue to operate as I have been.
Chairwoman Waters. Thank you. So, that is a, ``yes.'' Let
the record show that you have answered in the affirmative.
Let's see if we have time here for one more question.
Chairman Clayton, at the onset of the crisis, I called on
you and other financial regulators to immediately halt the
adoption of all rulemakings not directly related to addressing
the unprecedented health and financial crisis caused by the
COVID-19 pandemic.
I made it clear that 100 percent of the SEC's resources
should be dedicated to protecting investors in U.S. capital
markets during the pandemic. I was also clear that it would be
unacceptable for the SEC to use this crisis to justify
regulatory rollbacks of important investor-protection
regulation.
Yet, as I outlined in my letter to you this week, I
continue to see the SEC, under your leadership, engage in
deregulatory rulemaking that expands private markets that the
State securities regulators have testified are rife with fraud.
This proposal would limit the amount and reliability of
information investors rely on, at a time when markets are
experiencing the highest levels of volatility since the 2008
financial crisis.
Another proposal would prevent many small shareholders from
seeking to reform and modernize the companies they own,
including by making it harder to propose increasing board
diversity, paying workers a living wage, taking seriously
climate change, or making changes to adapt to the post-pandemic
world.
So, have you paid attention to what we are concerned about,
and the relationship to not using this as a time to do
deregulation?
Mr. Clayton. What I can say is, our regulatory agenda--
Mr. McHenry. The time--
Mr. Clayton. --has been public. We are continuing to pursue
our regulatory agenda. We are doing so in a very open way. We
are continuing to take comments and engage with people. And in
those areas where investor protection, my aim has been--
Mr. Casten. [presiding]. The time has expired,
unfortunately.
Are you okay letting him finish?
Mr. Clayton. Thank you.
Chairwoman Waters. Thank you. We will follow up.
Mr. Clayton. Thank you.
Mr. Casten. I now recognize the ranking member of the Full
Committee, Mr. McHenry, for 5 minutes.
Mr. McHenry. Chairman Clayton, as I have written to you
about, harmonizing the choppiness of regulations within the
Securities and Exchange Commission, I think is something that
has been needed for quite a long period of time. But I wrote to
you specifically about regulation crowdfunding. This is an
issue that I have worked on for a decade.
Especially now, I think we need to help small businesses.
And we need to help small businesses in a variety of ways, not
just with lending, but the opportunity to raise other forms of
debt, as well as through capital raises for equity as well.
I wrote to you about this, specifically about special-
purpose vehicles and increasing the offering limit. I just
wanted to see if you would elaborate on the comments you have
received and when it looks like you will finalize the
rulemaking?
Mr. Clayton. I don't have a specific timeframe for that,
but it is on our agenda to finish sometime around the end of
the fiscal year. I intend to stick to our agenda.
What we are trying to do, if you don't mind me taking a few
minutes, is--let's just say you are a small or medium-sized
company and you are looking to raise capital. You have to weave
your way through a patchwork of six or seven different types of
exemptions, including regulation crowdfunding. And you need a
Ph.D. in securities law to do it. What we want to do is
basically streamline that process without in any way degrading
investor protection, and, in fact, hopefully increasing
investor protection. Let's get rid of all that cost while
maintaining--
Mr. McHenry. So, in some respects, like with regulation
crowdfunding, we have a more onerous--capital raised for
$50,000 than we do for $50 million. And that doesn't make sense
in terms of a cost burden for the protection of the investor,
the clarity of information for the investor.
So, rightsizing those things so that there is a gradual
change in regulatory cost and oversight based off of the raise,
instead of having arbitrary break points to smooth those things
out, is that the focus of your work?
Mr. Clayton. Yes. That is a fair summary.
Mr. McHenry. What are the benefits? What do you think we
will get as a benefit if this is done successfully?
Mr. Clayton. A hopeful benefit--because, right now, our
most acute problem is, for companies getting started, raising
$200,000, $300,000, $400,000, $500,000, generally, that is
achievable through people, friends and family, the like. Trying
to take that company from that size up to a $25 million company
is extremely difficult. Once you get to $25 million, you have
institutional investors who are sophisticated. You bring them
in and.
It is in that gap--pick your number, $500,000, $1 million,
$2 million, up to $50 million--where there is a tremendous
amount of choppiness, and access to capital could be better,
with investor protection. We could limit investment size; we
can do a bunch of things. But it is too choppy where it is now.
Mr. McHenry. Okay. And I commend the work that you have
focused on here. It has been due for decades at the SEC. And I
think that was how--some of the poor implementation of the JOBS
Act that you can remedy and make clear the intention of
Congress here.
I want to highlight, also, on Environmental, Social, and
Governance (ESG), we had a recent panel before this committee.
The head of sustainability at BlackRock said that there was,
``an overabundance of ESG data, and the strong majority of the
ESG data is not connected to materiality, which is a
fundamental foundation of our disclosure framework.
So, given the vast amounts of data and questionable utility
for at least some, if not most, companies, do you think it
would be appropriate for the Commission to dictate a single ESG
scoring system for every public company using that data?
Mr. Clayton. That is coming at it in one way. Coming at it
in a different way, I have been very clear that I think a
single ESG metric doesn't make a lot of sense.
When you take qualitative metrics that have a degree of
subjectivity and then personal preference--so just one of those
has a fair amount of ambiguity in it, and you combine them
together to come up with one score, I kind of--I love that the
economist Ken Arrow won the Nobel Prize for showing that, when
you try to rank like that, it doesn't work out very well.
Mr. McHenry. Okay.
So, likewise, with the coronavirus, do you think there is
an appropriate one-size-fits-all disclosure requirement for
risks related to the coronavirus?
Mr. Clayton. What we are seeing around--and I have to
commend our staff, because we have gotten out there and tried
to give companies as much guidance as we can on how to disclose
around the effects of the coronavirus and our response.
And it is vastly different from company to company. So, no.
Some companies have benefited in some ways. Some companies are
completely shut down. Some companies have liquidity problems;
others don't. Some have operational issues.
Our principles-based system has proven itself through this
response. And, the second-quarter earnings season is going to
be the same way.
Mr. McHenry. Thank you. Thank you for your statement. And
thank you for your work.
I yield back.
Mr. Casten. I now recognize the gentlelady from New York,
Mrs. Maloney, for 5 minutes.
Mrs. Maloney. Thank you.
And thank you for being here today, Mr. Clayton.
I want to address the issue that is on everyone's mind, the
scandal in the U.S. Attorney's Office in the Southern District
of New York, which is in my home district. The office has
several open investigations involving President Trump, his
company, and his close associates, including Rudy Giuliani.
There have been press reports that President Trump was very
unhappy about the Southern District's decision to investigate
his friends. And then, on Friday night, Attorney General Barr
released a statement falsely claiming that the U.S. Attorney in
the Southern District, Geoffrey Berman, had stepped down, and
announcing that the President intended to nominate you as his
replacement.
Of course, we now know that the Attorney General was lying.
Mr. Berman had not agreed to step down, and when he refused to
step down, the President fired him.
This episode was extremely troubling to many of us and
suggests that the President fired a U.S. Attorney for refusing
to follow his directions on criminal prosecutions. That would
be a blatant abuse of power and should be unacceptable to
everyone.
Now, Chairman Clayton, you and I have a really very
productive relationship, even though we don't always agree, but
I have to ask you some questions about this episode and your
involvement.
When did you first discuss the Southern District job with
the President or the Trump Administration, and with whom did
you discuss it? Attorney General Barr?
Mr. Clayton. Look, I am here as the Chairman of the SEC to
discuss the work of the SEC. What I can say is that, as I said
in my opening statement, I need to go back to New York. We are
both from New York, and--
Mrs. Maloney. Okay. But I was just asking for a timeline.
When did you discuss it? Just give me the approximate date, the
timeline.
Mr. Clayton. What I want to say is, this is something I
have been talking about for a while, consulting with people as
to whether this would make sense for me to continue in public
service. This was first raised to the President and the
Attorney General last weekend as something that I had wanted to
do, and they first became aware of it last weekend.
Mrs. Maloney. Okay. Thank you.
And did you know that Mr. Berman did not want to leave his
job in the Southern District when you agreed to accept the
nomination? In other words, did you know he was going to be
fired to make room for you instead for the job?
Mr. Clayton. I am not going to get into that here.
Mrs. Maloney. Okay.
If you are eventually confirmed by the Senate for this job,
would you commit to recusing yourself from all of that office's
current investigations into President Trump and his associates?
Mr. Clayton. Here is what I am going to say. That is a
process that is way down the road. In my current position and
in any position I take, I commit to doing it independently,
without fear or favor, and in the pursuit of justice. And there
is nothing--
Mrs. Maloney. But that is--excuse me back. I'm sorry, that
is not what I was asking. I was just asking for a commitment to
recuse yourself, should you be appointed, from the
investigation involving the President or any of his associates.
Because I have to say, the circumstances of Mr. Berman's
firing were very suspicious and raise a lot of questions about
whether the President is interfering in ongoing criminal
investigations.
I personally think the American public deserves a clear
answer on whether you will recuse yourself from these very
sensitive investigations into the President and his associates.
So I am asking a very simple question: Will you commit right
here to recusing yourself from these investigations?
Mr. Clayton. That position and that process is something
that is separate and doesn't need my attention today. What I
will commit to do, and what I commit to do in my current job,
is to approach the job with independence and to follow all
ethical rules.
Mrs. Maloney. I understand that you don't want to talk
about this right now, but I think it is important that the
American people, right now, know these answers. Because if you
are not going to be independent--and the way to be independent
is to recuse yourself--then we need to know so that someone
else can be nominated. We need independence.
Mr. Clayton. Understood. And I commit to independence.
Mr. Casten. I now recognize the gentlelady from Missouri,
Mrs. Wagner, for 5 minutes.
Mrs. Wagner. I thank the Chair.
And I thank you for joining us today in person, Chairman
Clayton, to discuss U.S. capital markets during this pandemic.
And I just want to say, for the record, I have worked very
closely with you and your office and found you to be a person
of incredible integrity and character and the highest of
ethics. So I want to thank you for that, and I am sure that you
will continue to comport yourself in such a way. I have great
confidence in you.
Chairman Clayton, despite the challenges of the
coronavirus, I am pleased to see that the Commission is hard at
work looking to improve our markets.
Can you please describe recent proposed changes to your
equity market structure and where you think improvements will
be most valuable for the investing public, specifically Main
Street investors that I have fought for so passionately for the
past 8 years in Congress?
Mr. Clayton. Thank you.
Our equity market structure has become incredibly complex.
Just to level-set everyone, virtually all trading--I can almost
emphatically say, all trading is electronic, it is done in
nanoseconds, and it is complex.
Our job at the SEC is to make sure that what you pay for
trading--and it ultimately filters down to our long-term
investors--is fair and reasonable. And we are looking at both
infrastructure and governance of data plans and the way data is
distributed to those who trade in our markets to try and make
sure that aspect drives fair and reasonable pricing.
Mrs. Wagner. Thank you.
Chairman Clayton, I am also worried about the risks of
fraud stemming from the coronavirus. We saw during the 2008
financial crisis a rise in investment scams that take advantage
of the extreme volatility in the stock market that we have
seen. And I am deeply concerned about the seniors in my
district, those who are saving for their retirement security. I
am concerned about these scammers who are out there.
Can you describe what the Commission is seeing in terms of
coronavirus-related fraud and scams and what the Commission is
doing in its examinations and enforcement efforts to reduce
these kinds of fraud?
Mr. Clayton. Unfortunately, we are seeing coronavirus-
related fraud. We are seeing people tout products that they say
they have, testing that they say they have, and then trying to
pump up the value of their stock. Or in private placements, we
are seeing some of that.
And our enforcement staff is being extremely proactive in
looking at these claims and, if there are substantial indicia
of fraud or misconduct, bringing trading suspensions and
eventually actions.
