A New Day at the SEC: Restoring Accountability, Due Process, and Public Confidence

The subcommittee on Capital Markets will come to order. [Gavel sounds.] And without objection, the chair is authorized to declare a recess of the committee at any time. Today's hearing is titled A New Day at the SEC: Restoring Accountability, Due Process, and Public Confidence. Without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. And before I recognize myself for an opening statement, I do want to inform our witnesses who so graciously appeared here today along with both majority and minority that we are going to have a this is going to go quickly here. A hard gavel and they've moved up votes to around 3:30 or so and then we're recessed. So it's just this is going to be it will not be possible for us to come back. So we're going to move through this as quickly as we possibly can. So I appreciate everyone's indulgence and certainly their their valued time. So, good afternoon. And I want to thank our witnesses again for all those in attendance for joining us here today. This hearing is part of an ongoing effort by the subcommittee to examine how effectively the Securities and Exchange Commission is executing its congressional mandate and to ensure our regulatory framework supports rather than stifles the world's strongest capital markets. For several years, the SEC drifted away from the principles that have long made our capital markets work. Rulemaking accelerated without sufficient economic analysis, enforcement actions increasingly replaced clear rules, and decisions of enormous consequence were made with too little transparency or accountability. That period raised serious concerns among public companies, Main Street investors, small businesses, and entrepreneurs about whether the SEC was faithfully serving its statutory mission. This hearing is not about relitigating the past. It is about ensuring the future of the SEC is grounded in the rule of law and respect for due process. Under Chairman Paul Atkins, the commission has begun the hard work of righting the ship, restoring internal discipline, and recentering the agency back to its core statutory mission. We welcome that progress. But progress alone is not enough. Lasting reform requires durable guardrails, and that is where Congress must lead. First, we must restore integrity to the SEC's rulemaking process. Rules should not be rushed, stacked on top of one another, or justified by speculative benefits with real costs are ignored. Notice and comment is not a box to check. It is a foundation of administrative law. Rigorous cost-benefit analysis is not optional or cut and paste. It is essential to ensuring that rules actually serve investors and markets rather than undermine them. Second, we must end regulation by enforcement. The SEC is a civil enforcement agency, not a policymaking substitute for Congress. Market participants deserve clear rules of the road before they are punished for crossing them. Enforcement should target fraud and clear violations of established rules, not serve as a substitute for notice and comment rulemaking or expand regulatory authority beyond what Congress has authorized. Third, we must address the SEC's structure and internal decision-making. Over time, authority has drifted away from the commission itself toward staff-level actions that lack transparency and accountability. Structural reform is necessary to ensure major policy decisions are made by accountable officials and subject to proper oversight. That is why this subcommittee is examining targeted legislative reforms, including proposals to strengthen economic analysis requirements, reinforce meaningful public comment periods, clarify enforcement standards, and modernize the commission's structures so it operates efficiently and within its statutory bounds. Let me be clear. These reforms are not about weakening the SEC. They are about making the agency stronger, more credible, more predictable, and more faithful to the law. Today's witnesses will bring deep experience from inside and outside the commission. I look forward to restoring accountability, due process, and public confidence in the commission. And now the chair recognizes the ranking member of the subcommittee, Mr. Sherman, for four minutes or four? What are we? Do you want four minutes or five minutes, sir?

I'll take five minutes if she shows up in the next minute.

Okay. Mr. Sherman for five minutes for an opening statement.

