H.Hrg.119

1[House Hearing, 119 Congress]2[From the U.S. Government Publishing Office]34                    A NEW DAY AT THE SEC: RESTORING5                      ACCOUNTABILITY, DUE PROCESS,6                         AND PUBLIC CONFIDENCE7=======================================================================89                                HEARING1011                               BEFORE THE1213                    SUBCOMMITTEE ON CAPITAL MARKETS1415                                 OF THE1617                    COMMITTEE ON FINANCIAL SERVICES1819                     U.S. HOUSE OF REPRESENTATIVES2021                    ONE HUNDRED NINETEENTH CONGRESS2223                             SECOND SESSION2425                               __________2627                            FEBRUARY 4, 20262829                               __________3031                           Serial No. 119-553233       Printed for the use of the Committee on Financial Services3435[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]3637                            www.govinfo.gov38                               __________3940                   U.S. GOVERNMENT PUBLISHING OFFICE4163-862 PDF                 WASHINGTON : 202642=======================================================================4344                 HOUSE COMMITTEE ON FINANCIAL SERVICES4546                    FRENCH HILL, Arkansas, Chairman4748BILL HUIZENGA, Michigan, Vice        MAXINE WATERS, California, Ranking49    Chairman                             Member50FRANK D. LUCAS, Oklahoma             SYLVIA R. GARCIA, Texas, Vice51PETE SESSIONS, Texas                     Ranking Member52ANN WAGNER, Missouri                 NYDIA M. VELAZQUEZ, New York53ANDY BARR, Kentucky                  BRAD SHERMAN, California54ROGER WILLIAMS, Texas                GREGORY W. MEEKS, New York55TOM EMMER, Minnesota                 DAVID SCOTT, Georgia56BARRY LOUDERMILK, Georgia            STEPHEN F. LYNCH, Massachusetts57WARREN DAVIDSON, Ohio                AL GREEN, Texas58JOHN W. ROSE, Tennessee              EMANUEL CLEAVER, Missouri59BRYAN STEIL, Wisconsin               JAMES A. HIMES, Connecticut60WILLIAM R. TIMMONS, IV, South        BILL FOSTER, Illinois61    Carolina                         JOYCE BEATTY, Ohio62MARLIN STUTZMAN, Indiana             JUAN VARGAS, California63RALPH NORMAN, South Carolina         JOSH GOTTHEIMER, New Jersey64DANIEL MEUSER, Pennsylvania          VICENTE GONZALEZ, Texas65YOUNG KIM, California                SEAN CASTEN, Illinois66BYRON DONALDS, Florida               AYANNA PRESSLEY, Massachusetts67ANDREW R. GARBARINO, New York        RASHIDA TLAIB, Michigan68SCOTT FITZGERALD, Wisconsin          RITCHIE TORRES, New York69MIKE FLOOD, Nebraska                 NIKEMA WILLIAMS, Georgia70MICHAEL LAWLER, New York             BRITTANY PETTERSEN, Colorado71MONICA DE LA CRUZ, Texas             CLEO FIELDS, Louisiana72ANDREW OGLES, Tennessee              JANELLE BYNUM, Oregon73ZACHARY NUNN, Iowa                   SAM LICCARDO, California74LISA McCLAIN, Michigan75MARIA SALAZAR, Florida76TROY DOWNING, Montana77MIKE HARIDOPOLOS, Florida78TIM MOORE, North Carolina7980                      Ben Johnson, Staff Director8182                                 ------8384                    SUBCOMMITTEE ON CAPITAL MARKETS8586                     ANN WAGNER, Missouri, Chairman8788ANDREW R. GARBARINO, New York,       BRAD SHERMAN, California,89    Vice Chairman                        Ranking Member90FRANK D. LUCAS, Oklahoma             DAVID SCOTT, Georgia91PETE SESSIONS, Texas                 GREGORY W. MEEKS, New York92WARREN DAVIDSON, Ohio                JUAN VARGAS, California93BRYAN STEIL, Wisconsin               JOSH GOTTHEIMER, New Jersey94MARLIN STUTZMAN, Indiana             VICENTE GONZALEZ, Texas95MICHAEL LAWLER, New York             SEAN CASTEN, Illinois96ANDREW OGLES, Tennessee              EMANUEL CLEAVER II, Missouri97ZACHARY NUNN, Iowa                   STEPHEN F. LYNCH, Massachusetts98LISA McCLAIN, Michigan               CLEO FIELDS, Louisiana99MARIA SALAZAR, Florida               JANELLE BYNUM, Oregon100TROY DOWNING, Montana101MIKE HARIDOPOLOS, Florida102103                        C  O  N  T  E  N  T  S104105                              ----------106107                      Wednesday, February 4, 2026108                           OPENING STATEMENTS109110                                                                   Page111Hon. Ann Wagner, Chairwoman of the Subcommittee on Capital112  Markets, a U.S. Representative from Missouri...................     1113Hon. Brad Sherman, Ranking Member of the Subcommittee on Capital114  Markets, a U.S. Representative from California.................     3115116                               STATEMENTS117118Hon. French Hill, Chairman of the Committee on Financial119  Services, a U.S. Representative from Arkansas..................     4120121                               WITNESSES122123Mr. Peter Chan, Partner, Baker Mckenzie..........................     4124    Prepared Statement...........................................     7125Mr. Alexander Cohen, Partner & Co-Chair of the National Office,126  Latham & Watkins...............................................    25127    Prepared Statement...........................................    26128Mr. Chris Iacovella, President and Chief Executive Officer,129  American Securities Association (ASA)..........................    34130    Prepared Statement...........................................    36131Mr. Ben Schiffrin, Director of Securities Policy, Better Markets.    47132    Prepared Statement...........................................    49133134                                APPENDIX135136             ADDITIONAL MATERIALS SUBMITTED FOR THE RECORD137138                              LEGISLATION139140H.R. 3318, the SEC Modernization Act.............................    90141H.R. 216, the Securities Enforcement Clarity Act of 2025.........    93142H.R. ----, the SEC Reform and Restructuring Act..................    99143H.R. ----, the SEC Regulatory Accountability Act.................   130144H.R. ----, the SEC Cybersecurity Act.............................   140145H.R. ----, the SEC Transparency Act..............................   142146H.R. ----, the Review the Expansion of Government (REG) Act......   144147H.R. ----, the SEC Regulatory Evaluation, Verification, and148  Integrity of Effective Workflows (REVIEW) Act..................   148149H.R. ----, the Streamlining Public Company Accounting Oversight150  Act............................................................   153151H.R. ----, a bill to amend the Securities and Exchange Act of152  1934 with respect to the authority of the Securities and153  Exchange Commission to seek disgorgement, and for other154  purposes.......................................................   164155H.R. ----, a bill to amend the securities laws to codify certain156  disqualification waiver processes, and for other purposes......   167157H.R. ----, a bill to require the Comptroller General of the158  United States to carry out a study regarding major rules issued159  by the Securities and Exchange Commission......................   173160H.R. ----, a bill to establish a minimum public comment period161  with respect to proposed rules issued by the Securities and162  Exchange Commission............................................   176163H.R. ----, a bill to require the Director of the Office of164  International Affairs of the Securities and Exchange Commission165  to semiannually report to Congress with respect to discussions166  with international securities standard setting bodies..........   178167168                    A NEW DAY AT THE SEC: RESTORING169                      ACCOUNTABILITY, DUE PROCESS,170                         AND PUBLIC CONFIDENCE171172                              ----------173174                      Wednesday, February 4, 2026175176             U.S. House of Representatives,177                   Subcommittee on Capital Markets,178                           Committee on Financial Services,179                                                    Washington, DC.180181    The subcommittee met, pursuant to notice, at 2:03 p.m., in182room 2128, Rayburn House Office Building, Hon. Ann Wagner183[chairwoman of the subcommittee] presiding.184    Present: Representatives Wagner, Garbarino, Lucas,185Davidson, Steil, Stutzman, Ogles, McClain, Downing,186Haridopolos, Hill, Sherman, Vargas, Casten, Waters, and Bynum.187    Chairwoman Wagner. The Subcommittee on Capital Markets will188come to order. Without objection, the chair is authorized to189declare a recess of the committee at any time.190    Today's hearing is titled: ``A New Day at the SEC:191Restoring Accountability, Due Process, and Public Confidence.''192Without objection, all members will have five legislative days193within which to submit extraneous materials to the chair for194inclusion in the record.195    Before I recognize myself for an opening statement, I do196want to inform our witnesses, who so graciously appeared here197today, along with both majority and minority that we are going198to have a--this is going to go quickly here; a hard gavel. They199have moved up votes to around 3:30 or so, and then we are200recessed.201    So this is going to be--it will not be possible for us to202come back. So, we are going to move through this as quickly as203we possibly can. So I appreciate everyone's indulgence and204certainly their valued time.205206    OPENING STATEMENT OF HON. ANN WAGNER, CHAIRWOMAN OF THE207  SUBCOMMITTEE ON CAPITAL MARKETS, A U.S. REPRESENTATIVE FROM208                            MISSOURI209210    Good afternoon, and I want to thank our witnesses again for211all those in attendance for joining us here today. This hearing212is part of an ongoing effort by the subcommittee to examine how213effectively the Securities and Exchange Commission is executing214its congressional mandate and to ensure our regulatory215framework supports rather than stifles the world's strongest216capital markets.217    For several years, the Securities and Exchange Commission218(SEC) drifted away from the principles that have long made our219capital markets work. Rulemaking accelerated without sufficient220economic analysis, enforcement actions increasingly replaced221clear rules, and decisions of enormous consequence were made222with too little transparency or accountability.223    That period raised serious concerns among public companies,224Main Street investors, small businesses, and entrepreneurs225about whether the SEC was faithfully serving its statutory226mission.227    This hearing is not about relitigating the past; it is228about ensuring the future of the SEC is grounded in the rule of229law and respect for due process. Under Chairman Paul Atkins,230the Commission has begun the hard work of righting the ship,231restoring internal discipline, and recentering the agency back232to its core statutory mission.233    We welcome that progress but progress alone is not enough.234Lasting reform requires durable guardrails, and that is where235Congress must lead. First, we must restore integrity to the236SEC's rulemaking process. Rules should not be rushed, stacked237on top of one another, or justified by speculative benefits238with real costs are ignored.239    Notice and comment is not a box to check; it is a240foundation of administrative law. Rigorous cost benefit241analysis is not optional or cut and paste. It is essential to242ensure that rules actually serve investors and markets rather243than undermine them.244    Second, we must end regulation by enforcements. The SEC is245a civil enforcement agency, not a policymaking substitute for246Congress. Market participants deserve clear rules of the road247before they are punished for crossing them. Enforcement should248target fraud and clear violations of established rules, not249serve as a substitute for notice and comment rulemaking or250expand regulatory authority beyond what Congress has251authorized.252    Third, we must address the SEC structure and internal253decisionmaking. Over time, authority has drifted away from the254commission itself toward staff-level actions that lack255transparency and accountability. Structural reform is necessary256to ensure major policy decisions are made by accountable257officials and subject to proper oversight.258    That is why this subcommittee is examining targeted259legislative reforms, including proposals to strengthen economic260analyses requirements, reinforce meaningful public comment261periods, clarify enforcement standards, and modernize the262commission's structures so it operates efficiently and within263its statutory bounds.264    