What I can say to investors is, deal with professionals.
Let's deal with professionals--broker-dealers, investment
advisors. If you are at all doubtful about any of these--
Mrs. Wagner. Known entities.
Mr. Clayton. Known entities.
Mrs. Wagner. Those that you have worked with before and
such. Because we are seeing it quite on the uprise. We
certainly saw it in 2008. And it is something of deep concern
to me, to the retail investor, and especially to our most
vulnerable seniors who could lose everything that they have.
So, it is of great concern to me.
I am encouraged, like everyone, to see that the Commission
remains committed to its regulatory agenda during the pandemic.
The SEC, under your leadership, has made great progress on a
number of proposals that will remove unnecessary regulatory
burdens on businesses and streamline the flow of capital--
capital that we need so desperately right now to stimulate
economic recovery.
I know you have been giving us some updates on what you
have in the queue here. I was very pleased to see that the
Volcker Rule was finalized today.
Any other brief update on the progress of the Commission's
efforts, especially on things like to harmonize the exempt
securities offering framework, and the proposal to modernize
the framework for fund valuation practices and such? I think
that comment period ends on July 21st or thereabouts, so any
kind of a quick update would be great.
Mr. Clayton. I am optimistic that we will be able to
conclude, if not all items, virtually all items on our
regulatory agenda, including what I want to say is the
harmonization of that exempt offering framework and bringing
transparency to a number of places where transparency is
needed.
And I am excited about the fact that the women and men of
the SEC, through a telework posture, responding to all of these
events, have been able to continue with our defined agenda and
do so in an incredibly professional way. I just can't say
enough good things about them.
Mrs. Wagner. Great. Thank you very much.
And I yield back to the Chair.
Chairman Sherman. Mr. Himes is now recognized for 5
minutes.
Mr. Himes. Thank you, Mr. Chairman.
Chairman Clayton, thank you for being here.
I am sorry that you are caught up in this series of events
which have raised questions that Mrs. Maloney articulated. I am
particularly sorry that this has had the effect of calling into
question, either explicitly or implicitly, your integrity, your
independence, and your reputation.
We have known each other for some 3 decades and have worked
on a lot of things together, and if I were a Senator
contemplating your confirmation, I would do my job and look at
your qualifications, your history, and your philosophies, but I
would absolutely have no questions whatsoever about your
reputation, your independence, or your integrity. But I am not
a Senator, for better or for worse.
Speaking of integrity, Chairman Clayton, I was delighted to
see your statement of June 22, 2020: The SEC and the Justice
Department's Antitrust Division sign an historic memorandum of
understanding (MOU), the purpose of which, apparently, is to
enhance competition in the securities industry.
My suspicion is that this MOU was signed because both
entities had some areas of investigation in mind. And I wonder
if you might share with us areas that this new joint venture or
cooperative enterprise might be looking at.
Mr. Clayton. Thank you very much for your comments.
And what I want to do is--``investigation'' may be a loaded
word. I don't want to imply that we are investigating anybody
together. But what we have been doing--and I greatly appreciate
our friends at the Antitrust Division--is we have been working
together on a number of items.
They have people with great expertise. We oversee complex
markets. They are able to help us with some of these issues,
and we are able to help them. We have deep expertise in how our
markets operate, and we have been sharing that with them.
The MOU formalizes that relationship. You know, no secret,
I expect to be completed with this job at the end of the term,
and I think Mr. Delrahim is of a similar--and we want to
formalize that really powerful relationship.
Mr. Himes. Just because I have very limited time, to date,
no particular areas of possible uncompetitive behavior have
been contemplated?
Mr. Clayton. We don't talk about pending investigations.
But I don't want people to think that this is somehow anything
more than continuing the cooperation that we have had across
our respective agencies and divisions.
Mr. Himes. I think you know what I am going to say next,
because we have had this conversation a couple of times. Just
for kicks, I printed out again the pricing for initial public
offerings in the middle market. This blue bar you see here
shows almost perfect clustering at 7 percent as gross spread
for IPOs in the middle market. And we have talked about this a
lot before.
I seek unanimous consent, Mr. Chairman, to make this a part
of the record.
Chairman Sherman. Without objection, it is so ordered.
Mr. Himes. And, again, it is just a blue bar showing that
middle-market IPOs are priced at 7 percent.
The price of a flight from New York to L.A. moves around a
lot. The price of a gallon of gas, or the price of an apartment
for a month in D.C., moves around a lot, because it is a
competitive market. I don't know if 7 percent is too much or
too little; I am just blown away by the fact that it never
varies from 7 percent.
Is that perhaps an area that this new cooperation with the
Justice Department might take a look at?
Mr. Clayton. Let me say this: That is the kind of thing
where our cooperation, I think, would lead to better analysis.
Mr. Himes. Okay. I appreciate that. And I will probably not
let that particular horse die any time soon.
But I do want to ask you about one other thing. In a
February 14, 2020, statement on adding more stock price
information to market data feeds, you said, ``Both the content
and the technologies used to collect, consolidate, and
disseminate market data have lagged meaningfully behind
proprietary data products and systems offered by the
exchanges.''
The general public watching this doesn't know what that
means, I suspect. So correct me if I'm wrong, but what you
meant there was that exchanges sell much more robust
information about the nature of trading markets than is
available to the public who does not purchase that information.
Is that fair to say?
Mr. Clayton. That is a fair way to say it.
Mr. Himes. Okay.
So, apart from the fact that one is illegal and the other
is legal, apparently, what is the difference between my paying
a corporate insider for more robust, non-public information
about a corporation, and a trading entity paying an exchange
for non-public information?
Mr. Clayton. Our law requires, for trading and whatnot, for
us to look at what is being done, and if it is fair and
reasonable. And one of the questions that we have is--I am
going to use my hands to describe what you did.
Here is the publicly available data. And we started here
with the robustness of privately available data. What we have
is an increase like this. And that gap we have to look at and
decide whether it continues to be fair to trade under those
circumstances and whether people can comply with their
obligations.
Mr. Himes. So there is some gap at which you would judge it
to be unfair between that which you pay for and that which you
get publicly?
Mr. Clayton. Yes. That is a very good question.
Chairman Sherman. Your time is up.
Mr. Himes. Thank you, Mr. Chairman.
Chairman Sherman. Mr. Stivers is now recognized for 5
minutes.
Mr. Stivers. Thank you, Mr. Chairman. I appreciate you
holding this hearing.
Chairman Clayton, thanks for being here. And good luck in
your future endeavors, but I am excited about what you have
been doing at the Securities and Exchange Commission. And I
want to say thank you for the work you have done to make rules
that make sense and that give investors more information. Thank
you so much.
I do want to follow up on something the chairman brought
up. Chairman Sherman talked about the Acquired Fund Fees and
Expenses (AFFE) Rule. Obviously, it was built for mutual funds,
not companies that have operating expenses. And so, those
expenses for business development companies make it look like
they are eating things up with fees, but they are really
operating expenses. So, when you list equities, you don't have
them talk about their operating expenses. It is the expenses
that deal with their investors and the investors' fees.
Mr. Sherman and I have a bill, and we will pass it if we
have to, but I believe you can fix this. I know you can fix it.
You are already working on it. And I hope you fix it and we
don't have to pass our bill. But I am not going to back down
from passing our bill, because I think it is really important.
This ultimately impacts middle-market and small-business
companies in my district and all around our country, because
they get less access to capital as a result of a rule that was
built for mutual funds and is now applied to a company that
essentially has operating expenses and those have to be
disclosed and make it look like there are too many fees.
So, please take care of it. But if you don't, don't worry,
we will.
Mr. Clayton. Okay.
Mr. Stivers. That was the first thing I wanted to bring up.
And the other thing that I wanted to chat a little bit about is
the Nationally Recognized Statistical Rating Organizations
(NRSROs).
A number of our committee members have expressed some
concern that the Fed's emergency facility arbitrarily shows
winners and losers in NRSROs. That is a real concern to me. I
think we need to make sure that everybody has access to these
new facilities that are coming up.
You are the primary regulator. Has the SEC been consulted
by the Federal Reserve on the subject of rating agencies?
And if not, have you offered any information that can help
them understand how they can decide a way to choose rating
agencies that is not based on some arbitrary decision or some
decision that doesn't actually look at the health and quality
of those NRSROs?
Mr. Clayton. The short answer is, yes, we are in dialogue
with the Federal Reserve across the programs on the use of
rating agencies and providing them the data that we have to
help them make the judgments as to which rating agencies are
appropriate for which programs.
Mr. Stivers. Great. Thank you so much.
Again, during your time as Chairman, you have championed
issues that protect investors while giving them greater access
to choice. My colleague from Minnesota, Dean Phillips, and I
have a bill that we have introduced that would direct the SEC
to do more tailoring on your rules for registered index-linked
annuities.
Those products give investors access to upside while giving
them capital protection. But a lot of the forms they have to
fill out are built for equity companies that have a lot of
information that is not necessarily relevant and is just hard
for them to navigate.
So, again, this is something that we don't have to pass a
bill on; you could actually fix this yourself. And I would just
highlight it for your attention, and I hope you will pay
attention and fix that yourself.
Mr. Clayton. Thank you.
Mr. Stivers. Thank you.
I want to again thank you for your great work at the
Securities and Exchange Commission. You have unfinished
business. We know you are focused on that and going to stay
focused on that through the end of the year. Good luck in
whatever the future holds for you, but thank you for what you
are doing for investors every day.
Mr. Chairman, I yield back.
Mr. Clayton. Thank you very much.
Chairman Sherman. There seems to be bipartisan support for
that position.
I now recognize Mr. Foster for 5 minutes.
Mr. Foster. Thank you, Mr. Chairman.
And thank you, Chair Clayton, for being here.
I really appreciate the work that you and your staff have
done in being proactive about looking out for scams and fraud
related to COVID. It is important, and it is timely.
Equally important, and maybe more important in terms of
market capitalization, are the possibilities of share-price
manipulation among pharmaceutical firms as all of these ongoing
clinical trials report out. You have already seen situations
where results have been released, resulting in massive swings
in share prices, and scientists questioning the timing, from a
scientific point of view, of the release of that information.
Are you doing anything in that way, to look at possible
share-price manipulation?
Mr. Clayton. Let me try and do this in the most appropriate
way. We don't talk about pending investigations. We just don't
do it.
Do we look for patterns of activity, generally, that would
create suspicion in anybody's mind--timing of announcements,
timing of buys, timing of sales, that type of thing? Yes, we
have a group that does that.
Mr. Foster. Have you added extra capacity and moved your
eyes directly towards COVID-related pharmaceuticals?
Mr. Clayton. I am sorry that I am being more elliptical
than I should be.
And we do that in the context of the current day. And we
are doing it in the context of the current day. Just as we are
looking at COVID-related fraud, we are looking at anything that
would be market-moving in the context of the kinds of
pharmaceuticals, and other things that you are talking about.
Let me be clear about this. Right now, we have encouraged
companies to get out there with information as quickly and
transparently as possible. Because, in uncertain times, non-
public information becomes incredibly valuable and is a place
where there can be great misconduct. We want companies to be as
transparent as possible and, when they are not disclosing
information, to keep it as confidential as possible.
Mr. Foster. Yes. That obviously makes them a huge target
for things like cyber espionage and so on.
Mr. Clayton. Yes.
Mr. Foster. So, I just urge you to really keep your eyes
focused on that sector. Because there are going to be very
important clinical trials reporting out over the coming months,
and the eyes of the world are going to be on these, and lots of
investors are going to be involved.
Now, I appreciate all of the efforts you have made to
continually be effective in your job at the SEC as you are
being considered to lead the Southern District of New York
office. I appreciate that. And I also appreciate that your
discussions that you must have had with Attorney General Barr
or the President or anyone in that command chain really should
remain confidential.
