Did outgoing Securities and Exchange Commission Chairman Mary Schapiro worry more about the legacy she leaves behind than a long-delayed Congressional mandate?
That is the question asked, and accusation leveled, by a member of the House Committee on Oversight and Government Reform in a letter to Schapiro that was posted in the public comments section of the SEC's website on Friday. The missive, written by U.S. Rep. Patrick McHenry (R-NC), was sent via his role on the Subcommittee of TARP, Financial Services and Bailouts of Public and Private Programs.
Specifically, he takes issue with delays in the implementation of Section 201 of the Jumpstart Our Business Startups Act, which requires the SEC to eliminate the current prohibition against general solicitation and advertising for private securities offerings. The law required the Commission to implement Section 201 by July 4, 2012. On Aug, 4, well past that deadline, the Commission issued a proposed rule instead of an interim final rule, extending the public comment period to Oct. 5. Nearly two months later, it has still not announced plans for considering a final rule.
McHenry claims this was against the advice of professional staff and doing so has “added extraordinary delay to… this critical reform.” His review of internal documents and e-mails “imply that [Schapiro] personally intervened to delay implementation of the law in an effort to appease special interest groups and out of concern for [her] legacy as chairman.”
The paper trail, according to McHenry, reveals that as early as May 2012 staff at the Division of Corporation Finance, with the advice of the Office of General Counsel, concluded that an interim rule was “the most practical, responsible, and legally appropriate means of implementing Section 201.” The draft release prepared by the Division explained the desire to move forward with an interim rule: “In view of the clear statutory language as well as the anticipated major impact on capital raising by issuers, we believe that it would be consistent with the public interest to use an expedited rulemaking procedure to adopt these amendments.”
SEC staff continued to refine the interim final rule throughout the summer. Then, according to McHenry's' allegations, “it appears that one late communication from a well-placed lobbyist effectively stalled the implementation.” That correspondence, an e-mail from Barbara Roper of the Consumer Federation of America, expressed “strong objections” to the draft rule and demanded, in McHenry's words, “a drawn-out proposal and comment process.” Roper, a well-known investor advocate, threatened that her organization and aligned groups would be “quite aggressive” in their concerns. Upon receipt of the e-mail, Schapiro is alleged to have told top advisers that it left her “very worried.”
Roper, was hardly alone in her objections to Section 201. Numerous other advocates, although pleased by the decision to forgo an interim rule, had little else good to say about the proposal as written. “Let the scams begin,” is how the group Public Citizen announced the vote.
Schapiro, less than an hour after receiving Roper's message, wrote an e-mail to Meredith Cross, director of the Division of Corporation Finance, with the subject line “Do Not Forward.” “I have two worries,” she wrote. “ If these guys feel this strongly, it seems like we should give them a comment period. It's really not asking for much. The other is that I don't want to be tagged with an anti-investor legacy. In light of all that has been accomplished, that wouldn't be fair, but it is what will be said given how high emotions run on anything related to the JOBS Act. Doesn't seem worth it for an extra 45 days of process.”
McHenry opined that the decision to proceed with a proposed rule “prioritized a well-connected special interest group's preference, and concern over how your legacy would be perceived, over faithful compliance with the law.”
“Concern for one's legacy has no place in what should have been a routine implementation of a law passed with bipartisan support in Congress and signed by President Obama,” he wrote, urging Schapiro, before she departs her post on Dec. 14, to complete the implementation of Section 201 and fulfill her oath to “faithfully discharge” the duties of her office.
A statement issued by the SEC on Schapiro's behalf countered that she “strongly believes that protecting investors should be the desired legacy of all SEC chairmen," and that “the agency should not consider investors -- or the groups that represent them -- to be special interests."