Let me be clear, these reforms are not about weakening the265SEC, they are about making the agency stronger, more credible,266more predictable, and more faithful to the law.267    Today's witnesses will bring deep experience from inside268and outside the commission. I look forward to restoring269accountability, due process, and public confidence in the270commission. Now the chair recognizes the ranking member of the271subcommittee, Mr. Sherman, for 4 minutes or--what are we--do272you want 4 minutes or 5 minutes, sir?273    Mr. Sherman. I will take 5 minutes, unless she shows up.274    Chairwoman Wagner. Mr. Sherman for 5 minutes for an opening275statement.276277 OPENING STATEMENT OF HON. BRAD SHERMAN, RANKING MEMBER OF THE278  SUBCOMMITTEE ON CAPITAL MARKETS, A U.S. REPRESENTATIVE FROM279                           CALIFORNIA280281    Mr. Sherman. The title of this hearing implies that things282at the SEC have gotten better over the last year. I would beg283to differ. I agree that we should not have regulation by284enforcement. Why? Because if you actually write irregulation,285it is clear, it reflects input, it applies to everyone, and it286is pretty stable. That is to say you get a new chair of the287SEC, those regulations are still on the books, and we should288both regulate and adjust regulation and deregulate by following289the Administrative Procedure Act. Instead of regulation by290enforcement, we have now deregulation by nonenforcement. We291also have deregulation by capitulation. What does that mean? It292means we are dealing here with regulations that affect billions293and hundreds of billions of dollars and so there is a lot of294money for a lot of lawyers to contest these regulations.295    So, somebody brings a case challenging a regulation, and296instead of defending the regulation, the SEC erases the297regulation not by going through the Administrative Procedure298Act but simply tossing in the towel in a litigation. So, you299get deregulation by capitulation.300    You then get deregulation by pardon, and this is certainly301the most troubling aspect. You have got Justin Sun who buys a302hundred million dollars worth of Trump coin, and then all of a303sudden the investigation ends, the trial is dropped. You have304got the Tyler and Cameron Winklevoss where the SEC terminates305its lawsuit because these folks are very close to Trump. You306get Ripple Labs.307    Again, the SEC drops the appeal of the case after a multi-308million dollar donation to the Trump ballroom and the309inauguration committee.310    Finally, you have Mr. Zhao over at Binance, actually311convicted of a crime, gets pardoned, and we will never know how312much Trump coin was purchased but keep in mind, every dollar313that you spend, quote, buying Trump coin can be secret. You can314disclose it to one or two aides to the President, and all the315money or a big, big chunk of it goes to the Trump family.316    Now, I am going to be a bit facetious here, but this SEC is317demonstrating a hatred for Donald Trump. Because for this318process to work, it started with Gensler enforcing the laws and319then you have somebody who buys the Trump coin, and then the320investigation is dropped or the convict is pardoned. What has321happened here is that the SEC has cut its enforcement by staff322by about 20 percent.323    Well, what that does is it cuts Trump's income by 20324percent. There are fewer people charged, fewer people who have325to buy Trump coin, fewer people that can get the pardon, or see326the investigation stopped. This also and more seriously has had327an adverse impact on our ability to police Wall Street.328    Defunding the police is not a good idea, and that is what329we have defunded when we are going after crime in the suites.330    In 2024, the SEC levied $8.2 billion in fines, returned 3.2331billion to investors. What we have seen in 2026 is that is one-332tenth of the fines, less than half the average amount of fines333looking at over the last 10 years. As I have mentioned, the334enforcement staff's been cut by 20 percent.335    Finally, we have an unipartisan SEC because when a Democrat336leaves the SEC, no Democrat is replaced. For as long as I have337been here, which goes back to the days of Moses, we have always338had the minority party with two seats. We need genuine339Democrats, not just people who change their authority340affiliation a week before they were appointed, appointed to the341SEC.342    If there is not going to be any Democrats on the SEC in the343Trump term, what is the next Democratic President going to do?344I yield back.345    Chairwoman Wagner. The gentleman's time has expired. I now346recognize the chairman of the full committee, Mr. Hill, for 1347minute for an opening statement.348349  STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE ON350    FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS351352    Chairman Hill. Thank you, Chair Wagner, and I appreciate353the panel being with us today. The SEC plays a critical role in354ensuring America's capital markets remain the envy of the355world. However, during the Biden Administration, many market356participants raised concerns about the bureaucratic overreach357of that administration, and particularly regulation by358enforcement at the commission.359    Accountability must be restored at the SEC by ensuring the360commission follows the proper notice and comment procedures,361reduces rigorous cost-benefit analyses, and reexamines its362enforcement process. These actions will restore public363confidence, create transparency, and increase stakeholder364engagement.365    Under Chairman Atkins, we have seen significant progress366and returning the SEC to its core mission of facilitating367capital formation, protecting investors, and maintaining fair,368orderly, and efficient markets. I look forward to the369discussion today, and I thank the chair for yielding. I yield370back.371    Chairwoman Wagner. The gentleman yields back. Today we372welcome the testimony of Mr. Peter Chan, a partner at Baker373McKenzie; Mr. Alexander Cohen, co-chair of the National Office374of Latham & Watkins; Mr. Chris Iacovella, the president and CEO375of the American Securities Association and; Ben Schiffrin,376director of Securities Policy at Better Markets.377    We thank each of you for taking the time to be here. Each378of you will be recognized for 5 minutes to give you oral379presentation of your testimony. Without objection, your written380statements will be made part of the record.381    Mr. Chan, you are now recognized for 5 minutes for your382oral remarks.383384        STATEMENT OF PETER CHAN, PARTNER, BAKER McKENZIE385386    Mr. Chan. Thank you, Chair Wagner, Ranking Member Sherman,387and distinguished members on the Subcommittee on Capital388Markets. I am Peter Chan, and I am partner at the global law389firm of Baker McKenzie. The views I express in this testimony390are my own.391    I testify today on how best to ensure a culture of fairness392at the SEC through concrete steps that will preserve the good393work already begun under the leadership of SEC Chairman Paul394Atkins. My perspective is informed by decades of experience as395a securities attorney, including close to 20 years at the SEC's396Division of Enforcement.397    At the SEC, I had the privilege of working alongside398commissioned staff members who are a hardworking, intelligent,399and absolutely dedicated to the SEC's mission to protect the400investing public. Being fair has always been part of the ethos401of the staff I work with at the SEC but in recent years, the402commission has lost its way when it comes to fairness.403    For example, the SEC has engaged in regulation by404enforcement by setting de facto rules through enforcement405actions without fair notice, as documented by a White Paper I406co-author with my friend and former colleague, Valerie Mirko,407for the Financial Services Institute.408    A recent example is the SEC's off-channel communications409initiative involving the deployment of just about the entire410enforcement staff to pressure over 100 financial funds to411settle over $2 billion in penalties, even when there was no412evidence of bad faith. Ironically, the commission itself was413unable to comply with the same stringent standards that the SEC414is enforcing against industry, as evidenced by the avoidable415destruction of text messages of the then SEC Chairman Gensler.416    There is also the well-documented attempt to use417enforcement actions to stifle innovations in digital assets and418block chain technology.419    To pressure parties to settle cases where the SEC may not420prevail in court, the enforcement staff has also engaged in421unfair practices, such as threatening burdensome investigative422requests or unwarranted outreach to customers if parties do not423agree to settle.424    Despite the searing lessons from Madoff, the enforcement425staff has been incentivized in recent years to pursue cases426involving esoteric theories and large penalties that generated427headlines, such as the off-channel communications initiative.428    The staff has failed to focus limited SEC resources to429detect, prevent, or stop at inception, traditional intentional430fraud schemes, cases that would have garnered little publicity431but protected investors.432    The SEC should be focusing on getting rid of burdensome433regulations that no longer make sense. Instead, the past434commission engaged at a break-neck pace to promulgate rules,435resulting in unfair process and bad rules.436    Thankfully, Chairman Atkins is righting the ship and437returning fairness to the commission. He has issued key policy438statements to reform enforcement, he has launched initiatives439to reduce unnecessary regulatory burdens, but it is difficult440to correct the course of an aircraft carrier, and there is no441guarantee that future leadership will not deviate from the path442of fairness.443    The commission should thus establish clear rules to hot-444wire fairness into the SEC's culture. An independent advisory445committee of outside experts, as well as 2.0 committee can help446the SEC further identify methods to align staff incentives to447revitalize the SEC's culture of fairness. Better yet,448legislation, including legislation currently proposed by449members of this subcommittee can ensure that fairness will450always be part of the SEC's DNA. Thank you, again, for the451opportunity to testify today. I am happy to answer any452questions.453454    [The prepared statement of Mr. Chan follows:]455    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]456457    Chairwoman Wagner. Thank you, Mr. Chan, and thank you for458beating the clock.459    Mr. Cohen, you are now recognized for 5 minutes for your460remarks.461462    STATEMENT OF ALEXANDER COHEN, PARTNER & CO-CHAIR OF THE463               NATIONAL OFFICE, LATHAM & WATKINS464465    Mr. Cohen. Chair Wagner, Ranking Member Sherman, and466members of the committee, thank you for inviting me to appear467before you today.468    I have been practicing as a securities lawyer for nearly 36469of my 38-year legal career. During this time, I had the honor470to serve as the SEC's Deputy General Counsel for Legal Policy471Administrative Practice--a fancy title that basically means I472was responsible for the regulatory program; later as the SEC's473Deputy Chief of Staff to then Chairman Christopher Cox.474    This experience has led me to two overarching conclusions475about the U.S. securities laws. First, the U.S. securities laws476have been remarkably successful in making the United States a477gold standard of securities regulation.478    Second, in the nearly 93 years since the passage of the479Securities Act of 1933, the securities regulatory system has480accumulated numerous features that like barnacles in the hull481of a ship serve only to slow down progress.482    Congress now has the opportunity to sandblast some of these483regulatory impediments off and I am very grateful to the484subcommittee for the opportunity to add some sand to that485undertaking.486    In the appendix of my testimony, I describe a package of487ten improvements that Congress can make to SEC functioning and488U.S. securities regulation organized into four broad489categories: Modernizing the SEC structure; improving the SEC's490regulation of public company accountants; reining in SEC491regulatory overreach; and eliminating regulatory inefficiencies492and failed initiatives.493    I recognize that my proposals range from the far-reaching494to the quite technical, but I am convinced all would help495assure that the United States retains its position as the496leader of global securities regulation. I welcome