But separate from that, did you have any discussions with
anyone representing or speaking for the Trump family
organization, President Trump's private lawyers, or anyone
outside the command chain that goes through Attorney General
Barr?
Mr. Clayton. Look, I don't want to go down the road of
getting into all of these things, but I have not talked to
anybody about any pending matters--
Mr. Foster. No, I am talking about considerations involving
your appointment. Were they confined to the appropriate command
line that goes from the President to Attorney General Barr and
that command line, or did you have communications outside of
the command chain, which, I think, shouldn't be subject to the
same sort of confidentiality?
Mr. Clayton. Let me say it this way. I don't want to get
into what--I am not going to talk about it. There is a time--
but I am completely comfortable that anybody I talked to about
this was appropriate to talk to.
Mr. Foster. Were you contacted by people that you turned
away because you did not feel comfortable?
Mr. Clayton. I am just going to leave it at that.
Mr. Foster. Okay.
Consolidated audit trail: that was on your to-do list when
you came into the job.
How do you feel about the progress you have made,
particularly relating to what will, I think, ultimately be the
toughest thing, which is getting international agreement to
have personal identifiers for the participants for trades in
international venues? How do you see that going?
Mr. Clayton. I think we have made substantial progress. Let
me say that we started from a bad spot. We started from a bad
spot in terms of security and in terms of architecture, and we
have made substantial progress. I believe we will have a
completed consolidated audit trail that functions as intended.
It will be late. It is already late. But I think we are going
to get there.
Mr. Foster. But that will require international agreements,
to get access to the actual identities of the participants at
foreign venues. And this has already struck me as the toughest
thing. It is probably not made easier because of an
Administration that isn't enthusiastic about international
agreements. What sort of progress do you see has been made
there?
Mr. Clayton. We are making progress internationally on that
type of--LEI or the like.
Mr. Foster. Thank you. And I will be following up.
Mr. Clayton. Please.
Mr. Foster. I yield back.
Chairman Sherman. Thank you.
Mr. Hill is now recognized for 5 minutes.
Mr. Hill. Thank you, Mr. Chairman. And I appreciate the
opportunity to have Chairman Clayton with us today.
And I want to thank you, Chairman Clayton, for the
Commission's leadership and your staff's leadership through the
pandemic crisis of March, where you kept your head about you,
as your fellow Commissioners did, when all were losing theirs
around you--I think there is a poem in there somewhere--but
specifically in keeping our markets open for the benefit of our
constituents, that they had access to knowing the value of
their account and could consult with their investment
professionals through that period.
And, again, as I always do, I commend the work of the Fed
and the Treasury for their quick work in liquidity. So, thank
you for being a part of a team that got our capital markets
functioning again for the benefit of companies who employ
millions and millions of Americans.
And, also, thank you for your support, as Chair, for
entrepreneurship and capital formation and your putting strong
attention on that, as well as the need to assess things that
are important to the fintech arena.
We have a new Securities Commissioner in Arkansas as of
last month, Eric Munson. And we look forward to you meeting
Eric in his new capacity and look forward to hopefully
introducing you personally to Eric as he takes up his new
responsibilities at the Arkansas Securities Department.
I want to take a minute today and talk about one of Mr.
Sherman's bills that is not introduced yet, I don't think, Mr.
Chairman. It is a bill that you mentioned on our call the other
day on potentially having the primary corporate facility of the
Fed ensure that it is subject to Section 4003 of the CARES Act.
And I took that comment from you--and it is in our
Commission report dated June 18th that the Fed and the Treasury
confirmed, that any bond purchased in the primary corporate
facility is in compliance with the limitations in the
Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Chairman Sherman. If the gentleman will yield, I have
little doubt that everything that is being done is legal--
Mr. Hill. I can't yield to you right now, because I am busy
talking to our good SEC Chair, but I will be back in touch
later. But, thank you. And if I can help on that, let me know.
Mr. Clayton, I wanted to talk to you about the municipal
order that you issued providing exemptive relief to municipal
advisors under the rubric that it is good during the pandemic.
You know my views on this; I expressed them to you in a long
letter in February during the comment period on it.
I don't really believe that this should have been done by
exemptive relief. I have expressed that to you. I think if we
are going to make changes in the municipal market for our State
and local governments, we ought to do that through the
Administrative Procedure Act (APA) with the rulemaking.
What led the Commission to do a temporary order rather than
following the APA?
Mr. Clayton. Let me say this: Whether we have to follow the
APA or not, I think we are confident that the way we have done
this is appropriate, but it is very narrow. This was something
that was contemplated--and it is temporary. And it would be my
expectation that if this were done on anything like a permanent
basis or in any broader scope, that there would be opportunity
for notice and comment.
Mr. Hill. Thank you. I do recognize that you made a
significant narrowing of the scope since it was originally
proposed, and you attempted to meet some of the questions that
came in the comments from the bond dealers and from the
Municipal Securities Rulemaking Board (MSRB) itself.
But I see your temporary relief was dated June 16th. And
when you look at the municipal securities market, it is
functioning quite well due to the work of the Fed and the
Treasury. I see no lack of access for State and local
governments to reach the market through traditional means. In
fact, all of the month of June has seen capital inflows into
all of the tax-exempt bond funds.
So, I don't view it as an emergency situation. I view this
more as a wolf in COVID sheep clothing, in terms of using the
pandemic to justify its rationale.
So if at the end of the temporary order, a municipal
advisor must notify the SEC of any direct placements, will the
SEC make that public, that information, who does those
placements?
Mr. Clayton. We are going to get that information. I don't
want to commit here to making it public, but I will commit to
considering whether it should be made public.
And I would expect that if the activity during this period
would be something that would be considered, again, through any
kind of open notice and rulemaking if this were going to be
extended, expanded, or the like.
I do want to note that it is limited in size and the
secondary market distribution is extremely limited.
Mr. Hill. Right. Thank you. I appreciate, again, our
dialogue on this.
And I yield back, Mr. Chairman.
Chairman Sherman. The next questioner I will recognize is
head and shoulders above the average Member of Congress all the
time, but today he is 15 feet above us here in the hearing room
on the screen, and that is Mr. Meeks. You are recognized for 5
minutes.
Mr. Meeks. Thank you. I want to thank you, Mr. Chairman,
for holding this crucial hearing today.
The interesting thing is that most people actually wish
this hearing was a little less important, that the only issues
that are stated here were our securities laws and our capital
market regulations and the investor-protection bill before this
committee. Undoubtedly, these things are crucial to our
strength as a nation and our status as the financial capital of
the world. But I would be remiss if I did not say that all of
these issues are built on something vital and even more
important, and that is the rule of law.
Recently, millions of Americans have taken to the streets,
shouting, ``No justice, no peace.'' And the core notion here is
simple, that no person is above the law, regardless of whether
they are wealthy, whether they wear a blue uniform and a badge,
or even if they live at 1600 Pennsylvania Avenue. And they want
to make sure that there is equity and that the justice system
is fair to everyone.
And I know, Mr. Chairman, by the standards of the
Administration, you clearly have had a solid run at the SEC,
and your tenure has not been littered with corruption or
scandals or anything of that nature. In fact, I know you have
really worked hard on issues like cryptocurrency scams, and you
have taken real steps to protect investors, in my view.
So, I certainly hope that things don't go awry in regards
to what you are now being considered for, and that we continue
to try to make sure that we have liberty and justice for all
and it does not ruin your reputation as you move forward.
I will stop there, and let's go to some policy questions
that I think are important for me to ask you, listening to some
of your statements earlier in regards to, you are going to be
focused continually on your job as the Chairman of the SEC.
My first question is, the SEC whistleblower program that
was created by the Dodd-Frank Act has been incredibly
successful at uncovering fraud in our financial markets. And
your predecessor, Mary Jo White, called the program a game-
changer and stated, ``It is past time to stop wringing our
hands about whistleblowers. They provide an invaluable public
service, and they should be supported.''
So my question to you, sir, is why have you sought to
reform a program that seems to be, and has been proven to be,
so effective?
Mr. Clayton. I believe--let me make sure I have it
correctly--you are talking about our whistleblower pending
amendments. And let me say this about our whistleblower
program: It has been extremely successful, and I am extremely
supportive of it. I think you can see from the recent awards
that we have not slowed down, and in fact, we have sped up, the
timing for processing awards and getting them out to
whistleblowers.
What I am committed to doing is making this program as
transparent and as efficient as possible. And I am hoping to
move forward to finalize those amendments. And what I will say
is, not decreasing but actually increasing the incentives for
people to come forward as promptly as practicable.
Mr. Meeks. Thank you for that. We will be watching and
following, because that is tremendous. We have seen
whistleblowers recently have their reputations ruined in an
attempt, it seems to me, to discourage folks, not necessarily
from the SEC but with some of other policies that have taken
place, particularly coming out of 1600 Pennsylvania Avenue.
Let me just ask another question in my remaining time. In
the last few months, a record number of day traders have become
active in the market. And Jim Cramer recently claimed that
Warren Buffett is, ``overrated'' and ``washed up,'' and that
he, ``used a Scrabble bag to recommend stocks to his many
followers.''
So my question is, how has the SEC reacted to this
phenomenon of day trades? And does it need any additional tools
from Congress to address this issue?
Mr. Clayton. I don't know that we need additional tools.
But I do see--and there is no doubt about this--there has been
increased short-term retail participation in our markets, and
when I see that, it concerns me. It concerns me that people do
not know the risks they are taking, particularly in leveraged
products, options, and trading on margin.
And let me just take this opportunity to thank you for the
question and to tell all of our retail investors that these are
sophisticated products that have risks that may not be
apparent, and you should be quite cautious in trading with
leverage, trading in options, trading with--I'm sorry. My time
has expired.
Chairman Sherman. Thank you.
Mr. Davidson from Ohio is now recognized for 5 minutes
Mr. Davidson. I thank the Chair.
And thank you so much for being here, Chairman Clayton.
After your appearance before the Full Committee last time, I
submitted questions for the record regarding bulk download of
data from FINRA's Consolidated Audit Trail (CAT) system. Thank
you for your responses to the questions.
And, in your responses, you highlighted the work the SEC
has done to limit the types of data collected, as well as the
directive for the SEC staff to provide recommendations that
will help enhance the Consolidated Audit Trail's cyber and data
security. So, thank you for that.
As you know, this, as proposed, would be the largest
database to be created and overseen by a regulatory agency, and
it contains extremely sensitive information. Every firm that is
supplying this data would view it as very proprietary, trade
secrets, the keys to the kingdom. The concern is all the more
highlighted by the SEC itself suffering a breach of the
Electronic Data Gathering, Analysis, and Retrieval (EDGAR)
System in 2016.
One of the questions that you posed to staff in your
directive was the issue of bulk data downloads. And as I
understand it, the more than 20 self-regulatory organizations
(SROs) and the SEC would be able to download bulk data from the
CAT.
What particular concerns do you have with this data being
distributed across SROs, that led you to pose these questions
to the SEC staff? And what do you think should be done to
ensure the SEC and FINRA have the proper internal risk controls
to protect that data held in the CAT as well as held by them
once it is downloaded? And are you evaluating those controls?
Mr. Clayton. The short answer is, yes, we are evaluating
those controls. It is the types of risks that you identified
that caused me to ask these questions.
And if you will allow me to speak generally--and know that
this is a complicated problem--I am looking at it this way: We
have ``X'' number of SROs, a lot. We shouldn't start with the
idea that everybody gets all of the data, then maybe we peel
back a little bit. We should start with the idea that the SEC
gets all of the data, because we need it, and then see what
others need to do their jobs.
Because starting with, everybody gets all of the data, and
then kind of peeling back, I don't think is the right
perspective. I think starting with the idea that we at the SEC,
with our cross-market obligations, have access to all of the
data, but others get data as they need it to do their jobs--I
don't want to keep them from being able to do their jobs, but
let's scope the data consistent with the obligations they have.