The title of this hearing implies that things at the SEC have gotten better over the last year. I would beg to differ. I agree that we should not have regulation by enforcement. Why? Because if you actually write a regulation, it's clear, it reflects public input, it applies to everyone, and it's pretty stable. That is to say you get a new chair of the SEC, those regulations are still on the books. And we should both regulate and adjust regulation and deregulate by following the Administrative Procedure Act. Instead of regulation by enforcement, we have now deregulate deregulation by non-enforcement. We also have deregulation by capitulation. Well, what does that mean? It means you know, we're dealing here with regulations that affect billions and hundreds of billions of dollars. And so there's a lot of money for a lot of lawyers to contest these regulations. So somebody brings a a case challenging a regulation, and instead of defending the regulation, the SEC erases the regulation not by going through the Administrative Procedure Act, but simply tossing in the towel in the litigation. So you get deregulation by capitulation. You then get deregulation by pardon. And this is certainly the most troubling aspect. You've got Justin Sun buys $100 million worth of Trump Coin and then all of a sudden the investigation ends, the the trial is dropped. You've got the Tyler and Cameron Winklevoss where the SEC terminates its lawsuit because these folks are very close to Trump. You've got Ripple Labs again, the SEC drops the appeal of the case after a multi-million dollar donation to the Trump ballroom and the inauguration committee. And then finally you have Mr. Zhao over at Binance, actually convicted of a crime, gets pardoned and you know, the we'll never know how much Trump Coin was purchased. But keep in mind, every dollar that you spend buy quote buying Trump Coin can be secret. You can disclose it to one or two aides to the president and all the money or big, big chunk of it goes to the Trump family. Now, I'm going to be a bit facetious here, but this SEC is demonstrating a hatred for Donald Trump. Because for this process to work, it starts, it started with Gensler enforcing the laws. And so then you have somebody who has an who buys the Trump Coin and then the investigation is dropped or the convict is pardoned. But what has happened here is that the SEC has cut its enforcement by staff by about 20 percent. Well, what that does is it cuts Trump's income by 20 percent. There are fewer people charged, fewer people who have to buy Trump Coin, fewer people that can get the pardon or see their or see the investigation stopped. And this also and more seriously has had an adverse impact on our ability to police Wall Street. Defunding the police is not a good idea, and that is what we have defunded when we're going after crime in the suites. In 2024, the SEC levied $8.2 billion in fines, returned $3.2 billion to investors. What we've seen in 2026 is that's one-tenth the fines, less than half the average amount of fines looking over the last 10 years. The as I've mentioned, the enforcement staff's been cut by 20 percent. Finally, we have a unipartisan SEC because when a Democrat leaves the SEC, no Democrat is replaced. For as long as I've been here, which goes back to the days of Moses, we have always had the minority party with two seats. We need genuine Democrats, not just people who change their party affiliation a week before they were appointed, appointed to the SEC. And if there's not going to be any Democrats on the SEC in the Trump term, what's the next Democratic president going to do? I yield back.

Gentleman's time's expired. I now recognize the chairman of the full committee, Mr. Hill, for one minute for an opening statement.

Thank you, Chair Wagner, and I appreciate the panel being with us today. The SEC plays a critical role in ensuring America's capital markets or remain the envy of the world. However, during the Biden administration, many market participants raised concerns about the bureaucratic overreach of that administration and particularly regulation by enforcement at the commission. Accountability must be restored at the SEC by ensuring the commission follows the proper notice and comment procedures, produces rigorous cost-benefit analysis, and re-examines its enforcement process. These actions will restore public confidence, create transparency, and increase stakeholder engagement. Under Chairman Atkins, we've seen significant progress in returning the SEC to its core mission of facilitating capital formation, protecting investors, and maintaining fair, orderly, and efficient markets. I look forward to the discussion today and I thank the chair for yielding. Yield back.

Gentleman yields back. And today we welcome the testimony of Mr. Peter Chan, a partner at Baker McKenzie; Mr. Alexander Cohen, partner and co-chair of the National Office of Latham and Watkins; Mr. Chris Iacovella, the president and CEO of the American Securities Association; and Mr. Ben Schiffrin, director of securities policy at Better Markets. We thank each of you for taking the time to be here. Each of you will be recognized for five minutes to give your oral presentation of your testimony. And without objection, your written statements will be made part of the record. Mr. Chan, you are now recognized for five minutes for your oral remarks.