your497questions.498499    [The prepared statement of Mr. Cohen follows:]500    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]501502    Chairwoman Wagner. Wow. Well done, Mr. Cohen.503    All right. You are pretty wordy, Iacovella. We will see,504Chris. You are recognized for 5 minutes for your remarks.505506  STATEMENT OF CHRIS IACOVELLA, PRESIDENT AND CHIEF EXECUTIVE507         OFFICER, AMERICAN SECURITIES ASSOCIATION (ASA)508509    Mr. Iacovella. Thank you, Chair Wagner, Ranking Member510Sherman, and members of the committee for the opportunity to511testify today. The ASA is a trade association of American512financial services firms whose mission is to promote investor513trust in confidence and support competitively balanced514financial markets. We strongly support the SEC return to the515mission that Congress gave it.516    Congress created the SEC in the wake of the 1929 Stock517Market Crash to restore Americans' faith in our capital518markets. For much of its history, the SEC did just that,519becoming the world's preeminent securities regulator. However,520since the 2008 financial crisis, a concerning trend has521emerged. The SEC has increasingly acted outside the scope of522its authority to pursue partisan political policies.523    The pendulum on the hot-button political and cultural524issues has swung from administration to administration and this525has turned the historically apolitical and technocratic agency526into an unelected political actor. This injection of politics527into our capital markets has created uncertainty for companies528and their shareholders, and it has led to a multi-year transfer529of wealth from American investors to a professional class that530profits from unauthorized regulation.531    The SEC needs to be an objective regulator focused solely532on its statutory mission, not one that caters to special533interests regardless of where they sit on the political534spectrum. Congress can end the SEC's mission drift by535reasserting its policymaking prerogative over the agency. By536that I mean, if Congress cannot agree on the details of a537policy issue, then language about that policy should not be in538the legislation, and a legislation should not include broad,539opaque, or public interest language that allows unelected540individuals to make policy decisions.541    Congress' delegation of its power to the administrative542State has gone too far for too long, and it is the central543reason the agency has become so politicized. If Congress does544not reclaim its power now, then it risks sending letters that545go unanswered and complaining about policies it did not546authorize and that is certainly not what the Framers envisioned547when they gave you the power to make law. Now I will briefly548summarize the rest of my testimony.549    First, the commission's delegation of policymaking550authority to career staff must end. This is appropriate solely551for administrative matters but not policy decisions.552    Second, career staff must obtain commission approval to553initiate industry-wide sweeps. This power is too great to be554delegated to unaccountable career staff.555    Third, the public deserves a minimum 60-day comment period556for rule proposals and at least 90 for complex rules.557    Fourth, the SEC needs to publish a transparent fine558schedule for administrative rule violations, such as559recordkeeping so the public understands how fines are560calculated.561    Fifth, enforcement staff must be held to the same ethical562standard as every other licensed attorney. Having staff563sanctioned for lying to Federal courts and having to dismiss564dozens of cases because staff enacted improperly erodes the565public trust in the agency. To change this, senior leadership566and the enforcement division should have securities experience,567not just prosecutor experience.568    Sixth, SEC rules must respect cost-benefit analysis that569Congress required. Using random unjustified costs and saying570quote, We are unable to reliably quantify the potential571benefits and cost of a rule, end quote, is unacceptable. This572disregards a congressional directive specifically designed to573stop unjustified rules from harming the economy.574    Seventh, SEC rules must be authorized by Congress. The575public should not be subject to a comply or sue scenario.576Lawsuits are costly, and repeated court losses damage the577agency's credibility.578    Eighth, rule filings from the Financial Industry Regulatory579Authority (FINRA) and the Municipal Securities Rulemaking Board580(MSRB) should be sent directly to the commission. They should581not be subject to pre-negotiated signoffs by career staff582before going to the commissioners.583    Ninth, the SEC's unauthorized delegation of its core584functions to self-regulatory organizations (SROs) must end.585These delegations circumvent the appropriations process, and586they impose open-ended costs on the industry that should be on587the agency's budget. An example of this is the SEC's delegation588of Consolidated Audit Trail (CAT) to the SROs which require the589industry to fund a million-billion dollar regulatory590surveillance scheme that illegally collects the personal and591financial information of every American investor.592    Tenth, Congress should revisit the current structure of the593agency to insulate it from partisan political pressure and594while there are many ideas one might be that the commission595should be evenly divided with permanent co-chairs, one from596each party.597    Thank you again for the privilege of testifying today, and598I look forward to taking your questions.599600    [The prepared statement of Mr. Iacovella follows:]601    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]602603    Chairwoman Wagner. I thank you, Mr. Iacovella.604    Mr. Schiffrin, you are now recognized for 5 minutes for605your remarks.606607  STATEMENT OF BEN SCHIFFRIN, DIRECTOR OF SECURITIES POLICY,608                         BETTER MARKETS609610    Mr. Schiffrin. Good afternoon, Chairman Hill, Chairman611Wagner, Ranking Member Sherman, and members of the612subcommittee. Thank you for the invitation to testify today. My613name is Ben Schiffrin, and I am the director of Securities614Policy at Better Markets.615    Better Markets is a nonprofit, non-partisan and independent616organization founded in the wake of the 2008 final crisis to617promote the public interest in the financial markets, support618reforms at Wall Street, and make the financial system work for619all Americans.620    For 90 years since its creation in 1934, the mission of the621Securities and Exchange Commission was to protect investors and622it has done so by acting as an independent agency but in 2025,623under current SEC Chair Paul Atkins, the SEC's mission changed.624    Chair Atkins views the SEC as an arm with the625administration and his SEC exists to protect the financial626industry. Chair Atkins may be ushering in a new day at the SEC,627but he is not returning the SEC to its roots. Chair Atkins is628turning his back on the SEC's historic mission of investigator629protection.630    The SEC has spent the last year curtailing the rights of631investors in public companies, endorsing the sale of risky and632expensive private market acts to return investors, promoting633the crypto industry relentlessly, reducing enforcements to its634lowest levels in a decade. Dismantling the data base it uses to635catch crooks and revisiting the lane or abandoning rules to636protect investors.637    These actions have profound consequences for investors,638markets, and our economy. The SEC's determination to prioritize639the interest of Wall Street and corporate management comes with640the expense of investor protection. It is fundamentally altered641relationships between public companies and investors.642    The SEC has limited the ability of the investors to have a643say in how the company is own or run, such as the small group644of nuns in Kansas, who according to the National Public Radio645(NPR), estimated they had filed over 350 shareholder646resolutions over 20 years because they want to advocate for647change at the companies in which they invest.648    The SEC has also made it harder for such investors to seek649redress for corporate misconduct, and it has poised to650significantly reduce the information investors receive about651the companies they own.652    This transformation of the SEC's priorities and its broad-653based attack on disclosures, rights, and remedies will hurt all654investors, including institutional investors, State and local655pension funds, private retirement funds, and individual656retirement accounts will all suffer as they get less657disclosure, less protection, and fewer remedies and chances to658recover also losses.659    At the same time as the SEC is making it harder to invest660in public companies, it is making it easier for private market661funds to solicit retail investors. Private market assets have662long been considered risky for retired investors, because they663lack the disclosure that a company publicly offered securities.664    The recent bankruptcy of the investment platform at Lido665highlights the perils for retail investors in the private666markets--with Bloomberg reporting that bankruptcy has left667thousands of retail investors with frozen savings. Even the so-668called accredited investors doing private market threshold669complain about the lack of transparency in the private markets670and the reason private markets do not now want to access to671these investors is that due to problems in the private markets,672money from institutional investors is drying up.673    For example, The New York Times recently reported that Yale674University's endowment and New York City's public worker675pensions recently sold their stakes in some private equity676funds at discounted prices to get cash back.677    Under the guise of Democratizing access to these678securities, the SEC is trying to steer return investors into679the private markets. At the same time, institutional investors680are pulling back from assets that offer greater risk and lesser681returns. These actions will not only hurt investors but also682harm our markets and our economy.683    Our capital markets are the envy of the world, but that is684because they are well-regulated and well-policed. Investors685have faith and confidence in them. This has been our686competitive advantage for almost a century and has thrown687trillions of dollars worldwide into the U.S. markets. That will688change as the U.S. retreats from protecting investors and689enforcing the law to exploiting investors and protecting the690industry.691    As investors' rights and protections are stripped away,692investors look elsewhere to invest their money. That will hurt693the economy, because it will be less money invested in the694U.S., leading to fewer jobs and the businesses. So under this695SEC, Wall Street and management win, but investors markets and696our economy lose. Thank you, and I look forward to your697questions.698699    [The prepared statement of Mr. Schiffrin follows:]700    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]701702    Chairwoman Wagner. Thank you, Mr. Schiffrin. We will now703turn to member questions, and I recognize myself for 5 minutes704of questioning.705    Mr. Cohen. Members of this committee have repeatedly warned706that 30-day comment periods are inadequate for understanding707and providing meaningful replies or proposals that are hundreds708of pages in length sometimes. This is not just a partisan709concern. In October in 2022, 12 Senate Democrats wrote to the710commission warning that these compressed windows were711undermining the Democratic process.712    How would a statutory 60-day minimum comment period shift713to process from a check-the-box exercise to a genuine dialog714fulfilling the original intent of the Administrative Procedure715Act?716    Mr. Cohen. Oh, well, thank you, Chair Wagner. I think that717would be very helpful. The comment progress, as anyone who has718been involved in it from the SEC side can tell you yields a lot719of really interesting, important feedback. Sometimes very720critical, but that of itself is often very useful.721    Just to cite an example that I was involved in, the SEC's722de-special purpose acquisition companies (SPAC) rules, in723particular, proposed Rule 140(a) were the subject of724considerable amount of criticism and that is really complicated725stuff. You just could not do it in 30 days. So I think 60 days726is a very good idea.727    Chairwoman Wagner. Thank you. Mr. Chan, this committee will728work to ensure that the progress made to restore a materiality-729based approach