Mr. Davidson. Yes. When you say, ``all of the data,'' I
want to be sure that you are clarifying, ``all of the data that
is actually collected.'' Because you have highlighted the
importance of, first and foremost, not collecting data that you
don't need, and frankly, data that could--and I think the other
thing that you have highlighted as a good measure is
segregating the data that would be personally identifiable to a
firm or individuals. So, I think those are good controls.
And while I understand that perhaps not all of the SEC
staff recommendations may be made public, would you be willing
to share with our office or with members of this body how we
could collaborate in this effort?
Mr. Clayton. I think we are doing a good job collaborating
already. And that, what I will say, philosophy that I just
described of, ``what data do you need to do your job,'' not,
``here's the data, figure out how to do your job,'' is the
right way to approach this.
Mr. Davidson. Okay. I hope we can collaborate a little more
closely, frankly.
But I want to mention cryptocurrencies, or digital assets,
as they are more correctly known, because most of them don't
aspire to be actual currencies, and many of them don't even
want to handle payment systems.
So I would just encourage you and the staff to continue to
look at a truly nonpartisan bill, the Token Taxonomy Act,
because it provides a bright-line test applicable to digital
assets. And it is not a change of the Howey Test; it is an
application to this field.
And I would say lastly, I joined more than 100 colleagues
to express our concerns in the commercial mortgage-backed
securities (CMBS) market. And a lot of us are very concerned
that the commercial space is going to be--it was immediately
disrupted because it is so highly liquid and very sensitive
to--no buy side for anything, frankly, to the point where the
Fed had to intervene even through municipal bonds.
So when you had this margin call death spiral that was
going on for all sorts of things in March, the Fed provided
essential stability for most things but not much on CMBS. And
many firms have already gone bankrupt in that space. This
wasn't bankruptcy because of lack of collateral; it was
bankruptcy due to a complete lack of liquidity.
And now we are looking at a similar challenge, where people
aren't facing challenges because they lack sufficient
collateral; they are lacking a market structure that can deal
with it. Are you working on this?
Mr. Clayton. We are.
Mr. Davidson. I look forward to that. My time has expired,
unfortunately.
I yield back.
Chairman Sherman. Mr. Vargas is now recognized for 5
minutes.
Mr. Vargas. Mr. Chairman, thank you very much for holding
this hearing. I appreciate it very much.
And, Chairman Clayton, thank you for being here. I do
apologize, I stepped out for a little while to vote, so I
didn't hear all of your testimony, but I have been here since
the beginning.
But I did want to ask you, have you ever been a prosecutor?
Mr. Clayton. I have never been a prosecutor, but I am not
going to--I don't want to--
Mr. Vargas. It is just a simple question. I am just asking
you, have you ever been a prosecutor?
Mr. Clayton. At the SEC? I oversee--
Mr. Vargas. Anywhere.
Mr. Clayton. I oversee 1,300 enforcement attorneys. We have
brought 2,000 cases in the that time I have been there. We have
collected over $10 billion in fines and disgorgement, and
returned $3 billion to harmed investors. Many of the people who
work under my oversight at the SEC are former prosecutors. So,
I hope that gives you comfort in your question.
Mr. Vargas. I have to say, I haven't known you for the
decades that some of my colleagues have, who have certainly
said sterling things about you today, but I do know your
reputation for integrity. That is all I have heard about you in
the past. So, we may not agree on everything, and there are
some corporate governance issues that I want to ask you about,
but my understanding is that you have a reputation for great
integrity. That is my understanding.
Mr. Clayton. Thank you.
Mr. Vargas. I would just refer you to some of the generals
who came in with great reputations for integrity and
effectiveness, and what they were called by this Administration
on the way out or since they had left certainly has left their
reputation in tatters. I would just refer you to them.
I do want to ask you, however, about the ESG disclosures.
Last month, the Investor Advisory Committee (IAC) recommended
that the Commission promulgate environmental, social, and
governance disclosure standards and incorporate the disclosures
into the broader disclosures regime of the SEC-registered
issuers. Similarly, the Asset Management Advisory Committee
(AMAC) echoed the IAC's calls for ESG disclosure
standardization.
As you may or may not know, in December 2019, this
committee passed my bill, H.R. 4329, the ESG Disclosure
Simplification Act of 2019. This bill, among others, requires
public companies to disclose certain ESG metrics, and directs
the SEC to establish a rule delineating which metrics must be
disclosed.
What are the Commission's next steps on ESG disclosures,
and how does the Commission plan to bring clarity to ESG
disclosures and improve the current market-based ESG reporting
framework?
The reason I ask this is because I think this terrible
COVID-19 might be a terrible precursor for climate change.
Mr. Clayton. I have been very transparent about my views on
ESG disclosure. In fact, on Tuesday, I believe it was, I
appeared for an hour to discuss this topic and how to get more
meaningful disclosure to investors.
Let me be clear: I believe that there are environmental
(``E'') topics for a number of companies that are extremely
important from a disclosure perspective. I also believe that
there are social (``S'') topics, and there are governance
(``G'') topics.
Let's put ``G'' to the side, because we have a tremendous
amount of ``G'' disclosure. If you talk to investors, it is
very clear that they can understand how a company is governed
from the disclosure we have, and compensation, and the like.
If you don't mind, I will go to ``E'' disclosure, where we
are working both domestically and internationally on trying to
get what I will say is more robust data, but on a sector-by-
sector basis. Because it is very different from sector to
sector, ``E'' information is important to investors.
For property and casualty, if you have a property and
casualty portfolio, if it is along the coast, the modeling of
potential losses and the like from different climate scenarios,
that is important to investors. But if you look at a
manufacturing facility, a company based in, let's just say the
Midwest--
Mr. Vargas. It depends on where it is, of course.
Mr. Clayton. Of course. It is a completely different
scenario. And in some cases, companies can adjust, and in other
cases, they are price-takers in this space.
I do believe, through my work with the International
Organization of Securities Commissions (IOSCO) and, in
particular, with my friend, Erik Thedeen, in Sweden--we have
been working collaboratively on a taxonomy--that we are getting
there. We are not just going to use blunt metrics, but we are
going to have principles-based and good disclosure.
Mr. Vargas. My time is almost up, and I was going to ask
you about corporate governance. But I do want to ask you about
diversity, in my last few minutes here.
Obviously, there needs to be more diversity, I believe,
both in the financial services industry at the highest level,
but also at the SEC. Could you just comment on that in the few
seconds I have left?
Mr. Clayton. This has been a focus of mine since arriving
at the SEC. We have made progress, but we need to make more
progress.
We have brought diversity and inclusion and opportunity not
just as something that is in an office or is in a training
program, but I believe we are bringing it into the fabric of
the SEC. We are integrating our Office of Minority and Women
Inclusion (OMWI) into our hiring processes, and our processes
for identifying people on committees. Our Asset Management
Advisory Committee is holding a special roundtable next month,
so this is something that I am committed to.
Mr. Vargas. Thank you for your service. I appreciate it.
Thank you, sir.
Chairman Sherman. Thank you.
Mr. Hollingsworth is now recognized for 5 minutes.
Mr. Hollingsworth. Mr. Chairman, I wanted to talk about a
few things, but I probably won't take my full time.
First and foremost, I wanted to commend Mr. Vargas on his
work with regard to ESG. This is important work, and I
appreciate what you have done, also, in developing a taxonomy,
a language that is clear, that helps investors and doesn't
muddy the waters with regard to what disclosures should be
necessary for companies. So, I appreciate that, and I
appreciate Mr. Vargas's leadership on that.
In addition to that, I wanted to thank you, Mr. Clayton,
for some of the recent work you have done on extending the
exemption for Section 404(b). This was a bill that
Representative Sinema and I introduced last Congress, with
strong, bipartisan support. Representative McAdams, across the
aisle, and I introduced it last year. And I know you have done
great work on this already, and I really appreciate that.
And for the many, many companies that will benefit from
that and can pour more of their dollars into research and
development instead of unnecessary and burdensome compliance,
they appreciate it, as well, back home. So, thank you for that.
Second, I had recently written you a letter, a couple of
months ago--admittedly, you have had a lot going on--about how
we could reduce some of the barriers to liquidity for angel and
early-stage investors by modernizing the definition of,
``venture capital fund.''
I wanted to make sure that I followed up with you on that
just to say, this continues to be important and continues to be
ever more important given some of the dynamics that are going
on in our early-stage companies.
And I would appreciate, should time allow, getting a
response on that so that we can move that ball forward. This is
something that I am working on bicamerally and bipartisanly to
find a solution for, so if we could get back on that, it would
be great.
In addition to that, I wanted to cover two abstract topics.
In March, everyone saw the markets go down, and everyone
immediately assumed that something must be wrong. Can you
clarify really briefly that markets going down, even
significantly in a single day, or significantly in a single
month, is not dispositive, or conclusive that something is
wrong or is not functioning in the markets?
Mr. Clayton. What I can say is we have been monitoring the
markets throughout--this is the greatest period of uncertainty
in terms of economic performance that I have seen in the real
economy.
We had a financial crisis. During that period--look, I
don't want to do any victory laps or anything like that, but
the market has performed incredibly well.
Mr. Hollingsworth. Right.
Mr. Clayton. Now, it required action by the Fed, by the
Treasury, by us, and by private-sector participants. But the
fact that capital and credit continued to flow throughout the
system was exactly what you would want.
Mr. Hollingsworth. Exactly.
And just to crystallize that very point, as you articulated
very well, it is important for us to remember that
circumstances also change. And there are reasons to believe
that companies might be valued less than they were in February
on account of what their discounted cash flows might be in the
future. That is signs of markets working, not necessarily
markets not working.
I also wanted to also bring up materiality, because I know
that there are several bills that are being considered in this
committee right now that I believe may be redundant, where
companies need to disclose if there might be a material impact
to their supply chain, and disclose if there might be material
impact to their workforce.
As I understand it--and, again, I am no SEC lawyer, but
those things that are material, that management believes are
material to their business, and may have a material positive or
negative impact on their business need to be disclosed already.
Is that true or untrue?
Mr. Clayton. That is a generally correct statement about
disclosure.
And we have put out guidance. We tried to act quickly and
say, look, we have a principles-based disclosure system. Here
are the things that you should consider when making your
disclosure: What is your liquidity position? How are your
operations affected? What is the health and safety of your
workers?
Mr. Hollingsworth. Right.
Mr. Clayton. Access to these things.
And I don't want to grade people, but overall, the
disclosure in first-quarter earnings, through that cycle, was
extremely strong.
Mr. Hollingsworth. Right.
Mr. Clayton. I think it gave investors confidence that
companies were telling them exactly where they stood.
As we go into second-quarter earnings, let me take this
opportunity to say, I expect companies to be as forthcoming and
as comprehensive as possible in doing so, from the lens of how
management and the board of directors are looking at the
business and its prospects. I would rather have bad news than
no news.
Mr. Hollingsworth. Agreed.
Thank you so much. I appreciate you being here.
I yield back.
Mr. Huizenga. Will the gentleman yield?
Mr. Hollingsworth. The gentleman will yield.
Mr. Huizenga. Thank you.
I wish my friend--and he is a genuine friend--from
California was still here.
Mr. Vargas. He is here.
Mr. Huizenga. Oh, he is here. Good. He can hear.
I wanted to ask a rhetorical question. He was asking you
early on about whether you had ever been a prosecutor. I think
some of us, maybe, want to ask how many members of this
committee have been bankers or insurance agents or Section 8
housing providers? Precious few, I might note.
This is the type of place where a licensed REALTOR or a CPA
has--
Chairman Sherman. The time of the gentleman has expired.
Mr. Huizenga. --become Chair of this committee and served
well.
Chairman Sherman. Your point has been made. The time of the
gentleman has expired.
Mr. Huizenga. Thank you.
Chairman Sherman. And now, also participating by Webex, Mr.
San Nicolas.
Mr. San Nicolas. Thank you, Chairman Sherman.
