Jay Clayton won’t be sitting on his hands during his last month as the SEC Chair

On November 16, 2020, Jay Clayton, Chairman of the Securities and Exchange Commission, announced that he would be stepping down at the end of the year after 3 years and 238 days on the job.

The announcement did not say where Clayton is headed next. But his departure was expected.

Clayton was sworn in on May 4, 2017, and will be leaving the SEC as one of its longest-serving Chairs behind just John Shad (6 years 12 days), Manuel F Cohen (4 years 186 days), Harold M Williams (3 years 316 days), and Mary Jo White (3 years 265 days).

During Chairman Clayton’s tenure, the Commission:

• brought over 2,750 enforcement actions,
• obtained more than 14 billion in financial remedies, including a record $4.68 billion in fiscal year 2020,
• distributed approximately $3.5 billion to harmed investors,
• paid out approximately $565 million to whistleblowers, including a record $175 million to 39 whistleblowers in fiscal year 2020 and the largest single award in the program’s history ($114 million).

Clayton also oversaw a historically productive rulemaking agenda, advancing more than 65 final rules to date (including 86% of near-term initiatives), many of which modernized and improved rule sets that had not been reviewed and updated in decades.

• Substantially enhancing, through Regulation Best Interest, the standard of conduct required for broker-dealers when dealing with retail customers, and clarifying the fiduciary duties owed by investment advisers to their clients;
• Simplifying, improving, and harmonizing the “patchwork” exempt securities offering framework utilized by smaller and medium-sized businesses and startups;
• Facilitating the ability of companies to transition to public status subject to strong investor protections, including through modernizing and simplifying corporate disclosures (including financial disclosures), expanding the scope of smaller public companies that qualify for scaled application of disclosure and other requirements, and expanding JOBS Act benefits to additional public companies while generally improving the review process for initial offerings;
• Increasing protections for retail investors against microcap fraud by modernizing the rule governing quotations in over-the-counter securities and issuing guidance regarding omnibus accounts;
• Enhancing the Commission’s whistleblower program rules to add clarity, transparency, and efficiencies, allowing the Commission to get larger awards into the hands of whistleblowers at a faster pace;
• Enhancing transparency in trading, including specific initiatives in alternative trading systems and the municipal bond market.

Under Clayton’s tenure, the SEC pivoted to deal with several unanticipated issues affecting investors and markets.

Beginning in 2017, U.S. capital markets experienced a sudden proliferation of initial coin offerings (ICOs), products that, while potentially representing new frontiers in finance, also attracted substantial fraudulent activity. Under Chairman Clayton’s leadership, the agency acted quickly and decisively to combat fraud and pave the way for innovation. Working together, the Division of Enforcement – including:

• Established a new Cyber Unit in the Division of Enforcement focused on violations involving digital assets and cryptocurrency, cyber-related trading violations such as hacking to obtain material nonpublic information, and cybersecurity disclosures and procedures at public companies and financial institutions.
• Brought 56 cases involving ICOs, blockchain or distributed ledger technology, and/or digital assets since the July 2017 issuance of an investigative report regarding the offers and sales of digital assets. Among others, cases involved efforts to defraud investors through the use of digital asset securities as well as violations of the registration provisions of the federal securities laws in the offer and sale of digital asset securities.
• Halted 18 suspected frauds involving blockchain or distributed ledger technology and/or digital assets.

And in 2020, Chairman Clayton and his team of talented Division and Office leaders effectively steered the agency through the challenges posed by the COVID-19 pandemic, placing a priority on the health and safety of agency employees and market participants while seeking to ensure the integrity of the securities markets. While maintaining investor protection efforts during the COVID-19, the commission:

• Suspended trading in the securities of 36 issuers in connection with inadequate or inaccurate information in the marketplace in connection with the virus, followed by six fraud cases involving false and misleading claims relating to COVID-19.
• The Office of Compliance Inspections and Examinations (OCIE) remained fully operational nationwide and, with adjustments to take into account health and safety measures, business continuity plans, firm-specific operational matters, and other factors continued to execute on its investor protection mission.
• Issued a risk alert for registered entities highlighting operational, technological, commercial, cybersecurity, and other challenges caused by COVID-19.
• Issued investor alerts outlining the types of frauds Main Street investors should be especially wary of during COVID-19.

More detail on the scope of the Commission’s work is available here.

Jay Clayton, who was largely seen as a champion for Main Street investors, providing more investment opportunities for them through public and private offerings, doesn’t plan on sitting on his hands during his last month in the office. In an interview with CNBC on November 19th, Clayton said he wants to take a closer look at blank-check companies on his way out the door.

Clayton stated that his agency is exploring how to improve disclosures for special purpose acquisition companies, or SPACs, that have become all the rage on Wall Street in 2020.

SPACs are blank-check companies with no operations that go public to acquire or merge with a private company utilizing the proceeds of the SPACs Initial Public Offering. After the acquisition, the SPAC is usually listed on one of the major stock exchanges.

Being acquired by a SPAC is essentially a faster, less burdensome, and less expensive way for a company to go public.

A total of 59 SPACs went public in 2019, setting a modern record. In 2020 so far, 159 SPACs have hit the market, raising more than $66 billion in total capital.

Because of the massive growth in 2020, Clayton believes that the SPAC market needs a deeper look from regulators. Currently, SPACs are built more to benefit sponsors than investors. More clarity may be required to protect investors from the sponsors.

Clayton is also closing out his term by lending support for amending the 10b5-1 trading plan to provide for a “cooling off” period when company executives can sell their shares – a reaction to some of the controversial sales by pharmaceutical executives this year. This builds on what he said during a Senate hearing on November 17th that there should be a time period of up to six months from when a trading plan is established for an executive to the time the securities can be sold.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
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www.SecuritiesLawyer101.com