to SEC regulation and enforcement is permanent730and cannot be reversed.731    In your view, would codifying the SEC regulatory732Accountability Act, for instance, which requires definitive733problem identification before rulemaking provide the necessary734guardrails to prevent a future administration from reverting to735regulation by enforcement?736    Mr. Chan. Chair Wagner, your question very astutely737identifies the age-old problem of the phenomenon of solution738looking for a problem. I do think that having statutory739guardrails to make sure that there is actually a material740problem or an issue that needs fixing would very much assist741the SEC in focusing on fairness and going after fraud.742    I think in terms of the answer on regulation by743enforcement, it will help. I note one of the problems is that744when there are guardrails on rulemaking, that is when745temptation regulated by enforcement is the greatest. So, I do746think that combined with policies and rules that will limit747regulation by enforcement, I think, is the key.748    Chairwoman Wagner. Thank you. Mr. Iacovella, in your749testimony you suggest that Congress itself may bear some750responsibility for the SEC drift, particularly, when statutes751delegate broad discretion or rely on open-ended public interest752standards.753    From your perspective, how can Congress write clear, more754durable securities law that constrain regulatory overreach755while still giving the SEC enough authority to respond to real756market risks?757    Mr. Iacovella. Thank you for the question. I think this758body did just that with the Jobs Act. In Title 1, you made it759self-effectuating and as soon as it was passed, companies760started the initial public offering (IPO) using that. What did761not happen in the rest of the Jobs Act where the other titles,762general solicitation and crowd funding, those took a lot of763time with SEC comment, and they were watered down in way that764was not negotiated in a bipartisan way in this body at the765time.766    So, having language that takes effect immediately upon767being signed by the President is very important because it768bypassed the rulemaking process and you can give them some time769to review that after a two-to 3-year period to see if the770correction--if there are corrections that are necessary to771improve processes.772    Chairwoman Wagner. Would you like to expand on any of the--773how many do you have--ten, 12 different recommendations for774this esteemed committee to consider legislatively?775    Mr. Iacovella. I would add one point on the comment776period--and I think you were noting it--it really harms small777businesses who do not----778    Chairwoman Wagner. Yes.779    Mr. Iacovella [continuing]. who do not have an Army of780lawyers or a lot of legal budget to be able to outsource to781comment on a complex rule in a 30-day time span and that is why782it is necessary to be at least 60.783    Chairwoman Wagner. I am tired of cut and paste cost784benefits where we do not hear the truth about the cost and/or785the benefits. So, thank you very much for the testimony. I now786recognize the ranking member of the subcommittee, Mr. Sherman,787for 5 minutes for questions,788    Mr. Sherman. Thank you. I kind of made the mistake in my789opening statement because I mentioned deregulation by790nonenforcement, deregulation by capitulation, and deregulation791by pardon, and I forgot deregulation by Tweet.792    We have seen the President of the United States say that793shareholders should not be able to put forward proposals to794committees, and that you should not be able to hire an adviser795as to how to vote your shares. Although, companies are free to796hire five or ten law firms on their side.797    Then we see--and this is I think the most extreme thing--798the President say we should get rid of quarterly financial799reports. What an insane idea. Obviously, rumor mills are800going--whoever picks up the rumor is going to be in a stronger801position and those who are relying on official reviewed or802audited financial statements are going to be in a worse803position.804    There are two areas where I think the SEC should be acting805and just refuses to act. One of these is the Small Business806Investor Capital Act which is there to correct how they807calculate expenses so that small business--so that business808development corporations can be, as a practical matter,809included in mutual funds. This committee has passed this bill810over and over again, and the SEC sits and does nothing.811    In addition, this committee has done much to try to save812some trees by providing for e-delivery. As I have commented813here before, e-delivery is sometimes better because if you get814it on paper, you tend to throw it away--I mean it is--whereas,815if you get it on electronically and you happen to have some816extra time, perhaps you are at a hearing and looking for817something to read, you can go back and find it and read it but818this committee has acted again and again. It is time for the819SEC to do its job.820    I agree with our chairwoman about the need for more than82130-day comment period on major regulations but I disagree with822what she mentioned and what others have mentioned and that is823materiality having nothing to do with anything other than an824expert share.825    Mr. Schiffrin, is there something illegitimate about an826investor who thinks that greenhouse gases or conflict diamonds827are material to their decision as to where they want to invest?828    Mr. Schiffrin. Thank you for the question. No, I think829there is a lot of information besides financial information830that is material that can form the investment decision that831investors want to make, and certainly things like the effective832climate change on a company's operations would be one of those833things.834    Mr. Sherman. Now, I think one of our witnesses had835suggested the idea that we permanently have an evenly split836SEC. I find that intriguing. It is probably a good idea but at837least we have had a situation where there would be two from the838minority party. Congress structured the SEC to be an839independent bipartisan irregulator. Yet, we were down to one840Democratic commission for 12 months, and now we are down to841zero and there is no end in sight.842    Mr. Schiffrin, why is it important to have two Democrats on843the SEC in a bipartisan board?844    Mr. Schiffrin. Well, because you need a diversity of845viewpoints on the commission that is going to not only make the846commission's rules better in the long run, but also more847durable in the long run. I think Congress is kind of a good848example right. My perception is that Congress tries to do849everything on a bipartisan basis, and I think it would be850better for the SEC to do that as well. That way, you know if851another administration comes in, it is going to be way harder852to undue something that was passed 5-0 versus 3-0 or 3-2.853    Mr. Sherman. Then we had this with the Consumer Financial854Protection Bureau (CFPB) and discussions as top whether to have855a board or an individual. Those who wanted the most extreme856actions went with the single Member and so we had a single857person making the decisions. Now, we have a single person858erasing all the--well, actually, they have erased the board859altogether and there is something to be said for moving the860pendulum less in one direction and less than the another, and I861yield back.862    Chairwoman Wagner. The gentleman yields back.863    The chair now recognizes the gentleman from Arkansas, the864chairman of the full Financial Services Committee, Mr. Hill,865for 5 minutes.866    Chairman Hill. Thanks, Chair Wagner. Again, I appreciate867the panel being here. I have spent really almost three decades868as a registered person. The last 10 years not registered but I869will reflect back on that. I was National Association of870Securities Dealers (NASD) FINRA registered since 1986. I was871chairman of the District Business Conduct Committee in New872Orleans, District Six. I was on the Small Firms Advisory Board.873I have been a corporate director for a public company. So, I874spent a lot of my life with the 33 and 34 acts and all the875great work all of you have advocated for.876    One of the things as a CEO, a managing general principal877with three different firms, it just irritated the absolute tar878out of me is this idea that we are going to start with879enforcement before we inform anybody of what it is that we are880trying to solve.881    I want to visit with Mr. Iacovella, because this one really882burns me up because it is a classic example where people assert883that if they do not correct this immediately, our world will884come to an end. It will cease spinning on its axis.885    So the government decides to shut down the economy during886coronavirus disease 2019 (COVID-19). None of us knew what was887going to be the--we were here. We did not know what the real888result of all this was. We were dealing with the crisis in real889time just like the private sector was. But--so, people who were890financial advisers, registered broker dealer employees were891sent home, and I do not think they were told not to ever talk892to their customers again. So they were sent home, and they893probably had a virtual private network (VPN) to dial into a894laptop that maybe was company-owned, maybe it was not. A lot of895people in the modern world do not have a landline, so they were896talking on their cell phone.897    Well, that is the case for everyone here. All the Members898of Congress. Exactly the same situation. Not ideal but here899comes the commission suddenly in 2021, and suddenly dreams up900this idea that, oh, my God, there are people with off-channel901communications. These registered broker dealers are not storing902every text message. Clearly, this is a violation of903communications rules, the correspondence rules, the approval by904a principal of anything you say to a client rule, and they905began to enforce that.906    I do not think my friends on either side of the aisle907really appreciate how outrageous this was. Starting with C-908suite, we want all your texts, we are going to write you a909letter, our lawyer is going to contact you. If you do not give910us all your texts and access to your phone, we are going to911then, I guess, take action against the firm. It resulted in912billions and billions and billions of dollars of fines for913these firms for something that all you had to do was say in a914notice to members under FINRA or under a proper rulemaking from915the SEC, we believe now in the modern age that we want to916collect and treat as correspondence, treat as principle-917approved communication, texting, or emails, or even a telephone918call on your personal phone because you were sent home from919your office. So, no, we are not recording it and there is920nobody here that would dispute that but instead of publishing a921notice to members, we just start fining people.922    Yet, we have a chairman of the SEC who has lost his text923messages that we have subpoenaed from this committee for. So924the hypocrisy is not lost on me or on an Inspector General at925the SEC.926    So, Mr. Iacovella, how do we get this back on track? Firms927want to do good-faith compliance. All you have to do is tell a928firm, here is our expectation, here is the timeframe, and we929want you to comply.930    How did the scale and structure of these penalties affect931perceptions of fairness and credibility at the SEC?932    Mr. Iacovella. Thank you, Congressman. I think what you933said is exactly what should have been done. There should have934been a notice to the industry that said, we understand there935were extenuating circumstances during COVID, and that people936communicated through texting. We would expect you before the937next examination to collect all of that information and have it938ready. If you do not, then there better be a good reason why939and you could be subject to fines as a result of that but that940is not what happened.941    Chairman Hill. Right.942    Mr. Iacovella. What happened was----943    Chairman Hill. I would go into the details, but there is a944perfectly good case study about exactly what we are talking945about today under the leadership of Ann Wagner. I would say946what hypocrisy that the chairman of the SEC cannot produce and947retain his own text messages for review by this committee. I948yield back.949    Chairwoman Wagner. The chairman yields back and the chair950now recognizes the gentleman from California, Mr. Vargas, for 5951minutes.952    Mr. Vargas. Thank you very much, Madam Chair, and ranking953member, and especially