Good day to you, Chairman Clayton.
And just to answer my colleague's question, I do have prior
banking and investment advisor experience. So, there are those
of us within the committee who do provide it, and we are more
than happy to engage with our fellow colleagues in order to
provide perspective, to include theirs. Because when it comes
to financial services, it is important for us to have the
mindset that it impacts the entire country, not just those who
have the specialty or the expertise.
That being said, Mr. Chairman, I wanted to first recognize
my colleague, Chairman Meeks, who opened the door to what I
wanted to talk about, which is the concern about potential
overexposure of retail investors under current market
circumstances.
We have seen a lot of new market participants engage in
active trading activities, to include day-trading and swing-
trading. But of late, there has also been a much larger
increase in the access of retail investors to, as you
mentioned, Chairman Clayton, some exotic instruments--
derivatives, options, naked calls--being able to purchase these
kinds of assets, these kinds of trading vehicles, these kinds
of hedge instruments even on margin.
And so I wanted to--you were speaking about it earlier
before time expired. Before I go into my questions, I wanted to
go ahead and afford you a few moments to go ahead and make your
statement on the risks that you are seeing with respect to
retail investor overexposure.
Mr. Clayton. Thank you for the opportunity, because what I
want to say to our retail investors is, when we have times of
volatility, you hear stories of people making a great deal of
money as a result of buying low and selling high, and perhaps
even doing so on a leveraged basis or through options.
And you know what? Our kind of investor is the long-term
retail investor. There are significant risks in taking those
short-term, leveraged, margin positions. Unless you understand
those risks and are able to bear those risks, you should not be
doing it.
Mr. San Nicolas. Thank you for that, Mr. Chairman.
And on to my questions. While individual investors and
traders, of course, have their own responsibilities in the
decisions they make in the capital they put at risk and the
leverage they expose themselves to, the platforms that make
those trades available to the investors and traders also have a
responsibility. They have a responsibility to ensure the
suitability of the individual making those trades.
And so I wanted to ask, given the increase in retail
investor activity, has the SEC enhanced its review of trading
platform due diligence in ensuring that the investor has a
suitability test, a proper suitability test, for access to day-
trading, derivatives trading, and margin access?
Mr. Clayton. We are looking at this issue. Let me try and
break it down.
There are self-directed accounts, where you are not dealing
with someone who has our new Regulation Best Interest (Reg BI)
obligation, which goes in at the end of the month and which I
believe will--and I am making this clear to brokers right now--
should, through the care obligation, make sure that investors
do understand those risks and are able to bear those risks as
appropriate.
We are looking at the self-directed aspects of our market
ecosystem and whether the--let me put it this way: The access
to those is being granted as appropriate.
Mr. San Nicolas. Thank you, Mr. Chairman.
And I guess, to close, I really think it is important for
the SEC to circle back on this and make sure that even the
self-directed accounts have the proper disclosures, but, more
importantly, that it is being done in a way where the investor
fully understands the risks with which they are getting
themselves involved.
Because not only are we talking about potential
overexposure of an individual investor, but there is going to
come a time, if we are not careful, that we are going to be
having counterparty risk and we are going to be having those
kinds of situations where a whole group of individual
investors, potentially making a lot of leveraged, derivative,
bad decisions, are going to begin impacting the ability of the
markets to function in an orderly way.
And while we may look at that and think that it might not
necessarily present itself, that is exactly the same kind of
mentality that we had prior to the subprime crisis, when we
thought that tranching everything and spreading out the risk
was good enough. And so, Mr. Chairman, I just ask that you keep
a very close eye on this in order to not only protect our
retail investors but to ensure our orderly markets.
Thank you, Mr. Chairman, and I yield back.
Chairman Sherman. Thank you.
The witness should know that we have about 8 to 10
additional speakers, so you will be out of here in less than an
hour. We do not intend to have a second round.
I now recognize the gentleman from Ohio, Mr. Gonzalez.
Mr. Gonzalez of Ohio. Thank you, Mr. Sherman, for holding
this hearing today.
And, of course, I want to thank you, Chairman Clayton, for
being with us today and for all your work at the SEC.
I first want to acknowledge and thank your team for working
with the other regulators on reforms to the Volcker Rule. I led
a letter this past December encouraging regulators to amend the
rule to exempt qualifying venture funds from the definition of,
``covered fund,'' in order to help spur investments in States
like mine, Ohio, that are in additional need of start-up
capital. But thank you for that.
Additionally, I want to thank you for your recent response
to a letter that I wrote with my friend, Mrs. Wagner, in
support of additional access for retail investors to private
markets. You and I have spoken about this privately.
[Audio interruption.]
Mr. Gonzalez of Ohio. Always fun with the technology.
But, as you are aware, the number of publicly listed
companies has gone down significantly, while some of our
fastest-growing--Uber, Lyft, Slack, et cetera--accumulate a
significant amount of the growth in the private markets before
going public.
It has always been my belief that we must do more to safely
provide everyday Americans access to those opportunities to the
extent we can.
My first question on that front is, in your response to my
letter, you stated that closed-end funds could present an
avenue for expanding investment options for Main Street
investors. Can you discuss more about why you think this? And,
also, what are the current roadblocks?
Mr. Clayton. Sure.
My objective is for our retail investors to have access to
investment opportunities that are aligned with professionals.
One of the great things about our public capital markets is
that retail sits right beside institutional, and they get the
benefit of that professional alignment of interest. When you
move into the private markets, you want to make sure that you
maintain that alignment of interest. And I believe that closed-
end funds are one option for being able to do that. But you
have to have that alignment of interest, and you have to have,
what I would say is low cost--reasonable cost of access. But I
think we are exploring ways to do that, and we are making
progress.
Mr. Gonzalez of Ohio. Thank you. And I am excited about the
progress that you have made on that.
As a follow-up, what are you currently doing to promote
closed-end funds as a way to access private markets? Is there
any consideration of rescinding the staff guidance that
prohibits closed-end funds from investing more than 15 percent
of their assets in private funds unless the sale is limited to
accredited investors?
Mr. Clayton. As part of our overall looking at it, we are,
but it gets to liquidity. We have to make sure that we have the
appropriate amount of liquidity, including in closed-end funds.
Mr. Gonzalez of Ohio. Great.
Shifting to China for a second, first, I want to reiterate
support for Chairman Sherman and Senator Kennedy's legislation,
which I have joined, to what I would call have China play by
the same rules as the rest of the companies in our stock
exchanges.
Building off of the need to further protect U.S. investors
from China, just yesterday, the Financial Times published an
article that linked to a recent Pentagon listing of 20 Chinese
companies that have ties to the Chinese military. This includes
two companies that are listed on the New York Stock Exchange.
Going forward, how do we make sure that investors have this
information, especially since these companies are at greater
risk of being targeted by United States sanctions, potentially?
Mr. Clayton. We have a disclosure-based regime, and it
works. It has worked really well, because if you don't disclose
appropriately--make material misstatements or omissions or
commit fraud--we can come after you.
One of the things that institutional investors know, that
retail investors should understand, is that our ability to
enforce that perspective is not uniform across the world.
Mr. Gonzalez of Ohio. Right.
Mr. Clayton. And we need to take that into account.
Investment advisors need to take that into account. Investment
professionals need to take that into account. And these are the
kind of challenges you face in a job like this. How much can
disclosure can you do in circumstances like that?
Mr. Gonzalez of Ohio. Quickly, do you believe that
information, being on a list of 20 companies, is material for
U.S. investors?
Mr. Clayton. I am not going to make a blanket statement,
but if you are considering what is material about your company
or not material about your company, the fact that you may be
subject to significant sanctions is something that you would
want to ask that question and see if the company's operations
and the like or its reputation or whatever--
Mr. Gonzalez of Ohio. Right. I would argue it is.
And with my last question, do you believe that China is--
okay, I will submit it in writing.
Thank you, Chairman Clayton.
Mr. Clayton. Thank you.
Chairman Sherman. Ms. Porter is now recognized for 5
minutes.
Ms. Porter. Thank you, Mr. Chairman.
And thank you very much, Mr. Clayton, for being here with
us today and for your patience as we navigate this hearing.
You have recently been named as the likely replacement for
Southern District U.S. Attorney Berman. The U.S. Attorney's
Office, as you know, has been apolitical for over 200 years. Do
you agree that it is important for the investigations
undertaken by the U.S. Attorney's Office to be conducted in a
nonpartisan manner?
Mr. Clayton. So, look, I am here as the Chairman of the
SEC, but what I want to say about my work as Chairman of the
SEC and our work in the Enforcement Division, which is akin to
any U.S. Attorney's Office is, we undertake our work in an
independent, nonpartisan manner.
Ms. Porter. Terrific.
As the Chairman of the SEC, you spearheaded numerous rule
changes, one example being the so-called Regulation Best
Interest (Reg BI). Was that a nonpartisan proposal, yes or no?
Mr. Clayton. From my perspective, what we have done with--I
am not sure what you mean by, ``nonpartisan.''
Ms. Porter. Okay. Let me try this. Did the Reg BI rule
change pass the Securities and Exchange Commission, the SEC,
with bipartisan support?
Mr. Clayton. No, we--the--
Ms. Porter. I think you are struggling toward, ``no.''
Mr. Clayton. No, I am not struggling. I am just making
sure.
Ms. Porter. Okay.
Mr. Clayton. The vote on the--Commissioner Jackson and--no,
it did not have complete--
Ms. Porter. Let's try this one more time. Did Reg BI pass
the Commission with bipartisan support?
Mr. Clayton. No, it did not.
Ms. Porter. No, it did not. Thank you.
What about your shareholder voting proposal? Did that get
bipartisan support?
Mr. Clayton. As a proposal going out? No, it did not.
Ms. Porter. Okay.
What about your proxy advisor limits proposal?
Mr. Clayton. No, that did not.
Ms. Porter. What about your proposal to expand private
markets?
Mr. Clayton. Pardon me?
Ms. Porter. Your proposal to expand private markets?
Mr. Clayton. Are you talking about--we don't have a--do you
mean harmonization, proposal for harmonization? I don't
remember. I will assume you are right; it did not have
bipartisan support.
Ms. Porter. Okay.
So, Mr. Clayton, calling yourself nonpartisan doesn't make
it true. And your leadership at the SEC is, to be generous,
inconsistent with being nonpartisan. I think becoming a U.S.
Attorney would require a big change in your approach from the
SEC.
Do you agree that independence from the President is
necessary to agency independence?
Mr. Clayton. So, look, wait a second. I just want to go
back to the bipartisan/nonpartisan--I believe if you look at my
voting record across the SEC, which is a pretty good--there are
many times when I have voted with Democratic Commissioners,
maybe both Democratic Commissioners, and not the Republican
Commissioners, and vice versa. I vote the way I think I should,
without regard to partisanship. That is what I do.
Ms. Porter. Okay.
Mr. Clayton. That is what I would do in any job.
Ms. Porter. Okay. Great.
Do you think that independence from the President is
necessary to agency independence?
Mr. Clayton. I think agency independence is independence
from--look, I interact with you people, I interact with
agencies, I interact with others. Independence does not mean
isolated, but independence means doing what you think is right
based on your experience.
Ms. Porter. Do you think independence from the President is
possible if you and the President are golfing buddies?
Mr. Clayton. I absolutely do, because I do my job every day
without fear or favor. And we do justice at the SEC. And I
think if you look at the record of the SEC, it is absolutely
clear.
Ms. Porter. How many times have you and President Trump
golfed together?
Mr. Clayton. I am not going to get into this.
Ms. Porter. Is it a large number and you have trouble
recalling it?
Mr. Clayton. No. No. No. Look, I have played golf with the
President a handful of times.
Ms. Porter. Okay. What did you talk about?
Mr. Clayton. Those are private conversations.
Ms. Porter. Are you willing to affirm to this committee
that you did not discuss any SEC business?