Thank you, Chair Wagner, Ranking Member Sherman, and distinguished members of the subcommittee on Capital Markets. I'm Peter Chan and I'm a partner at the global law firm of Baker McKenzie. The views I express in this testimony are my own. I testify today on how best to ensure a culture of fairness at the SEC through concrete steps that will preserve the good work already begun under the leadership of SEC Chairman Paul Atkins. My perspective is informed by decades of experience as a securities attorney, including close to 20 years at the SEC's Division of Enforcement. At the SEC, I had the privilege of working alongside commission staff members who are hardworking, intelligent, and absolutely dedicated to the SEC's mission to protect the investing public. And being fair has always been part of the ethos of the staff I worked with at the SEC. But in recent years, the commission has lost its way when it comes to fairness. For example, the SEC has engaged in regulation by enforcement by setting de facto rules through enforcement actions without fair notice, as documented by a white paper I co-authored with my friend and former colleague Valerie Merkel for the Financial Services Institute. A recent example is the SEC's off-channel communications initiative involving the deployment of just about the entire enforcement staff to pressure over 100 financial firms to settle over $2 billion in penalties even when there was no evidence of bad faith. Ironically, the commission itself was unable to comply with the same stringent standards that the SEC is enforcing against the industry, as evidenced by the avoidable destruction of text messages of the then SEC Chairman Gensler. And this is also the well-documented attempt to use enforcement actions to stifle innovations in digital assets and blockchain technology. To pressure parties to settle cases where the SEC may not prevail in court, the enforcement staff has also engaged in unfair practices, such as threatening burdensome investigative requests or unwarranted outreach to customers if parties do not agree to settle. Despite the searing lessons from Madoff, the enforcement staff has been incentivized in recent years to pursue cases involving esoteric theories and large penalties that generated headlines, such as the off-channel communications initiative. The staff thus failed to focus limited SEC resources to detect, prevent, or stop at inception traditional intentional fraud schemes, cases that would have garnered little publicity but protected investors. The SEC should be focusing on getting rid of burdensome regulations that no longer make sense. Instead, the past commission engaged at a breakneck pace to promulgate rules, resulting in an unfair process and bad rules. Thankfully, Chairman Atkins is righting the ship and returning fairness to the commission. He has issued key policy statements to reform enforcement, he has launched initiatives to reduce unnecessary regulatory burdens. But it is difficult to correct the course of an aircraft carrier, and there's no guarantee that future leadership will not deviate from the path of fairness. The commission should thus establish clear rules to hardwire fairness into the SEC's culture. An independent advisory committee of outside experts, a Wells 2.0 committee, can help the SEC further identify methods to align staff incentives to revitalize the SEC's culture of fairness. And better yet, legislation, including legislation currently proposed by members of this subcommittee, can ensure that fairness will always be part of the SEC's DNA. Thank you again for the opportunity to testify today. I'm happy to answer any questions.

Thank you, Mr. Chan, and thank you for beating the clock. Mr. Cohen, you are now recognized for five minutes for your remarks.

Chair Wagner, Ranking Member Sherman, and members of the subcommittee. Thank you for inviting me to appear before you today. I've been practicing as a securities lawyer for nearly 36 of my 38-year legal career. During this time, I had the honor to serve as the SEC's Deputy General Counsel for Legal Policy and Administrative Practice, a fancy title that basically means I was responsible for the regulatory program, and later as the SEC's Deputy Chief of Staff to then Chairman Christopher Cox. This experience has led me to two overarching conclusions about the U.S. securities laws. First, the U.S. securities laws have been remarkably successful in making the United States the gold standard of securities regulation. Second, in the nearly 93 years since the passage of the Securities Act of 1933, the securities regulatory system has accumulated numerous features that, like barnacles on the hull of a ship, serve only to slow down progress. Congress now has the opportunity to sandblast some of these regulatory impediments off, and I'm very grateful to the subcommittee for the opportunity to come to add some sand to that undertaking. In the appendix to my testimony, I describe a package of 10 improvements that Congress can make to SEC functioning and U.S. securities regulation, organized into four broad categories: modernizing the SEC structure, improving the SEC's regulation of public company accountants, reining in SEC regulatory overreach, and eliminating regulatory inefficiencies and failed initiatives. I recognize that my proposals range from the far-reaching to the quite technical, but I'm convinced all would help assure that the United States retains its position as the leader of global securities regulation. I welcome your questions.