I want to thank the witnesses today.954    Mr. Cohen, you set up a very provocative analogy. You set955up this analogy of a ship that has barnacles on it. It has been956sailing for 93 years, and it has collected these in such a way957that it has caused the ship not to be very efficient in its958movement. So they should be--and I want to quote you--959sandblasted off, so then it could move more efficiently.960    The analogy is a good one. However, I am from San Diego,961and I worked in the shipyard. We normally do not sandblast. It962depends on the hull. You would not sandblast the barnacles963because you would actually damage the ship. If it was964fiberglass, you would water blast them and if it was a steel965ship, would you sandblast?966    The reason I say that is because sandblast is much harsher967than water blasting. Although, there are some water blasters,968of course, that are very profound. The reason I say that is I969think that there probably are some rules and regulations that970should be taken off this ship. By the way, if I had to hire an971attorney, I would hire you. You are very capable, I see and you972are also very precise. I know you would not churn my case. Your973testimony was fantastic.974    Mr. Sherman. I do not think you could afford him.975    Mr. Vargas. I could not afford him either. That is true,976too.977    So, Mr. Schiffrin, how would you confront that reality that978there are barnacles on the ship? Instead of sandblasting, how979would you water blast them off? Now I do want to give you a980chance to come back, Mr. Cohen.981    Mr. Schiffrin, why do you not start with that. If we are982going to blast, are we not blasting too hard? If he is going to983use sand, I mean, is it not the problem that we then erase a984lot of these investor protections?985    Mr. Schiffrin. Thank you for the question. I think that is986exactly right. We have to be careful not to throw the baby out987with the bathwater, so to speak. It is one thing for the SEC to988go back and look at its rules and say, well, this particular989rule that was passed 50 years ago maybe no longer makes any990sense. Right now what the SEC is doing is seemingly eliminating991core investor protections. Chair Atkins has talked about992revising Regulation S-K, which is core disclosures, not993financial disclosures, but other material information that994investors rely on. Disclosure is the bedrock of securities995regulation in this country, and we cannot just be doing away996with that.997    Mr. Vargas. Mr. Cohen, I do want to give you an opportunity998to discuss that.999    Mr. Cohen. Well, thank you, Congressman. You are quite1000right, I did make the assumption that the SEC is whole with1001steel rather than fiberglass and having had the experience as a1002teenager having to hand clean fiberglass hulls, I would not1003wish it on Congress or anyone else.1004    I think the point that I was really trying to make is that1005the success of U.S. securities regulation does not mean that we1006have to regard the system as static, and that, in fact, we1007should be open to making changes.1008    For example, one of the proposals that I made in my1009appendix was to add a vice chairman to the position of the1010chairman. My observation from being in the chairman's office is1011that the chairman of the SEC has too many direct reports, too1012many statutory responsibilities, and it impedes his or her1013ability to be effective in the job. I think we all would like1014the SEC to be run on an effective basis.1015    Mr. Vargas. Right, but you do have a vice chair at the Fed,1016and I do not think that necessarily makes it more efficiently.1017How would that protect really investors' rights?1018    Mr. Cohen. Well, I think the issue is that it is very1019difficult when a chairman has--and I think from the last time I1020looked at the org chart--something like 26 direct reports, plus1021statutory responsibilities at the Financial Stability Oversight1022Council (FSOC), at Federal Housing Financial Agency at the1023International Organization of Securities Commissions (IOSCO).1024It is just difficult to spend time doing the kind of strategic1025thinking that you would really want an SEC chair to do to1026really drive forward regulation in the right way. You risk1027being bogged down in too much detail. Again, I think from all1028of our perspective, effectiveness is really what we would like1029to see of regulation.1030    Mr. Vargas. Mr. Schiffrin, would you like to comment on1031that? The last comment you made that really what they are1032looking at is effectiveness, trying to move more efficient.1033    Mr. Schiffrin. Well, what I really want the SEC to be is1034effective as possible. I do not know that it has been in the1035last year. I am not sure if adding a vice chair position is1036what it needs to do so much as recognize that its mission is1037investor protection. I think it seemed to lose track of that in1038the last year.1039    Mr. Vargas. I guess, with my last 20 seconds, I say it is1040obvious that in one administration goes one way a little bit1041more than the other way, but when there is no representation at1042all, I think there is the danger that it swings too far one1043way, and I do think there should be Democratic representation1044from the SEC. With that, I thank the chair, and I yield back.1045    Chairwoman Wagner. The gentleman yields back. The chair1046recognizes the gentlewoman from Michigan, Mrs. McClain, for 51047minutes.1048    Mrs. McClain. Thank you, Madam Chair, and thank you for1049holding this hearing. I thank you all for being here. I1050appreciate it.1051    I spent a little time in the financial services industry1052myself, about 35 years, and I saw the evolution, especially1053around FINRA. When I started, FINRA used to be an agency. It1054was really concerned with overseeing the educational arm,1055right, our continuing education (CE) credits, making sure we1056are properly licensed, et cetera, et cetera.1057    It seems that FINRA has just grown out of that a little1058bit. I am not really sure how it got there.1059    So, Mr. Iacovella, I was wondering if you could enlighten1060us a little bit on how FINRA has evolved from more a licensing1061and educational organization, which is what it originally was1062set out to do into its current form of really an unaccountable1063regulatory agency. Can you explain how that happened?1064    Mr. Iacovella. Well, I mean, what it does now is regulating1065broker dealers and SEC delegates what it does not want to do in1066relation to broker dealers and oversight of the security1067markets to FINRA and to other SROs. I think that is the concern1068that you are trying to raise here is that delegation has not1069been authorized by Congress, and it has happened by virtue of1070the agency doing it on its own accord.1071    Mrs. McClain. Yes, and that is extremely concerning to me1072because it seems like we have one more layer of bureaucracy out1073there. Even more concerning with that is the lack of1074transparency. Right?1075    I am curious to get your information or your opinion on--1076what threats do you think FINRA poses to capital markets?1077Because they write the rules, they enforce the rules, and they1078really keep a lot of those proceeds from the plaintiffs.1079    Mr. Iacovella. You are touching on a very important topic1080right now, and I think it has been the subject of multiple1081lawsuits by individuals against FINRA, and I think it is1082something that this body should really take up, which is what1083is FINRA? Is it a private institution that is member-driven, or1084is it a governmental entity? What powers does it have that it1085should be using? Should it be an enforcement agency? That is an1086open question that this body should answer. Should it be an1087adjudicatory agency for arbitration. I mean, these are1088functions that were set out in three different branches in our1089Constitution, and they have been rolled up into one entity that1090is not accountable to anybody but the SEC and to hopefully this1091body.1092    Mrs. McClain. Yes, I would agree with you. I think I would1093encourage Congress to really take a look at the role of FINRA1094and get some definition of what their job and what their1095responsibilities truly are because I think the problem people1096have with FINRA is they do not know what they do not know. When1097you are the judge, the jury and the executioner, people kind of1098get a little weary of that.1099    Just curious, when FINRA comes in and assesses a fine to a1100firm, what happens to those fines? Do those fines get back to1101the plaintiff? What happens to those fines?1102    Mr. Iacovella. I believe that when FINRA assesses a broker1103dealer with a fine, that the money goes into its general fund.1104    Mrs. McClain. Into FINRA's general fund?1105    Mr. Iacovella. Yes, ma'am.1106    Mrs. McClain. Any idea what that general fund is worth?1107    Mr. Iacovella. There were previous reports that FINRA has1108over $2 billion in its funds.1109    Mrs. McClain. $2 billion? Do they use that for educational1110training for helping firms do a better job--maybe as Chairman1111Hill was talking about earlier, helping people get out of the1112State of uncertainty that they may be in? What do they use that1113$2 billion for?1114    Mr. Iacovella. Salaries. They----1115    Mrs. McClain. Salaries to go back and collect more fines?1116    Mr. Iacovella. Yes, yes.1117    Mrs. McClain. Just out of curiosity, what does the1118President of FINRA make? Do you know?1119    Mr. Iacovella. I am not sure of the exact figure, but I1120understand----1121    Mrs. McClain. Would you call me a liar if it was around 41122million?1123    Mr. Iacovella. That sounds about right.1124    Mrs. McClain. Just curious. Can you explain a little bit of1125a lack of accountability that FINRA has and how that results in1126higher fees, fewer investment choices, and lower returns?1127    The because the biggest concern I have is with all the1128rules and regulations right now, it would be really tough to1129start a new firm. So, I am curious if you could touch on that.1130    Mr. Iacovella. I think it is extremely difficult to start a1131new firm, and compliance costs are overwhelming for small1132firms. That is why a lot of them are going away. They are1133either being bought out, merging, or they just go out of1134business.1135    Mrs. McClain. Yes, FINRA is sitting on about $2 billion.1136With that, Madam Chair, I yield back. Thank you.1137    Chairwoman Wagner. The gentlewoman's time has expired.1138    The chair now recognizes the gentleman from Illinois, Mr.1139Casten, for 5 minutes.1140    Mr. Casten. Thank you, Madam Chair. Thanks all of you for1141being here. So I want to lay my biases up first. I had some1142real concerns with Chair Atkins' leadership and particularly1143for the way that he has weakened investor protections and in so1144doing weakened confidence in U.S. markets.1145    I want to get specifically--and there is no way to say this1146without getting political, but SEC's recent decision to stop1147reviewing no action decisions per shareholder proposals is1148going to allow firms to exclude various environmental, social,1149and governance (ESG) requests. You cannot say the word ``ESG''1150without getting in some nonsense culture war fight now.1151    The debate as I understood capitalism. Most of my adult1152life was between Milton Friedman's view of shareholder1153capitalism and some broader view of stakeholder capitalism.1154    If the owners of a company have things they want to know1155about the risk exposure of that company, and management1156disagrees, if you believe Milton Friedman, the shareholders1157here will have the final say. Yet, these no-action rules say,1158well, if you are doing things that affect environmental issues1159or government issues or employment issues, somehow that is off1160the table.1161    So, basically, we are just going say, forget about1162shareholders, forget about stakeholders. I am just going to1163elevate the C-suite.1164    I want to, specifically, give a recent example. Last year,1165the SEC granted no action related to Exxon Mobile over their1166problem which would enable retail investor to automatically1167cast their votes on shareholder proposals in favor of1168management, at few future meetings, before they even know what1169they are voting on.1170    Mr. Iacovella, you issued a statement in support of that1171saying that the SEC's decision prioritizes the interest of1172working families, savers, and retirees.1173    I guess what I am wondering is how does that meaningfully1174prioritize individual investors' preferences if they have to1175vote