Mr. Clayton. There are no conversations that I have had
that would make me in any way--in any way--uncomfortable with
my independence.
Ms. Porter. Wonderful. I am glad to hear that. Before you
golfed with the President, did you ask the SEC Ethics Counsel
to advise you on that decision?
Mr. Clayton. Yes.
Ms. Porter. You did?
Mr. Clayton. Yes.
Ms. Porter. And did they issue a written opinion?
Mr. Clayton. No. But I--the answer is, yes, I did.
Ms. Porter. You did. Okay.
I want to turn to talking about your prior work at your law
firm. In your time at Sullivan & Cromwell, did you ever serve
on the plaintiff's side of any securities or other matters? Or
were you solely defense counsel, defending organizations like
Deutsche Bank and Goldman Sachs?
Mr. Huizenga. Time.
Mr. Clayton. Let me say what--
Chairman Sherman. The witness will be allowed to answer
briefly, then we will go on to the next--
Mr. Huizenga. Mr. Chairman, the witness shouldn't be
compelled to answer at all. The time has expired.
And I am sorry, Chairman Clayton. Welcome to your
confirmation hearing.
Chairman Sherman. I have allowed other people to go a few
seconds over.
Mr. Gonzalez of Ohio. Mr. Chairman, you did not. You cut me
off 2 seconds early, actually.
Mr. Huizenga. Actually, that is absolutely correct.
Ms. Porter. Mr. Chairman, may I be recognized? Because it
is actually my time.
Mr. Gonzalez of Ohio. Not anymore.
Mr. Huizenga. Your time has expired.
Ms. Porter. I would like to offer to allow Mr. Clayton to
respond in writing, if that would be acceptable to him.
My question was, just to state it again because there was
knocking and interruptions while I was speaking, was, are
there--
Mr. Huizenga. Mr. Chairman, she is not recognized.
Chairman Sherman. Excuse me. The offer to get an answer in
writing is fully consistent with committee rules. The hearing
record will be kept open the usual number of days for people to
submit questions in writing, and that could be a question in
writing.
We expect a relatively prompt response to the written
questions that are presented after the hearing. That is what we
have done in every hearing.
We look forward to reading your answer, Chairman Clayton.
Mr. Steil is now recognized for 5 minutes.
Mr. Steil. Thank you, Mr. Chairman.
And thank you, Mr. Clayton, for being here.
I would like to remind all of my colleagues that this is
not a confirmation hearing. We are not the Senate. This is the
House of Representatives. If a confirmation hearing is
required, that would be the role of the Senate. And if somebody
would like to participate in that, they are more than welcome
to run for the United States Senate and participate in a
confirmation hearing.
I would like to dive in as to the topic that we are here
for today, which is about monetary policy, the state of the
economy, and how we are keeping our capital markets strong
during some of the most challenging times that we have seen
here in a long time.
First off, Chairman Clayton, I want to start by thanking
you for your work to improve oversight of proxy advisors. I
also want to recognize Commissioner Roisman, who has been a
valuable voice on this topic. As you know, I dealt with proxy
advisors in my private-sector career, so I understand how
important it is to get this issue right.
In the last few months, SEC Commissioners made a couple of
public comments that I believe have been viewed by some as
evidence that the SEC may be softening its approach as it
relates to proxy advisor reform. Among other things,
Commissioner Roisman suggested that the final rule may include
a speed bump that limits the ability of investors to use so-
called set-it-and-forget-it mechanisms to automatically
populate electronic ballots with proxy advisors'
recommendations. It seems like that might be a little bit
different than the peer-review process that was outlined
previously.
Could you comment on how the SEC intends to ensure that
issuers have the opportunity to correct erroneous or misleading
recommendations, that they are peer-reviewed, the speed bump
process, and whether or not one approach is more favorable than
the other?
Mr. Clayton. You have outlined the issue we are trying to
address, which is, when you are making a voting decision, you
have the best information that is available to you to make that
decision in a timely manner.
And the process we have now can be improved; that is clear.
And we are trying to improve it in a way that creates the least
friction for people to be able to express their opinion. But
the people who have to vote, they should have a robust amount
of information. And to the extent practicable, it should be
accurate. So, we want to make sure that the system produces
that type of information.
And we got a lot of helpful comments, and other ideas.
There is the speed bump that people mentioned. But that is
where I am driving: transparency and good information.
Mr. Steil. I appreciate your work and your colleagues' work
on this important topic.
Do you have an estimate as to when you believe a rule may
be finalized on this?
Mr. Clayton. Like I have done throughout my tenure, we put
it on the agenda, and we try to get it done, on the time of the
agenda. So our current agenda has it to be completed by the end
of the fiscal year. I continue to expect that we will be able
to complete it by the end of the fiscal year.
Mr. Steil. I appreciate your work on the topic.
Chairman Clayton, as you know, emerging growth companies
(ESGs) are, I think, a very valuable tool for helping startups
focus on innovation and job creation and growth. I think the
EGCs are especially important today as we deal with the ongoing
coronavirus pandemic, since many investors are, in particular,
in the biotechnology industry.
I am concerned that many EGCs are facing the loss of that
status and may see significant increases in their compliance
burdens in the near term as a result. I think the timing is
unfortunate, given the economic and managerial challenges
associated with the pandemic, as well as the role that the EGCs
could really play in this recovery.
And so, I am working on legislation to ensure that EGCs
that face a loss of their status can receive a short-term
reprieve. I am not asking for you to comment specifically on
the legislation; I know that you wouldn't be doing that. But
can you comment on how the economic turmoil that we have been
experiencing is impacting some of our emerging growth companies
that need access to public markets?
Mr. Clayton. Let me say this: As a general matter, because
of the actions of Congress, the Fed, and the Treasury,
financing markets have been fairly open, both equity and debt.
People have been able to term out their debt, they have been
able to get liquidity, they have been able to alter their
balance sheets, add equity to their balance sheets.
Always, as you go further down the size spectrum,
similarly-situated companies almost always have a bit of a hard
time. I think, by and large, EGCs have been able to get
financing as well, but it is an area that we need to watch
because, let me put it this way: It is much easier to allocate
capital in a chunk to a large company than it is to allocate it
in a chunk to a whole bunch of smaller companies. That is just
something we have to recognize.
Mr. Steil. Understood. I appreciate your time today.
And in respect to my time, I yield back. Thank you.
Chairman Sherman. Thank you.
The Chair notes that I actually care about the health of my
colleagues, or at least most of them, and, therefore, I urge
all Members to wear masks at all times.
With that, I now recognize Mrs. Axne for 5 minutes via
Webex.
Mrs. Axne. Thank you, Chairman Sherman.
And thank you for being here, Chairman Clayton. I
appreciate it.
One thing that I hear constantly from companies is that
their greatest asset, of course, is their people, and I
couldn't agree more with that.
Chairman Clayton, I was hoping you could explain generally
why you think understanding a company's workforce is crucial
for investors to evaluate the company?
Mr. Clayton. It is a personal belief, through my
professional experience, that the best companies are the
companies that understand their workforce, however it is
structured, in the best way.
More generally, and from a financial point of view, the
contribution of human capital and employees in companies has
increased in proportion. If you look at 30 years ago, plant,
property, and equipment were a lot of the assets on the balance
sheet. Today, the assets of a company are intellectual
property, people, and the like, by and large. And so, yes, it
is extremely important.
We have a pending rulemaking where we are going to
encourage, through our principles-based disclosure system,
companies to discuss their human capital as management views
it: How do they evaluate it? How do they develop it? How do
they increase the value of the company through their people?
Mrs. Axne. Thank you so much. I completely agree with you
on both a personal and a professional basis. I have spent my
career working in that arena as well. And that is why I worked
with Senator Warner to bring some light to this important piece
of information.
I also think that the coronavirus has certainly highlighted
some of those issues, especially when it comes to workplace
safety and paid sick leave. And that is why I, along with
Senator Warner, sent you a letter--I believe that was last
month--urging some action to get more disclosure on this.
I didn't get a response to that letter, so, since you are
here, is that something that you would support?
Mr. Clayton. Actually, you will get a response, but, in the
meantime, I believe yesterday, we put out guidance for second-
quarter earnings and things that people should think about in
their earnings reports and their communications with their
investors, and those types of issues were included in that
guidance.
Mrs. Axne. Great. I will absolutely take a look at that.
I just want to let you know, I do have some concerns. I
appreciate your intent, but some of the concerns I have had are
around the principles-based approach, I believe, which didn't
require specific metrics. And as somebody who has spent my
career working in strategic and organizational development, I
know that companies are obviously already measuring these
metrics and that turnover rate, for example, is something they
all track and is very meaningful.
If the SEC gives management discretion in these
disclosures, are you worried that it will result in some
unclear information and it won't give the numbers necessary for
company-to-company comparison or comparisons for a company over
previous years?
Mr. Clayton. This is a really good discussion, because we
are not saying, ``Don't disclose the metrics.'' What we are
saying is, ``Disclose the metrics that you use.'' And if a
company uses turnover calculated in a certain way, presumably
they do it because that is how they are managing their
business, and that is what the investor would want to know.
What I don't want to do is adopt a standard across a bunch
of industries. It may be right for one industry in how
management is using it, but it is not right for others. So what
I don't want to do is get comparability, give up
meaningfulness. And that is the tension we always have in terms
of establishing metrics that are broad.
So, we very much encourage companies to share the metrics
that they use, but take the pharmaceutical industry and
turnover; very different from the tech sector, different from
the transportation industry, and how they may look at it.
Mrs. Axne. I appreciate that. And I think there is an
opportunity to work through some of those issues.
I do think we are looking at a risk here, though, and I
would advise you to take a look at the letter that I sent with
my Workforce Investment Disclosure Act, which lays out some
very specific disclosures that could be required. Workplace
safety violations, for example, can tell you a heck of a lot
about how many of these companies are going to get back online
more quickly due to COVID.
But, moving on--we are running out of time--I wanted to
just quickly turn to tax disclosures. As we all know, our large
companies are only paying about half of what the statutory rate
is. I am wondering if you could tell me if you think there is
some opportunity for the SEC to be looking at country-by-
country disclosures?
Mr. Clayton. You actually raise an excellent point. It goes
to both points, on tax and on operational and safety issues.
When you have these kinds of multinational companies, trying to
give investors a flavor for what happens across those various
jurisdictions is very important, and we look at that. I
recognize and want to be clear that it is becoming an
increasing part of how sophisticated investors look at
companies.
Mrs. Axne. I appreciate that.
I know we are out of time. I continue to make--
Chairman Sherman. Yes, we are out of time.
At this time, Mr. Gottheimer is recognized for 5 minutes.
Mr. Gottheimer. Thank you, Mr. Chairman.
And thank you, Chairman Clayton, for being here today.
Given the COVID-19 pandemic and the current racial justice
issues facing our country, I think we can all agree it is more
important than ever that all Americans have equal and just
access to credit.
Every year, 15.4 million Americans are victims of credit
card fraud, or around 42,000 people every day. The Federal
Trade Commission (FTC) has previously found that 1 in 5
consumers have verified errors in their credit reports, and 1
in 20 consumers have errors so serious that they could be
denied credit or forced to pay higher interest rates, affecting
everything from small-business loans, to a mortgage, to a car
loan. That adds up to 42 million Americans with errors in their
credit reports, and another 10 million with errors that can be
life-altering.
Next week, the House will consider my bipartisan
legislation, the Protecting Your Credit Score Act, which will
create a new online portal to provide Americans with free,
unlimited access to their credit reports and scores, the
ability to easily dispute errors and fraud, and the ability to
secure and track their credit data, all to increase
transparency and help Americans boost their credit and
financial security through economic declines and beyond.
Chairman Clayton, are you concerned, particularly during
the pandemic, about credit issues and Americans' ability to
have transparency into their credit?
Mr. Clayton. Let me start by saying that, in general,
access to credit, provision of credit is not within our
authority. But I do talk about it a lot.