Wow. Well done, Mr. Cohen. All right. You're pretty wordy, Iacovella, I don't know. So we'll see, Chris. You're now recognized for five minutes for your remarks.

Thank you, Chair Wagner, Ranking Member Sherman, and members of the committee for the opportunity to testify today. The ASA is a trade association of American financial services firms whose mission is to promote investor trust and confidence and support competitively balanced financial markets. And we strongly support the SEC returning to the mission that Congress gave it. Congress created the SEC in the wake of the 1929 stock market crash to restore Americans' faith in our capital markets. And for much of its history, the SEC did just that, becoming the world's preeminent securities regulator. However, since the 2008 financial crisis, a concerning trend has emerged. The SEC has increasingly acted outside the scope of its authority to pursue partisan political policies. The pendulum on hot-button political and cultural issues has swung from administration to administration, and this has turned the historically apolitical and technocratic agency into an unelected political actor. This injection of politics into our capital markets has created uncertainty for companies and their shareholders, and it's led to a multi-year transfer of wealth from American investors to a professional class that profits from unauthorized regulation. The SEC needs to be an objective regulator focused solely on its statutory mission, not one that caters to special interests regardless of where they sit on the political spectrum. Congress can end the SEC's mission drift by reasserting its policymaking prerogative over the agency. By that I mean, if Congress cannot agree on the details of a policy issue, then language about that policy should not be in the legislation. And the legislation should not include broad, opaque, or public interest language that allows unelected individuals to make policy decisions. Congress's delegation of its power to the administrative state has gone too far for too long, and it's the central reason the agency has become so politicized. If Congress doesn't reclaim its power now, then it risks sending letters that go unanswered and complaining about policies it did not authorize. And that's certainly not what the framers envisioned when they gave you the power to make law. Now I'll briefly summarize the rest of my testimony. First, the commission's delegation of policymaking authority to career staff must end. This is appropriate solely for administrative matters but not policy decisions. Second, career staff must obtain commission approval to initiate industry-wide sweeps. This power is too great to be delegated to unaccountable career staff. Third, the public deserves a minimum 60-day comment period for rule proposals and at least 90 for complex rules. Fourth, the SEC needs to publish a transparent fine schedule for administrative rule violations such as recordkeeping so the public understands how fines are calculated. Fifth, enforcement staff must be held to the same ethical standard as every other licensed attorney. Having staff sanctioned for lying to federal courts and having to dismiss dozens of cases because staff acted improperly erodes the public trust in the agency. To change this, senior leadership in the enforcement division should have securities experience, not just prosecutor experience. Sixth, SEC rules must respect cost-benefit analysis that Congress required. Using random unjustified costs and saying, quote, "we are unable to reliably quantify the potential benefits and costs of a rule," end quote, is unacceptable. This disregards a congressional directive specifically designed to stop unjustified rules from harming the economy. Seventh, SEC rules must be authorized by Congress. The public should not be subject to a comply or sue scenario. Lawsuits are costly and repeated court losses damage the agency's credibility. Eighth, rule filings from FINRA and the MSRB should be sent directly to the commission. They should not be subject to pre-negotiated sign-offs by career staff before going to the commissioners. Ninth, the SEC's unauthorized delegation of its core functions to SROs must end. These delegations circumvent the appropriations process and they impose open-ended costs on the industry that should be on the agency's budget. An example of this is the SEC's delegation of CAT to the SROs, which required the industry to fund a multi-billion dollar regulatory surveillance scheme that illegally collects the personal and financial information of every American investor. Tenth, Congress should revisit the current structure of the agency to insulate it from partisan political pressure. And while there are many ideas, one might be that the commission should be evenly divided with permanent co-chairs, one from each party. Thank you again for the privilege of testifying today and I look forward to taking your questions.

I thank you, Mr. Iacovella. Mr. Schiffrin, you are now recognized for five minutes for your remarks.

