There are at least two ways to view decisions by Michael Piwowar, acting chairman of the Securities and Exchange Commission, to reconsider rules related to conflict minerals and the disclosure of CEO pay as a ratio to a company’s median employee.

The supportive view: Piwowar is enacting the sort of ‘look back’ that should be a normal process as regulations age; and he is providing the next full chairman (likely nominee Jay Clayton) a fresh set of data that may prove useful as the rules are revised, repealed, or (albeit unlikely) left alone.

That latter view best fits a quartet of Senate Democrats who are demanding that SEC Inspector General Carl Hoecker conduct an investigation into the two actions.

“Piwowar has directed the Commission staff to reconsider two congressionally mandated SEC final rules and scaled back the investigative powers of the agency's enforcement staff,” they wrote. “We are concerned that Commissioner Piwowar's actions may lack adequate justification, undermine the SEC's mission, exceed his authority as Acting Chairman, violate other procedural requirements, and could potentially prove to be a waste oft he SEC staff's precious time and resources.”

Their argument:  Piwowar's position as Acting Chairman is temporary; he has not been confirmed by the Senate as chairman; he will hold the Acting Chairman title only until the Senate confirms a permanent chairman and the SEC has lacked a traditional quorum during his entire tenure as acting chairman because there has only been one additional confirmed commissioner.

“Nevertheless, Commissioner Piwowar ‘has decided to jumpstart the deregulatory agenda,’ freezing unfinished Dodd-Frank requirements and opening the door to scaling back some completed rules he considers 'politicized,' a major exertion of authority for a position usually seen as a short-term caretaker," the letter says. It later adds: “Piwowar's political views are not a sound basis for undoing a congressional mandate and re-opening a final SEC rule for comments only on supposed industry hardship.”

On Feb. 15, 2017, the Wall Street Journal reported that Commissioner Piwowar had taken unilateral administrative action to "impose fresh curbs on the agency's enforcement staff, scaling back their powers to initiate subpoenas and conduct investigations of alleged financial misdeeds." Those changes reversed policies "the Obama administration designed to make it easier for the [SEC] to launch probes in the wake of the financial crisis and a series of colossal investment scandals."

“It is not clear whether Commissioner Piwowar sought or obtained Commissioner [Kara] Stein's approval for these changes. Nor is it clear what evidentiary basis Commissioner Piwowar relied on for this significant restriction of the enforcement staff's ability to hold companies accountable,” the letter says.

The Democrats do, however note, that “there is no evidence that any of these changes in the SEC's course are desired, or have been sought, by the person nominated to be the next SEC Chair.” At his confirmation hearing, Clayton testified that he had not been consulted about Piwowar's change to enforcement policy, did not know enough to know whether it was appropriate to reopen the pay ratio rule, and had no specific plans to revisit any other Dodd-Frank Act-mandated rules.

“Commissioner Piwowar has exerted unusual authority for an acting agency chair," the letter says, asking Hoecker to conduct an investigation into each of the detailed decisions to determine whether they are legally permissible and in the SEC's best interests.

Specific questions raised:

What specific changes in SEC policy, regulation, or guidance were made or initiated by Commissioner Piwowar during his tenure as Acting SEC Chair?

What impacts will these changes have on the SEC's mission?

Did Commissioner Piwowar provide a valid substantive justification for these changes?

Did Commissioner Piwowar provide adequate public notice and comment periods, and did he follow all required SEC guidelines and rules for taking action, including the SEC's quorum requirements?

Is Commissioner Piwowar carrying out these actions at his own initiative, or has he consulted with, or received direction from, anyone within or outside the Administration.

Signing the letter were Sens. Sherrod Brown (D-Ohio), Elizabeth Warren (D-Mass.), Robert Menendez (D-N.J.), and Brian Schatz (D- Hawaii).

 

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