before they know what they are voting on?1176    Mr. Iacovella. Well that particular program that you just1177described I think that there are some issues with it. I was not1178aware of it exactly.1179    Mr. Casten. But you would put a statement in support of1180this. I mean, I sort of think, like in Illinois--respect, Mr.1181Chan, Illinois--we have a primary on March 17, which means my1182voters will know who my opponent is on the Republican side of1183the ticket on March 18. If I went and asked them to vote for me1184now before they know who my opponent is, I am hard pressed to1185say how that enhances democracy. Yet, that is essentially what1186the SEC has allowed Exxon to do.1187    Let me move on. Mr. Cohen, Exxon's stated purpose was they1188said to enhance retail participation at shareholder meetings.1189Is it your understanding that is why Exxon created that1190program.1191    Mr. Cohen. Well, I cannot comment specifically to it.1192    Mr. Casten. Because there was a client alert from your firm1193saying that retail voting is an effective tool to help defeat1194an activist investor in a proxy fight but I think in practical1195reality, as we all know, there are large sophisticated1196investors--he pension funds, mutual funds--what have you and1197there is a lot of small retail folks. If you basically bake1198them in, I go back to my example, if I get everybody to vote1199for me before, why do forums? I have already baked in the win,1200right? Are you not effectively just disenfranchising the most1201sophisticated participants in your capital structure.1202    Mr. Cohen. Well, thank you very much for the question.1203There was a speech that the general counsel for whom I worked1204with, Brian Cartwright, gave in 2007 talking about the notion1205of its an ugly word deretailization, but he was making a point1206that because of the enormous concentration of money in funds,1207it is very difficult to actually for retail investors to have1208any particular say at least on fraud. So it is a phenomenon1209of----1210    Mr. Casten. Look, I take--I mean, look, we can go into our1211history. Our Founders were not really wild about Joe Rubin of J1212Street either, that is why we have the senate but structurally1213either we like democracy or we do not.1214    I want to shift just quickly to tokenization. Last week the1215SEC issued a statement confirming that a tokenized stock is1216still a security regardless of whether it is representing a1217blockchain or a derivative. Mr. Iacovella, do you share the1218SEC's view.1219    Mr. Iacovella. Yes, I think it should take the form of1220whatever it tokenizes from a regular tourist standpoint. So it1221is subject to the National Market System (NMS) if it is1222inequity.1223    Mr. Casten. I appreciate that. So would you oppose1224legislation that would create a loophole that would allow1225companies to get out of SEC jurisdiction just because they had1226a tokenized security?1227    Mr. Iacovella. No, I would not oppose that. Oh, we would1228oppose that, yes. Sorry, I am sorry.1229    Mr. Casten. Okay, okay. Well, that was why I posed the1230CLARITY Act last year that passed out of this committee because1231what the CLARITY Act said is if you tokenize your securities,1232you can get away from those sorts of protections.1233    I leave that to come back to where I started, either this1234SEC is going to protect investor rights and investor1235disclosures and not pretend something that something is not a1236security. If it walks and talks and quacks like a security or1237it is not. I think it behooves us to fix----1238    Chairwoman Wagner. The gentleman's time has expired.1239    Mr. Casten. I yield back.1240    Chairwoman Wagner. The chair now recognizes the gentleman1241from Oklahoma, Mr. Lucas, who is the chair of the Task Force on1242Monetary Policy, Treasury Market Resilience, and Economic1243Prosperity. You are recognized for 5 minutes.1244    Mr. Lucas. That is a mouthful, chairman. Thank you and1245thank you to our witnesses here today. I think one of the1246things we would all agree on so far in course of this hearing1247is that the SEC looks dramatically different from the SEC 21248years ago. It is truly a new day at the commission.1249    Mr. Chan, can you speak to the enforcement side of the1250commission? How would you characterize the change in it capital1251markets under Chairman Atkins' leadership.1252    Mr. Chan. It has been traumatic and it is going back to1253commonsense. If you take a quick look at the enforcement cases1254since Chairman Atkins appointed Judge Ryan to be the director1255of enforcement, you will notice the majority of the cases1256involve going after intentional fraud. I think that is1257something that sitting here in this room we all agree that is1258what the SEC should be doing. As someone who has gone after1259fraudsters, Ponzi schemers, executives who have lied, cheat and1260stolen, it is tough to go after fraudsters who tried to avoid1261detection.1262    I think if you think about what the SEC did in the previous1263administration where they spent the entire resources of the SEC1264going after people who might have used an emoji on a text1265message or might have gone by an interpretation crushed a1266little yellow sticky that is considered a violation of the law.1267    I worry about how much was missed in terms of failure to1268detect intentional fraud. So I really applaud the chairman in1269terms of returning the SEC going back to its core, which is1270going after intentional fraud with an enforcement perspective.1271    Mr. Lucas. Mr. Cohen, this committee reported out my1272bipartisan bill last month, it would establish a public company1273advisory committee within the SEC. That seems to align with the1274progress Chairman Atkins has already made increasing1275transparency with the commission and seeking broad industrial1276feedback on potential regulatory changes. What is your view,1277does the commission benefit from thoughtful rulemaking that1278takes into account the impacts to market participants.1279    Mr. Cohen. Absolutely. There is no question that makes1280regulation better when you have that kind of feedback.1281    Mr. Lucas. Continuing with you, Mr. Cohen, can you describe1282the benefits of using the process established under the1283Administrative Procedures Act to regulate our market behavior1284rather staff bulletins that previous administration relied on?1285    Mr. Cohen. Well, notice and comment rulemaking is an1286extremely effective tool because of the complexity of all the1287financial markets it is simply very difficult, even for a very1288knowledgeable regulators to actually be able to get the full1289understanding of what the import of the actions that they are1290taking are.1291    There is of course always a room for interpretation, there1292is always a room for staff action, you need that also as a1293safety valve but certainly notice and comment ought to be the1294preferable way to go.1295    Mr. Lucas. Absolutely. Mr. Iacovella, the commission has1296begun right size regulation, restoring progrowth opportunities1297capital markets. How does the Incentivizing New Ventures and1298Economic Strength Through Capital Formation (INVEST) Act build1299on that work and make these policies durable for future1300administrations?1301    Mr. Iacovella. There are a few ways, section 301, title 3,1302allowing EGCs to do 2 years of financial statements instead of13033. That is very important and that it is going to be taken up1304immediately once the INVEST Act passes the Senate.1305    Also, you are directing the SEC to expand the test the1306waters provision. That is a very useful provision that provides1307good feedback between the companies and the SEC so that they1308know and they have a fully prepared statement when it is time1309to go IPO and I think lowering the well-known seasoned dish or1310a requirement from 700 to 400 was very important as well.1311    I mean, it allows the ease of follow-on offerings for small1312and mid-cap companies and that is what allows them to become1313large cap companies.1314    Mr. Lucas. Absolutely. I thank the panel for your1315observations and your insights. I yield back, Madam Chair.1316    Chairwoman Wagner. The gentleman yields back and the chair1317now recognizes the gentlewoman from California, Ms. Waters, who1318is also the ranking member.1319    Ms. Waters. Thank you very much. Thank you.1320    Mr. Schiffrin, in this and prior Congresses I have offered1321proposals to increase transparency and accountability in our1322private markets. Your testimony echoes many of the concerns my1323proposal would remedy and paints a troubling picture of the1324SEC's agenda to undermine our public markets.1325    You say that Chairman Atkins prioritized the needs of1326private equity firms over the safety of everyday American1327investors. You also argue that the private markets are1328inherently riskier, less transparent, more expensive and less1329liquid than our public markets.1330    I am going to ask you a series of questions about private1331markets and would appreciate to the extent possible a brief yes1332or no answer. Is it true that private markets have performed1333worse than the S&P 500 over the past 5 years?1334    Mr. Schiffrin. Yes.1335    Ms. Waters. Is it true that institutional investors like1336private equity and pension funds are currently fleeing private1337markets due to under performance?1338    Mr. Schiffrin. Yes.1339    Ms. Waters. Is the SEC now attempting to steer retail1340investors into these private markets at the exact moment that1341large institutional investors are pulling back from them?1342    Mr. Schiffrin. Yes.1343    Ms. Waters. Is it also true that Chairman Atkins recently1344permitted an exchange graded fund to invest in private credit1345despite SEC career staff concerns regarding the liquidity and1346valuation of those assets?1347    Mr. Schiffrin. Yes.1348    Ms. Waters. Well, does not the expansion of private1349offerings without the same kinds of disclosures require for1350public companies increase the risk of fraud for retail1351investors?1352    Mr. Schiffrin. Yes.1353    Ms. Waters. Is it your opinion that pushing mom and pop1354investors to add these unregistered securities to their nest1355egg will likely lead to significant financial losses for them1356and millions of American families?1357    Mr. Schiffrin. Yes, I think it is very risky for retail1358investors to enter the private markets.1359    Ms. Waters. Finally, what advice would you have for both1360Congress and the SEC as it contemplates allowing companies and1361their Wall Street brokers to sell private assets to everyday1362investors?1363    Mr. Schiffrin. Well, I think you have to bear in mind that1364is kind of antithetical to the Federal securities laws. If you1365are talking about selling private market assets to retail1366investors, you are talking about selling them to the general1367public.1368    If you are making a public offering of securities, you are1369supposed to register that with the SEC and provide all the1370disclosures that a public offering entails and those1371disclosures they like to protect investors. If you are talking1372about offering private market securities to retail investors,1373you are talking about doing something that really the law does1374not provide for without detailed disclosures under the1375securities laws.1376    Ms. Waters. Do you consider that the SEC is independent?1377    Mr. Schiffrin. Can you repeat the question?1378    Ms. Waters. The SEC, who controls it? Is it independent or1379the President involved, who----1380    Mr. Schiffrin. It should be an independent agency and that1381is historically what it has been. I think Chair Atkins seems to1382view it more as an arm of the administration.1383    Ms. Waters. Well, let me just tell you this, we have fought1384very hard and we have to keep fighting to fund and make sure1385that the SEC has what it needs to be the cop on the block. So1386all you have to do is not help them get any resources, no money1387to do the job and they get to do what they want to do, and1388nothing gets done. Is that an issue that is a concern to you1389and others.1390    Mr. Schiffrin. Yes, I think I SEC needs resources in terms1391of funding and in terms of staff so that it can do its main1392job, which is to be the cop on the Wall Street beat and ensure1393that financial fraudsters are not taking advantage of everyday1394Americans.1395    Ms. Waters. Has it traditionally been understaffed?1396    Mr. Schiffrin. I think that the SEC has to regulate $1001397trillion capital markets and it has always been underfunded and1398understaffed. In