Mr. Gottheimer. Yes.
Mr. Clayton. Because I always say to people, before you get
involved in investing, understand your credit, get your credit
under control. That is the best thing you can do for yourself.
Now, with respect to your question about access to credit
and provision of consumer credit, we have a consumer-driven
economy, to a large extent. I believe that the swift actions
taken by Congress and by the Fed and the Treasury to enable
credit to continue to flow have significantly dampened the
negative effects of the COVID-19 response.
So, yes, having consumer credit that is appropriately
priced and transparent is extremely important to our economy.
Mr. Gottheimer. To that point, do you think we should make
it easier for Americans to get their credit information for
free and initiate disputes, given, I know, as you have pointed
out, how important people's credit information is?
Mr. Clayton. I am going to stay in my lane as to particular
policy rationale, legislation, and the like. That is not our
area. I don't want to tread on other people's areas. But I
affirmatively believe that having access to credit in a
transparent way is important.
Mr. Gottheimer. Thank you. And our legislation does just
that. It puts a centralized portal that is managed by the
credit bureaus to give people more information and the ability
to dispute that.
Separately, AARP's Fraud Watch Network recently reported
that there has been a steep increase in scams targeting the
elderly and other vulnerable communities this month--I know
this is part of your jurisdiction directly, that issue--that
has been driven largely by the ongoing COVID-19 pandemic. These
nefarious actors, both domestic and international, are using
the pandemic and preying on people's fragile states during
these uncertain times to target their hard-earned retirement
accounts, their unemployment checks, and other savings.
Chairman Clayton, millions of seniors across the country
have been the victims of financial scams, as you know, and been
cheated out of their rightful retirements. I just wanted you to
know--and I have talked to you before about our Senior Security
Act. But, in general, do you agree that we should be doing
everything possible to prevent our seniors from being robbed of
their life savings?
Mr. Clayton. Yes, I believe we should be doing everything
possible to prevent our seniors from being subject to fraud,
particularly financial fraud.
Mr. Gottheimer. Thank you, sir.
The Senior Security Act, which we have talked about, is a
bipartisan bill that I introduced with my good friend, Mr.
Hollingsworth, that would create a Senior Investor Task Force
at the SEC specifically designed to stop financial predators
and hucksters from scamming seniors out of their savings.
And, by the way, it has already passed out of the House
overwhelmingly and bipartisanly, 392-20. It is now in the
Senate. Would you support the legislation moving through the
Senate?
Mr. Clayton. I am not going to support a specific piece of
legislation here, but, as you have described it, we are doing
this already at the SEC. We are happy to work with you. We are
happy to follow the legislation, of course. If Congress tells
us to do more, we will do more.
But I want you to know that we are already focused on
seniors and making sure that seniors are having access to the
products that are appropriate, not products that are
inappropriate for them, and that they are not the victims of
fraud.
Mr. Gottheimer. I think that is part of your Retail
Strategy Task Force, correct?
Mr. Clayton. That is correct. We have a Retail Strategy
Task Force, but we also have people who are specifically
focused on making sure that seniors--let me put it this way:
Inspections, examinations, all of that, we have a senior focus.
And let me try and say this in a way that I am able--it is
important to understand, when you look across accounts and you
do surveillance and the like, whether accounts have seniors or
not, which is one of the reasons why date-of-birth data or
year-of-birth data is important in our oversight.
Chairman Sherman. Thank you.
Mr. Gottheimer. And am I--
Chairman Sherman. The time of the gentleman has--
Mr. Gottheimer. Thank you. Thank you very much, Mr.
Chairman.
Chairman Sherman. Mr. Casten is now recognized for 5
minutes.
Mr. Casten. Thank you.
Thank you so much for your time, Chairman Clayton. If you
are up to me, we are nearing the end.
Alexander Kearns was a college student in Naperville,
Illinois, in my district. He had taken up trading during the
COVID lockdown, and he recently took his own life when he saw
that his Robinhood account had a negative balance of $730,000.
Now, it turns out he didn't know that whole amount. But I want
to just read you most of his suicide note that his father
found.
``If you are reading this, then I am dead. How was a 20-
year-old with no income able to get assigned almost $1 million
worth of leverage? The puts I bought/sold should have canceled
out, but I have no clue what I was doing now in hindsight.
There was no intention to take this much risk.''
Robinhood has added 3 million users in 2020. Now, it is my
understanding that they have made some changes to their
platform. And Mr. San Nicolas spoke about protecting retail
investors, and I certainly share your view that people should
not take risks they can't afford.
Other than Reg BI, what is the SEC doing affirmatively to
ensure that people like Alex can't get exposed like that again?
Mr. Clayton. Yes. We, at the SEC, along with the Financial
Industry Regulatory Authority (FINRA) are looking at this kind
of disclosure. And let me just say this: I read that over the
weekend, and it is just terrible. We need to do something to
make sure that these kinds of things don't happen.
Mr. Casten. I understand that you are, as you said, a
disclosure-driven entity. But the disclosures are only as good
as the understanding of the person who reads them.
Mr. Clayton. That is right. Let me just say that I agree
100 percent. That is what I was saying before: Disclosure is
only good if people can understand it. And you have to be able
to make an assessment of whether somebody can understand it.
Mr. Casten. I thank you for saying that.
I introduced, and we passed on the House Floor, H.R. 1815
the SEC Disclosure Effectiveness Testing Act earlier this term,
specifically to do market testings of those disclosures. It was
with Reg BI in mind, because if people can't understand in
plain English what they are signing, then we haven't done our
market research well enough. And we need to get it through the
Senate, but I would encourage you to consider it. You could do
that by rule. I urge you to take it up.
I want to turn to private markets and some of what my
colleague from Wisconsin was raising. They require a lot less
disclosure than public markets. Most of my career, prior to
getting here, was running private-equity-backed companies.
Complicated structures, very sophisticated people, constantly
evolving capital structures. It was hard for me to keep up, and
I was the CEO of the darn company.
This month, the SEC has proposed rules to expand exempt
offerings in the private market. And given the issues and the
lack of total understanding in public markets, can you just
help me understand why you think we are protecting investors if
we are allowing greater participation in private markets by
people who would not pass the Reg D standard of a sophisticated
or accredited investor?
Mr. Clayton. I think we are looking at this in exactly the
appropriate way, from what you are describing.
Right now, we have a wealth test or an income test to
ascertain whether somebody is sophisticated or not. And it is a
binary test. I have long believed that is not the right test.
But it is the test we have had. It is integrated into our
ecosystem.
What we are doing is saying, are there better ways to test
whether somebody should qualify as an accredited investor? And
our proposal says one of the ways to think about it is, you
pass the Series 7 exam. Were you able to sit down and pass the
kind of exam that somebody who is selling securities has to
pass? Do you understand things like exposure from options and
the like? I believe that kind of component of the accredited
investor test is important.
Mr. Casten. I agree, in principle.
And let me shift, if I may, to an area totally outside of
your jurisdiction.
Mr. Clayton. Okay.
Mr. Casten. The Department of Labor this week issued an
information letter under the Employee Retirement Income
Security Act of 1974 (ERISA) to allow 401(k) plan sponsors to
have private equity as a component of diversified asset
allocation funds.
I am not going to ask you to speculate on ERISA. But is it
your view that a 401(k) plan or an investor in a 401(k) plan
would pass the sophisticated test that would allow them to
participate in ways that would not frustrate the spirit of
Section 506 of Reg D as currently written?
Put another way, can the Department of Labor make that
change without you making a corresponding change in Reg D?
Mr. Clayton. The way that was structured is not directly
investing in private equity by an ERISA plan. I read the
letter. I thought it was structured very well, because it was:
The ERISA plan fiduciary could pick a fund that has a fiduciary
where the fund has limited exposure to private equity, but not
direct investment by an ERISA beneficiary into private equity.
Mr. Casten. Okay. I am out of time, but we will follow up
with you offline. Because I think there is a real concern that
we could end up putting a lot of unsophisticated money in
places that were hard for me, as the CEO of the company, to
understand.
Mr. Clayton. I don't want that to happen.
Chairman Sherman. Thank you.
Mr. Budd is now recognized for 5 minutes.
Mr. Budd. Thank you, Mr. Chairman.
And, Chairman Clayton, I appreciate you being here today in
your capacity as Chairman of the SEC. I know there has been a
lot of news, very exciting news, surrounding you lately, but I
want to talk about U.S. accounting standards as a critical
component of U.S. capital markets, the deepest and most liquid
capital markets in the world.
And, for them to continue to operate efficiently and
effectively, the U.S. must maintain accounting and reporting
standards of the highest quality. This is particularly true in
times of instability, similar to what we are experiencing
during the COVID-19 pandemic.
As you are undoubtedly aware, I have long been an outspoken
critic of the Current Expected Credit Losses (CECL) accounting
standard, developed and implemented by the Financial Accounting
Standards Board (FASB), as an entity over which the SEC has
direct supervision.
Now, there were already serious concerns centered around
CECL before the start of this pandemic, and this crisis has
only further highlighted those concerns.
My question is, how does the SEC validate that all new
accounting standards or significant revisions to existing
accounting standards have been subjected to comprehensive field
testing or economic impact assessments?
I just wanted to get your take on that, Mr. Clayton.
Mr. Clayton. I think that we should be looking at CECL's
performance during this time period.
There are two perspectives from which people have been
looking at CECL and how it operates. One is from a regulatory
capital perspective, what impact it has on regulatory capital
from the bank regulators' perspective. I am going to put that
to the side.
From my perspective, and what CECL disclosure around
expected losses is from the investor point of view, we have had
some significant swings. There are some things that we need to
look at, including whether different models used by comparable
institutions produce significantly different results. If you
have two financial issuers with the same balance sheet, or very
similar balance sheets, that are coming up with different
results, why is that happening, and do we need to make
adjustments? Is somebody using a 2-year model versus a 1-year
model? Is somebody significantly weighting unemployment in a
time like this, when unemployment is at a level that no one
really thought it would be?
So, that is a long-winded way of saying we should look at
how CECL has performed in this time of stress and assess
whether guidance, et cetera, whatever, needs to be made. But it
is definitely something we should be looking at.
Mr. Budd. Thank you.
Does the SEC conduct an independent assessment of investor
relations to new or significantly modified accounting or
reporting standards before they are finalized or issued? And,
if so, why or why not?
Mr. Clayton. I think what you are getting at is our
relationship with the Financial Accounting Foundation (FAF) and
the Financial Accounting Standards Board (FASB), and their
independence.
We do engage with them. I believe their independence is
important. I think we have a very good relationship. And back
to your CECL point, we are going to continue to work with them
on evaluating how CECL has been implemented and how it is
working.
Mr. Budd. Thank you.
Would the SEC be open to formalizing through notice and
comment their review process for new accounting standards?
Mr. Clayton. I think the process as it works today is a
good process. I know that people are looking at--in particular,
we are having this back-and-forth on CECL. I think people are
looking at CECL and continuing to look at it with questions.
But, overall, I think the current process is a good process.
But I would be happy to continue to discuss that with you.
Mr. Budd. I would like to do that. It seemed that was kind
of made--it had the feel of being made without direct input of
the SEC by an unaccountable board, and so I would like to
continue that discussion. Thank you.
Does the SEC conduct independent investor outreach to
invalidate investor considerations for accounting standards on
a pre-issuance basis? And, if not, would the SEC be open to
such a process?
Mr. Clayton. This is something that was important to me,
and as we have looked at new trustees for the FAF and the FASB,
I have made it a point to make sure that we have that investor
perspective, so that that perspective is brought to bear on
their rulemaking.
And, of course, they should be reaching out to people who
are the--not just the preparers but the users of the financial
standards.
Mr. Budd. Very good. Thanks for being here today.
And I yield back my time.
Mr. Clayton. Thank you.
Chairman Sherman. I now recognize Ms. Dean for 5 minutes.