Good afternoon, Chairman Hill, Chairman Wagner, Ranking Member Sherman, and members of the subcommittee. Thank you for the invitation to testify today. My name is Ben Schiffrin and I am the director of securities policy at Better Markets. Better Markets is a nonprofit, nonpartisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support reforms of Wall Street, and make the financial system work for all Americans. For 90 years since its creation in 1934, the mission of the Securities and Exchange Commission was to protect investors. And it has done so by acting as an independent agency. But in 2025, under current SEC Chair Paul Atkins, the SEC's mission changed. Chair Atkins views the SEC as an arm of the administration, and his SEC exists to protect the financial industry. Chair Atkins may be ushering in a new day at the SEC, but he is not returning the SEC to its roots. Chair Atkins is turning his back on the SEC's historic mission of investor protection. The SEC has spent the last year curtailing the rights of investors in public companies, endorsing the sale of risky and expensive private market assets to retail investors, promoting the crypto industry relentlessly, reducing enforcement to its lowest levels in a decade, dismantling the database it uses to catch crooks, and revisiting, delaying, or abandoning rules to protect investors. These actions have profound consequences for investors, markets, and our economy. The SEC's determination to prioritize the interests of Wall Street and corporate management comes at the expense of investor protection. It has fundamentally altered the relationship between public companies and investors. The SEC has limited the ability of investors to have a say in how the companies they own are run, such as the small group of nuns in Kansas who, according to NPR, estimate they have filed over 350 shareholder resolutions over 20 years because they want to advocate for change at the companies in which they invest. The SEC has also made it harder for such investors to seek redress for corporate misconduct. And it is poised to significantly reduce the information investors receive about the companies they own. This transformation of the SEC's priorities and its broad-based attack on disclosures, rights, and remedies will hurt all investors, including institutional investors. State and local pension funds, private retirement funds, and individual retirement accounts will also suffer as they get less disclosure, less protection, and fewer remedies and chances to recover losses. At the same time as the SEC is making it harder to be an investor in public companies, it is making it easier for private market firms to solicit retail investors. Private market assets have long been considered risky for retail investors because they lack the disclosures that a company publicly offers securities. The recent bankruptcy of investment platform Linqto highlights the perils for retail investors in the private markets, with Bloomberg reporting that the bankruptcy has left thousands of retail investors with frozen savings. Even the so-called accredited investors to whom private markets are sold complain about the lack of transparency in the private markets. And the reason private market firms now want access to retail investors is that, due to problems in the private market, money from institutional investors is drying up. For example, the New York Times recently reported that Yale University's endowment and New York City's public worker pensions recently sold their stakes in some private equity funds at discounted prices to get cash back. Under the guise of democratizing access to these securities, the SEC is trying to steer retail investors into the private markets at the same time institutional investors are pulling back from assets that offer greater risk and lesser returns. These actions will not only hurt investors but will also harm our markets and our economy. Our capital markets are the envy of the world, but that is because they are well-regulated and well-policed. Investors have faith and confidence in them. This has been our competitive advantage for almost a century and has drawn trillions of dollars worldwide into the U.S. markets. That will change as the U.S. retreats from protecting investors and enforcing the law to exploiting investors and protecting the industry. As investors' rights and protections are stripped away, investors will look elsewhere to invest their money. That will hurt the economy because there will be less money invested in the U.S., leading to fewer jobs and businesses. So under this SEC, Wall Street and management win, but investors, markets, and our economy lose. Thank you and I look forward to your questions.

Thank you, Mr. Schiffrin. We will now turn to member questions and I recognize myself for five minutes of questioning. Mr. Cohen, members of this committee have repeatedly warned that 30-day comment periods are inadequate for understanding and providing meaningful replies for proposals that are hundreds of pages in length sometimes. This is not just a partisan concern. In October 2022, 12 Senate Democrats wrote to the commission warning that these compressed windows were undermining the democratic process. How would a statutory 60-day minimum comment period shift the process from ...a check the box exercise to a genuine dialogue fulfilling the original intent of the Administrative Procedures Act.

Well, thank you, Chair Wagner. I think that would be very helpful. The comment process, as anyone who's been involved in it from the SEC side can tell you, yields a lot of really interesting, important feedback, sometimes very critical, but that of itself is often very useful. Just to cite an example that I was involved in, the SEC's SPAC de-SPAC rules, in particular proposed rule 148, were the subject of considerable amount of criticism. And that was very complicated stuff. You just couldn't do it in 30 days. So I think 60 days is a very good idea.