that respect, I think that the reason staffing1399cuts at the SEC only exacerbate the already difficult task that1400the SEC has in regulating the size of those markets.1401    Ms. Waters. Well, thank you very much. I am concerned. I1402yield back.1403    Chairwoman Wagner. The ranking member yields back.1404    The chair now recognizes the gentleman from Ohio, Mr.1405Davidson and chair of the subcommittee on National Security,1406Illicit Finance, and International Financial Institutions. You1407are recognized for 5 minutes.1408    Mr. Davidson. Thank you, chairwoman, witnesses I thank you1409for your testimony and your work in the field.1410    We are coming off the wake of Gary Gensler's failed1411leadership at the Securities and Exchange Commission. For years1412I sought to fire Gary Gensler. We never succeeded in that but1413frankly one of the first things that happened when Donald Trump1414became President is we fired Gary Gensler. All of capital1415markets are better because of it. So we saw really a mind-set1416in terms of the senior leader at the Securities and Exchange1417Commission really shape everything and that led me to question1418is the structure even right at the Securities and Exchange1419Commission.1420    So I looked at maybe it should be at parity so that no one1421party has it, because everybody had deferred to Gary Gensler1422and we did not have the votes to change course on it. So then1423you have a yo-yo back and forth, one idea versus the other. I1424thought, maybe the 80/20 issues the commission on a deal was1425because then partisanship would not be the driver for some of1426the policy approaches because that is really what we saw is the1427war on crypto led out of Elizabeth Warren's office in the1428Senate was basically had a foot soldier in Gary Gensler.1429    Now we are trying to pass regulatory clarity in Congress. I1430had a colleague earlier characterize that if you tokenize the1431security under the CLARITY Act, it is not a security. No, if1432you tokenize the security, it is still a security.1433    What the CLARITY Act says is that if you tokenize something1434that is not a security, then not a security. Gary Gensler1435struggled with that idea, and he did sue and subtle things not1436to provide clarity. He did not do structured rulemaking with1437notice and comment periods. He did regulation by enforcement.1438One of the examples I always put on to you is they sued one of1439the Kardashian people and settled for $1 million, $2 million1440for marketing an unregistered security but they took no action1441against the unregistered security that was supposedly the1442problem.1443    They did not shut it down because it was some bad offering1444and dangerous to the public. They created chaos on purpose.1445They told everyone to come in and talk to us, and we will work1446with you and then they used that information to target them for1447enforcement actions.1448    They did not produce an escape. I said it was like hotel1449California; you can check in but you can never leave.1450    So I want to thank Chairman Atkins for providing a great1451direction, but a couple of questions. Mr. Cohen, in the1452Coinbase case the Biden SEC issued a Wells notice advancing1453novel legal theories about digital assets without identifying a1454clear statutory authority or rules adopted through notice and1455comment.1456    How could Congress reform the Wells process to require1457disclosure of specific legal theories or evidence so that Wells1458notices cannot be weaponized.1459    Mr. Cohen. I think that is probably more appropriately1460directed to Mr. Chan who has more----1461    Mr. Davidson. Mr. Chan, my apologies.1462    Mr. Chan. As someone who has gone on both ends on a Wells1463process, I do think it would be very helpful consistent with1464what Chairman Atkins has done to reform the Wells process and1465make sure that if I am getting sued, I should know what I am1466getting sued for and I should know what the evidence is against1467me because the whole point of Wells process is so that the1468commission can hear in a fair process what--the potential1469defendant's voices.1470    So I do think that having clarity as to the evidence to1471legal theory, but also what exactly is going on. I do think1472transparency would be very much needed.1473    Mr. Davidson. Yes and we hope the commission brings that,1474but we need to pass laws to provide clarity, and we are trying1475to do that in digital assets. There are things just like the1476Wells notice that the loophole there was weaponized by the1477previous SEC.1478    In recent years the SEC's advance other legal theories,1479they were rebuked in court, even for arbitrary and capricious1480actions. So including efforts to treat decentralized finance1481protocols as securities., they held software developers and1482programmers liable for how their code was used.1483    This would be like holding Bill Gates accountable for1484somebody tracking elicit finance in Excel. I mean Excel is1485useable for all kinds of things, whatever you want to track1486with it. This is just a different version of software. What1487guardrails can Congress put in place to ensure enforcement1488actions cannot be weaponized in the future.1489    Mr. Chan. Well, first it of all, the oversight by this very1490subcommittee is actually important. I do think in terms of1491guardrails it goes back to hardwiring fairness and clarity in1492the enforcement process.1493    One of the things Congressman highlighted is the problem of1494the SEC making up standards of enforcement, even with new1495technology.1496    Chairwoman Wagner. The gentleman's time has expired.1497    Mr. Davidson. Thank you. I yield back.1498    Chairwoman Wagner. The gentleman yields back.1499    The chair now recognizes the gentleman from Indiana, Mr.1500Stutzman for 5 minutes.1501    Mr. Stutzman. Thank you, Madam Chair.1502    The SEC was created to protect investors to maintain fair1503orderly and efficient markets and facilitate capital formation,1504not to serve as a vehicle for advancing political or social1505priorities. However, under President Joe Biden and Chairman1506Gary Gensler the SEC strayed beyond its statutory mandate and1507pushed forward a large and complex regulatory agenda.1508    The result of this was hire compliance costs, reduced1509market competition and fewer opportunities for businesses to1510raise capital. Much like our banking industry, our capital1511markets are among the most heavily regulated sectors in the1512world. Therefore, it is important that regulators carefully1513calibrate their actions to address market deficiencies without1514causing undue harm.1515    Mr. Iacovella, I would like to ask you how important is it1516for the SEC to evaluate the total economic impact of its1517rulemakings and what happens when regulators move too fast1518without fully understanding the consequences?1519    Mr. Iacovella. It is extremely important to fully evaluate1520and ask the public for information so that you can quantify the1521cost, the real cost to everybody of different sizes. You cannot1522aggregate those costs and then extrapolate them on to the1523industry. People need to understand at what levels they are1524going to be impacted.1525    The unfortunate part is that when those are not done1526properly, you are left with one scenario which is to either1527comply with a rule that is faulty and that you know could1528potentially put you out of business or put a strain on1529competition or to sue and that is not good for the industry, it1530is not good for our economy.1531    Mr. Stutzman. Thank you. One of the things that we saw1532during the Gensler SEC was the departure from the traditional153360-day public comment period on a proposed rule. So this1534shorter timeline makes it harder for our--it might be feasible1535for large firms with plenty of lawyers on a retainer, but I am1536sure that for smaller firms it is much more difficult. Mr.1537Cohen, how do shorter public comment periods negatively affect1538smaller firms and independent researchers?1539    Mr. Cohen. Well, exactly for the reason that you stated,1540digesting several hundred pages of release and coming up with1541coherent views on them is just not something one does overnight1542and you have to put aside a lot of other pressing business to1543do it.1544    Mr. Stutzman. So broadly speaking, would you see a1545difference between the Biden SEC's activity and the Trump-era1546SEC?1547    Mr. Cohen. Yes and one of the market aspects of it is1548comment.1549    Mr. Stutzman. Comment?1550    Mr. Cohen. Yes.1551    Mr. Stutzman. Yes. Anything else?1552    Mr. Cohen. Well, regulation by enforcement, as has been1553mentioned. Yes. Mr. Iacovella, how about you?1554    Mr. Iacovella. Oh, I would agree. I think, cover that.1555    Mr. Stutzman. So it is much easier--I mean, it is better1556for the industry, it is better to move business along, giving1557people an opportunity to raise the capital that they need.1558    This committee's currently considering legislation that1559would guarantee a 60-day comment period with certain1560exemptions. Would this sort of policy help improve the quality1561of stakeholder feedback? Any of you could answer that.1562    Mr. Iacovella. Yes, absolutely. I think the more time that1563people have to be able to absorb, get their teams together, ask1564them how this kind of a policy would work, but let those1565business people and operational people actually understand what1566is being proposed and tell management and the legal and1567compliance folks what it is going to do to the business, that1568is how you get informed comment.1569    Mr. Stutzman. Thank you. Thank you, I yield back.1570    Chairwoman Wagner. The gentleman yields back.1571    The chair now recognizes the gentleman from Montana, Mr.1572Downing for 5 minutes.1573    Mr. Downing. Thank you, Madam Chair and thank you to the1574panel for being here.1575    As an entrepreneur, and a former regulator, I cut my teeth1576in tech venture alternatives, a lot of Reg D exemptions. Coming1577out of the space it is really exciting to me to once again have1578an SEC that cares about its core mission of facilitating1579capital formation, rather than pursuing a political agenda.1580    I am glad that this hearing is focused on ways to reform1581the SEC to ensure that the Gensler-era antics can no longer1582plague our capital markets.1583    I am going to start with Mr. Iacovella. Thank you for being1584here. Under former Chair Gensler, the SEC finalized 341585substantive rules. This exceeded the average of the three most1586recent predecessors by 36 percent matching only the financial1587crisis-era pace of former Chair Mary Shapiro. Can you discuss1588the harm caused to U.S. capital markets by rushing through so1589many rules?1590    Mr. Iacovella. Yes, I think it goes hand and glove with1591what we were just talking about, Congressman, that when you do1592not have the time and opportunity and when you have one complex1593rule, it takes a long time, and it takes a lot of resources and1594manpower. When you have a number of them coming at you at one1595time and in the case of market structure, there were four of1596them and we did not understand exactly how they were going to1597work intertwining together to change the entire market1598structure.1599    That was very problematic because it started to make people1600very nervous about what the changes were going to look like.1601Instead of actually putting comments together, people were1602contemplating whether they should just sue.1603    Mr. Downing. All right, thank you. Thank you for that1604answer. I am going to move to Mr. Cohen.1605    The SEC currently has 43 offices, yet only seven are1606established by statute. I currently have legislation noticed1607for this hearing H.R. 3318: 3318, the SEC Modernization Act,1608which reorganizes the SEC bureaucracy into just 12 offices. So1609my question is: How can the SEC's current organizational1610structure be improved so that it operates more efficiently?1611    Mr. Cohen. Well, in addition to the ideas contained in the1612legislation, in my own appendix creating a position of vice1613chair, as well as I think folding the Public Company Accounting1614Oversight Board (PCAOB) into the SEC, which is I know the1615subject of another piece of legislation.1616    Mr. Downing. Thank you. So under the SEC's previous1617leadership, market participants heavily criticized how the1618SEC's economic analyses were performed in its rulemakings,1619particularly when it came to climate disclosures and market1620structure reforms. As a former regulator, I had to deal with1621that whole issue, but