Ms. Dean. Thank you, Mr. Chairman. I thank you for allowing
me to be a part of this important hearing.
And I thank you, Chairman Clayton, for your service at the
SEC during this crisis, this terribly difficult time for our
entire country.
Mr. Chairman, I, too, would like to begin by discussing
rating agencies. I am Madeleine Dean from suburban
Philadelphia, by the way.
Last week, Federal Reserve Chairman Powell came before our
committee, and he acknowledged that not all NRSROs have equal
access to emergency lending facilities.
Since the Credit Rating Agency Reform Act of 2006 conferred
sole supervisory authority of credit rating agencies to the
SEC, I want to raise this issue with you today. Because these
lending facilities do not treat all nine of the rating agencies
equally or uniformly, I would like more insight on how the
Federal Reserve came up with eligibility standards for rating
agencies.
You have said in earlier testimony that there has been some
conversation between the Fed and the SEC on this subject. Can
you flesh out a little more what that conversation looks like?
And what, if any, recommendations were made by the SEC to the
Fed?
Mr. Clayton. I haven't been directly involved in those
conversations, but let me give you my understanding of them. I
did have a high-level conversation with one of my counterparts
at the Fed.
What we have done is, if you look across those nine NRSROs,
some of them participate in a wide variety of markets--
corporates, products, and the like--and insurance, et cetera.
Some of them only participate in very narrow aspects of the
markets or have very limited participation in a market.
I am going to make up these numbers but get them
directionally correct. You may have the insurance industry
where 2 or 3 do 90 percent of the insurance industry, or there
are a couple others that do just a few companies. We provide
that data to the Fed, and then the Fed can see which NRSROs
have sufficient experience to participate in the various
facilities that they are using.
Ms. Dean. Well, I am not actually--
Mr. Clayton. That is the conversation.
Ms. Dean. Mr. Chairman, I am not actually thinking about
markets or where they participate, because, as I understand it,
NRSROs must satisfy the same criteria by the SEC.
So I am wondering, what is the internal distinction being
made by the Fed? Is it your opinion that, after the SEC
registers an NRSRO of a given asset class, that they should be
treated uniformly?
Mr. Clayton. I think it is a really good question because
it highlights the issue. Our registration does not qualify them
for a particular asset class, or not an asset class; it is just
a general registration as an NRSRO. So you can have somebody
who is registered with us who doesn't rate corporate debt or
has no expertise in rating corporate debt. It is not a merit
analysis of their ability.
And I don't want to speak for the Fed. They do a good job
at this. They need to look at the portfolio of ratings of those
entities and assess whether they are appropriate for their
facilities.
Ms. Dean. I appreciate that. You may know--and this has
bipartisan support, as you have heard today--that my bill, H.R.
6934, the Uniform Treatment of NRSROs Act, would help achieve
this uniform treatment across the NRSROs.
Let me move on to pick up on the conversation that you had
begun here with the very troubling firing of U.S. Attorney
Berman, the U.S. Attorney for the Southern District of New
York. You said you began a conversation with the Administration
only this past weekend as to the possibility of you shifting to
that position. Is that correct?
Mr. Clayton. Let me be clear. The weekend of the 12th was
the initial conversation.
Ms. Dean. Oh, okay. The weekend before the firing of Mr.
Berman. That would be the week before.
Mr. Clayton. I'm sorry. I didn't hear that.
Ms. Dean. That would be the weekend before the firing of
Mr. Berman.
Mr. Huizenga. Mr. Chairman? The question--
Mr. Clayton. The weekend of the 12th.
Mr. Huizenga. Her question was inaudible, I think. She just
needed--we needed to let--
Chairman Sherman. Please repeat your question.
Ms. Dean. That would have been the weekend before the
firing, the Friday night firing, of Mr. Berman.
Mr. Clayton. Yes, the weekend of the 12th.
Ms. Dean. And you said you had had these conversations with
others, about a wish to get back to New York, so you were
looking for a position back in New York. When did you begin
that conversation with either Attorney General Barr or the
President?
Mr. Clayton. As I said, the first time it was raised was
the weekend of the 12th, and I am going to leave it at that.
Ms. Dean. It was raised by you or by--
Mr. Clayton. By me.
Ms. Dean. --Attorney General Barr?
Mr. Clayton. Let me be clear on this issue. This was
entirely my idea. This is something that I had been thinking
about for several months as a possible continuation of public
service after my time at the SEC is done.
Ms. Dean. Okay. And you do not have a history as a
prosecutor, but this was your idea. You suggested it to the
Administration. Is that correct?
Mr. Huizenga. Mr. Chairman?
Chairman Sherman. Yes. I extended the gentlelady's time a
bit for the technical problem, but the ranking member points
out that the--
Ms. Dean. Oh, thank you. I apologize. I did not have the
timer visible to me. So, I apologize.
Thank you very much, Mr. Chairman.
Mr. Clayton. Thank you.
Chairman Sherman. Thank you. And you can submit questions
for the record, and we do expect Mr. Clayton to respond.
Ms. Dean. I will. Thank you very much. I yield back.
Chairman Sherman. And now, as our last questioner, I
recognize the very distinguished gentlelady from Texas, Ms.
Garcia, for 5 minutes.
Ms. Garcia of Texas. Thank you, Mr. Chairman.
And as a member of the Financial Services Committee and
also the Judiciary Committee, I wanted to just pick up where
Ms. Dean has left off.
Mr. Clayton, who approached you? You said it was the
weekend of the 12th. Who approached you about it? Or did you
approach the Administration? I just want to be clear on that.
Mr. Clayton. Let me be clear on this. And I don't--this is
not a confirmation hearing. I am here as the Chairman of the
SEC. But I want to be clear on how this came up.
This was entirely my idea. It was something that I had been
thinking about, and talking about with others, as to whether I
could go back to New York, which I had committed to my family
to do, and I intend to do when I have finished my service here,
and continue in public service.
This was a position that was very attractive to me, based
on my work with the Southern District and my extensive work
with people who are alumni of the Southern District. It is an
incredible group of people. They work incredibly hard. They are
dedicated to justice without fear or favor.
This was something of interest to me. It came up the
weekend of the 12th. And that is the genesis for this. And I am
going to leave it at that.
Ms. Garcia of Texas. Well, unfortunately, I can't. I think
that you understand that--I understand and you understand this
is not a confirmation hearing. But the reality is that you are
before Congress, you are before a committee. And any time
anyone comes to testify before the United States Congress, they
know they are subject to just about any question about
anything. And you may feel uncomfortable, you may not want to
answer the questions, but until you run to be a Member of
Congress, I get to ask the questions.
So, again, I am going to--
Mr. Huizenga. Mr. Chairman, a parliamentary inquiry. Is
this line of questioning even relevant to the title or the
subject of what our hearing is supposed to be about?
Chairman Sherman. The gentlelady from Texas is correct. You
are a Member of Congress; it is your time.
If I start editing the questions, and comparing it to the
title, and crafting the titles to exclude the questions that I
don't want to hear, I am not sure you are going to be happy
with the result. So--
Mr. Huizenga. It seems to me, Mr. Chairman, that it should
at least be in the range--
Chairman Sherman. Your parliamentary inquiry has been
responded to, and--
Mr. Huizenga. Okay. Parliamentary inquiry.
Chairman Sherman. --if you have an op-ed you want to write,
put it in The Hill or Roll Call.
Mr. Huizenga. Mr. Chairman, a point of inquiry. Is it going
to be your common practice to have discussion on issues that
are outside of our--
Chairman Sherman. It is my practice as Chair to recognize a
Member and to recognize that, as a Member of Congress, they can
ask the questions they want, and to protect their time from
interruptions.
I will ask the staff to restore about half a minute--
Mr. Huizenga. Mr. Chairman, okay, parliamentary inquiry on
that. They stopped the clock when my inquiry started, so there
is no need to add time.
Chairman Sherman. But the train of thought was certainly
interrupted, so we will keep that in mind as we go forward.
I'm sorry, Ms. Garcia. And hopefully, there will be no
further inquiries. You are recognized for the remainder of your
time.
Ms. Garcia of Texas. Mr. Chairman, it is regrettable that
he is refusing to answer a direct question from a Member of
Congress. And the American people deserve to know some of these
questions, because, yes, he did state earlier that this process
did not require his current attention, the confirmation
process, but the reality is, when you are a potential nominee
or you are a nominee, it is all fair game, and the American
people have a right to know.
But I will move on.
This past Wednesday, the Judiciary Committee heard from
several employees of the Department of Justice--current and
past--who have testified that the Department is pursuing cases
based on the President's political and personal whims and not
based on the rule of law.
For example, Mr. Zelinsky, a prosecutor on the Roger Stone
investigation, testified that he was told the Department wanted
to lessen the sentencing recommendation for Mr. Stone because
the U.S. Attorney was afraid of the President, and so he agreed
to treat Mr. Stone differently than any other person.
Mr. Clayton, should the President's friends be treated
differently than other defendants?
Mr. Clayton. Let me tell you how we approach matters at the
SEC and how I would approach matters anywhere. It does not
matter who the subjects are; you pursue it without fear or
favor and to do justice.
And that is the way that the people who have worked with
me, the 1,300 people in our Enforcement Division at the SEC,
have performed it, and that is the right way to go forward.
Ms. Garcia of Texas. I agree with you, without fear or
favor is certainly the principle involved here. But what if you
get an order? Do you believe the President has a right to tell
you to lower a sentencing recommendation or drop charges
entirely for his friends or for political allies?
Mr. Clayton. I am going to talk about the SEC. At the SEC,
what we do is we approach this through our enforcement
directors, through our staff. They are empowered to do what
they think is right.
Ms. Garcia of Texas. Again, sir, I am asking you if--you
want to be the U.S. Attorney. You said you have had oversight
of prosecutors. Can you commit to us today to report any
political influence or any kind of undue influence coming from
the White House or the President or his agents to you or your
office as U.S. Attorney if anything like that occurs, that you
would report it to Congress?
Mr. Clayton. I can commit to continuing to do my job as I
have and any other job like it as I have, which is without fear
or favor, with independence, and without inappropriate
influence.
Ms. Garcia of Texas. Right. I think in response to Ms.
Porter's questions, you said that you had not had any
discussion or any kind of influence either while you were
playing golf with the President or any other time. Is that
correct?
Mr. Clayton. What I am going to say is, I have conducted
myself in my job in a way that I have not had any improper
influence on any enforcement matter. I am completely confident
in saying that.
Ms. Garcia of Texas. So you are--
Mr. Huizenga. Mr. Chairman?
Chairman Sherman. The time of the gentlelady has expired. I
wish I could continue and allocate you more time, but the
ranking member is being assertive here.
Ms. Garcia of Texas. Thank you, Mr. Chairman, and I yield
back.
Chairman Sherman. Questions for the record will be
submitted in the requisite number of days, which is 5
legislative days.
And we hope, Chairman Clayton, that you can get us an
answer within a few weeks, a very few weeks, to those written
questions.
Mr. Huizenga. Mr. Chairman?
Chairman Sherman. Yes?
Mr. Huizenga. I ask unanimous consent to enter into the
record a June 24th letter from the U.S. Chamber of Commerce to
both of us. The letter provides comments to the legislative
text attached to this hearing. Apparently, they need to amend
that to make this the confirmation hearing, but it is on the
text of this attached hearing.
Chairman Sherman. Without objection, it is so ordered.
I would like to thank Mr. Clayton for his testimony.
The Chair notes that some Members may have additional
questions for this witness, which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 5 legislative days for Members to submit written questions
to this witness and to place his responses in the record. Also,
without objection, Members will have 5 legislative days to
submit extraneous materials to the Chair for inclusion in the
record.
I remind Members to submit your written questions and mate-
rials for the record to the email address provided to your staff.
This hearing is adjourned.
[Whereupon, at 2:41 p.m., the hearing was adjourned.]
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