my question is how should the SEC1622properly conduct its analysis for its rulemakings impact on1623capital formation?1624    Mr. Cohen. Well, we talk a lot about tone at the top and1625tone at the top is incredibly important. Chairman Atkins used1626to point out quite often when he was a commissioner that the1627SEC's estimate of the cost of Sarbanes-Oxley (SOX) 404(b) the1628order attestation was in the order of $90,000 and probably1629missed several different zeros. So I think rigor in economic1630analysis is extremely important.1631    Mr. Downing. Thank you. I want to turn now to the SEC's1632notice and comment period. Historically, the SEC is allowed at1633least 60 days for notice and comment from the public on1634rulemaking. Under Chairman Gensler, public comment periods were1635frequently shortened, concerningly enough for it to be raised1636in a 2022 Inspector General report.1637    So first, why is it important for the public to have an1638adequate time to comment on a proposed rule.1639    Mr. Cohen. Well, again, I think it is the complexity of the1640financial market simply makes it very difficult to just react1641from the hip. I can tell you from my own experience at doing1642emergency rulemaking in 2008 that input was really valuable. Do1643you think that 60 days is adequate or is more time needed?1644    Mr. Cohen. That would be interesting to see what other1645people with industry consensus is on this. Sixty days at least1646establishes a reasonable starting point.1647    Mr. Downing. There have been times when the public comments1648led to a substantial change in the SEC's final rulemaking.1649    Mr. Cohen. Absolutely. I think in the comments on the SEC's1650de-SPAC rulemaking in particular for proposed rule 140a really1651led to the SEC to pull that one back, right?1652    Mr. Downing. Well, I appreciate your responses there and I1653appreciate the panel being here. On that, Madam Chair, I yield1654back.1655    Chairwoman Wagner. The gentleman yields back.1656    The chair recognizes the gentleman from Wisconsin, Mr.1657Steil, chair of Digital Asset FT and AI for 5 minutes.1658    Mr. Steil. Thank you, Chair Wagner. I appreciate all of you1659being here today. We have got a big opportunity, and I think we1660have made real progress in turning the SEC around to its actual1661task of being there for investors rather than driving forward1662political agendas.1663    I want to cover two topics today that I think are really1664important. One is the politicization of the Gensler-era SEC,1665and have we made the reforms needed to bring us back and away1666from that in particular the Staff Bulletin 14L. I do not want1667to cover materiality and what we are doing in that regard.1668    I will start with you if I can, Mr. Cohen. Staff Legal1669Bulletin 14L really gave staff at the SEC massive authority no1670make a decision is to what had a societal policy--based on what1671was having a broad societal impact, that is the language.1672    What we saw is after the staff bulletin comes out we see a1673dramatic increase in shareholder proposals going before the1674SEC, we see this whole drive of the liberal left trying to1675drive through policy agendas, via publicly traded companies in1676the United States so they cannot move through Congress because1677no sane elected individual would support a lot of the stuff1678that they were trying to force publicly traded companies to do.1679    We finally get sanity back at the SEC. Have we done enough?1680Where are we at? Can you give us a status update.1681    Mr. Cohen. Well, certainly having rescinded Staff Legal1682Bulletin 14L really brought back the practices in this area to1683what it had traditionally been, which is it should have to have1684a connection to something company specific in the proposal.1685    Mr. Steil. But the staff that was reviewing and many of1686them are still there, does that cause concern or is the change1687in the removal of the legal memo sufficient?1688    Mr. Cohen. I----1689    Mr. Steil. Are people still operating in a politicized way?1690    Mr. Cohen. I have to be careful in answering that because1691my wife who is sitting behind me was for 10 years a staff1692member at the Division of Trading and Markets, but I can say1693that I just have enormous respect for the profession.1694    Mr. Steil. I am not saying that there are not many great1695men and women at the SEC and I would not want to disparage1696everyone there. I think it is pretty clear when you were seeing1697some of saw the rules coming out of the SEC under the Gensler1698chairmanship that it was pretty politicized. You had staff1699members who were making decisions as to whether or not1700something had a broad societal impact.1701    I do not know if Mr. Chan or Mr. Iacovella would like to1702comment on that, maybe your wife or partner is not sitting1703behind you, and you can speak broadly on this. I say that1704teasingly. Do you have concerns with some of the individuals at1705the SEC who were clearly pushing a politicized agenda1706previously?1707    Mr. Chan. I think my concern in the past years is the shift1708of cultural fairness. I do think that at the core we are1709dealing with materiality. We are dealing with a variety of1710issues. I think the north star should be creating incentives to1711get the staff back to focusing on what is fair and that1712includes trying to figure out what is material and1713understanding an investing public, also that includes making1714sure----1715    Mr. Steil. But does that cultural challenge that was1716created, I think it is highlighted by Staff Legal Bulletin 14L.1717Is that culture where people would have been--you if you were1718an individual and you came out of law school and thought boy, I1719like securities law, but man, I want to drive forward a1720wackadoodle agenda, boy the SEC might be a great spot to go1721because under Legal Bulletin 14L you could pretty much willy1722nilly make a determination as what had a broad societal impact.1723Now good we removed 14L, positive. Maybe those individuals that1724came in--again, not everybody at the SEC is of this mind-set,1725but it is pretty clear that there were some people there who1726were trying to drive forward a liberal agenda under Staff1727Bulletin 14L.1728    Mr. Chan. Yes, and I think that goes back to the culture.1729If you ask and take a poll of the frontline staff in the1730division and enforcement people, the great people I work with,1731they want to fight fraud and they want to fight securities1732fraud and they want to focus on protecting investors.1733    So I think anything that can return the staff to doing what1734they actually want to do, which is to fight fraud, would be1735great.1736    Mr. Steil. Mr. Iacovella, did you want to comment on that1737as well.1738    Mr. Iacovella. I would just say that the tone is set at the1739top and Chair Atkins was very clear about what he was going to1740use staff resources for and what he was not going to. I think1741you see a material change at the agency.1742    Mr. Steil. That is great to hear, because I think Chair1743Atkins has done a spectacular job. I think that there is a1744massive shift of tone at the top. I think you see it in removal1745of Staff Bulletin 14L.1746    You also see it in Chair Atkins and the now SEC board1747actually diving into what is actually material to the company,1748not creating and allowing staff to drive forward a political1749agenda to determine what is material. Let alone what some of my1750colleagues on the left side of the aisle want to do where they1751want write in statute that something is by definition material1752even if it has nothing to do with the company.1753    I appreciate you all being here. We have made some real1754progress at the SEC. We have got more work to do. Madam Chair,1755I yield back.1756    Chairwoman Wagner. The gentleman yields back.1757    The chair recognizes the gentleman from New York, Mr.1758Garbarino, who is the vice chair of the subcommittee on Capital1759Markets. 5 minutes.1760    Mr. Garbarino. Thank you, chairman. Thank you very much for1761having the hearing today and thank you to the witnesses for1762being here.1763    U.S. institutional investors, including pensions funds,1764asset managers and insurance companies invest and trade across1765global markets, often they do work with foreign broker dealers1766to access the deepest liquidity outside of the United States.1767SEC's cross border broker framework, including rule 15a-6 was1768written decades ago and generally requires foreign brokers to1769operate through a registered U.S. intermediary. While intended1770to protect investors, market participants say these1771requirements can create unnecessary costs and friction at1772sophisticated institutions and may put U.S. investors at a1773competitive disadvantage.1774    By contrast, Commodity Futures Trading Commission (CFTC)1775uses equivocal frameworks that allows certain well-regulated1776foreign firms to serve U.S. participants without duplicating1777full U.S. registration. Markets are now far more interconnected1778and cross border trading is more common. There is a growing1779discussion about whether a similar modernization could be1780considered on the security side.1781    Mr. Chan, are there areas where the SEC could focus to1782allow U.S. institutional investors more efficient access to1783broader global liquidity in non U.S. markets through well-1784regulated foreign broker dealers such as equivalency regimes1785with major similarly regulated jurisdictions.1786    Mr. Chan. Absolutely, I call this the four corners of1787global interoperability. The SEC can do a better job on1788ensuring that investment products can be acessible seamlessly1789and internationally; professional licensing can easily be1790clarified and simplified--the reporting regime and also the1791examination. There can be a lot of work done with other1792regulators, globally, that can make international trading and1793investment securities much easier. As someone who worked with1794my partners on other jurisdictions, the key is the SEC1795understanding to what else is going on in the rest of the1796world.1797    Mr. Garbarino. You just answered any follow up question, so1798I appreciate that very much.1799    I am going to switch some gears here. Chairman Atkins has1800recognized that the SEC's rule book has become bloated and is1801an obstacle to growing our markets, to address that problem1802created over the past 5 years the chairman has noted that the1803SEC rulemaking agenda includes a number of proposals to reduce1804compliance, burdens and facilitate capital formation.1805    Recent years the SEC adopted deeply problematic fund1806related rulemakings, example under former Chair Gensler is in18072023, funding. The 2023 fundings rules amendments which the SEC1808estimated would affect 76 percent of funds and introduced new1809compliance costs and operational complexity for funds. Those1810added burdens would ultimately be passed on to American savers.1811    Mr. Cohen consistent with the SEC's goal of reducing1812unnecessary burden how should the commission or staff address1813those rulemaking excesses.1814    Mr. Cohen. Well, I think the proposal that Chairman Atkins1815has made to revisit for example regulation S-K and much that is1816in it is very welcome. One thing you will note is that he1817articulated the concern about too much disclosure overwhelming1818people. I think that is a long-standing concern that many SEC1819chairman have articulated.1820    Mr. Garbarino. I appreciate that. I know I have two more1821questions, but I think I am going to yield back so Mr. Ogles1822can get some time.1823    Chairwoman Wagner. I appreciate that. The gentleman yields1824back. Votes have been called about 6 or 7 minutes ago. Mr.1825Ogles, I appreciate, please submit whatever you have in writing1826for the panel.1827    I would like to thank all our witnesses for your tremendous1828testimony today.1829    Without objection, all members will have 5 legislative days1830to submit additional written questions for the witnesses to the1831chair. The questions will be forwarded to the witnesses for1832their prompt response. Witnesses please respond no later than1833March 11, 2026.18341835    [The information referred to can be found in the appendix.]18361837    This hearing is adjourned.18381839    [Whereupon, at 3:36 p.m., the subcommittee was adjourned.]18401841                                APPENDIX18421843                              ----------18441845                   MATERIALS SUBMITTED FOR THE RECORD1846[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]18471848                                 [all]