Thank you. Mr. Chan, this committee will work to ensure that the progress made to restore a materiality-based approach to SEC regulation and enforcement is permanent and cannot be reversed. In your view, would codifying the SEC Regulatory Accountability Act, for instance, which requires definitive problem identification before rulemaking, provide the necessary guardrails to prevent a future administration from reverting to regulation by enforcement?

Chair Wagner, your question very astutely identified the age-old problem of the phenomenon of solution looking for a problem. And I do think that having statutory guardrails to make sure that there's actually a material problem or an issue that needs fixing would very much assist the SEC in focusing on fairness and going after fraud. I think in terms of the answer on regulation by enforcement, it will help, but I note one of the problems is that when there are guardrails on rulemaking, that's when temptation to regulate by enforcement is the greatest. So I do think combined with policies and rules that will limit regulation by enforcement, I think is the key.

Thank you. Mr. Iacovella, in your testimony, you suggest that Congress itself may bear some responsibility for the SEC drift, particularly when statutes delegate broad discretion or rely on open-ended public interest standards. From your perspective, how can Congress write clearer, more durable securities laws that constrain regulatory overreach while still giving the SEC enough authority to respond to real market risks?

Thank you for the question. I think this body did just that with the JOBS Act. In Title I, you made it self-effectuating. And as soon as it was passed, companies started to IPO using that. What didn't happen in the rest of the JOBS Act were the other titles, general solicitation and crowdfunding. Those took a lot of time with SEC comment, and they were watered down in a way that was not negotiated in a bipartisan way in this body at the time. So having language that takes effect immediately upon being signed by the president is very important because it bypassed the rulemaking process, and you can give them some time to review that after a two to three-year period to see if the correction, if there are corrections that are necessary to improve processes.

Would you like to expand on any of the, how many did you have, 10, 12 different recommendations for this esteemed committee to consider legislatively?

I would add one point on the comment period, and I think you were noting it. It really harms small businesses who don't have an army of lawyers or a lot of legal budget to be able to outsource to comment on a complex rule in a 30-day timespan. And that's why it's necessary to be at least 60.

Yes, and I'm tired of cut and paste costs and benefits where we do not hear the truth about the costs and or the benefits. So thank you very much for the testimony. I now recognize the ranking member of the subcommittee, Mr. Sherman, for five minutes for questions.

Thank you. I kind of made a mistake in my opening statement because I mentioned deregulation by non-enforcement, deregulation by capitulation, and deregulation by pardon, and I forgot deregulation by tweet. We have seen the president of the United States say that shareholders shouldn't be able to put forward proposals to committees and that you shouldn't be able to hire an advisor as to how to vote your shares, although the company is free to hire five or 10 law firms on their side. And then we see, and this is I think the most extreme thing, the president say we should get rid of quarterly financial reports. What an insane idea. Obviously, rumor mills are going, whoever picks up the rumor is going to be in a stronger position, and those who are relying on official reviewed or audited financial statements are going to be in a worse position. There are two areas where I think the SEC should be acting and just refuses to act. One of these is the Small Business Investor Capital Act, which is there to correct how they calculate expenses so that small business, so that business development corporations can be, as a practical matter, included in mutual funds. This committee has passed this bill over and over again, and the SEC sits and does nothing. In addition, this committee has done much to try to save some trees by providing for e-delivery. As I have commented here before, e-delivery is sometimes better because if you get it on paper, you tend to throw it away. Whereas if you get it on electronically and you happen to have some extra time, perhaps you're at a hearing and looking for something to read, you can go back and find it and read it. But this committee has acted again and again. It's time for the SEC to do its job. I agree with the chairwoman about the need for more than 30-day comment period on major regulations. But I disagree with what she mentioned and what others have mentioned, and that is materiality having nothing to do with anything other than earnings per share. Mr. Schiffrin, is there something illegitimate about an investor who thinks that greenhouse gases or conflict diamonds are material to their decision as to where they want to invest?

Thank you for the question. No, I think there is a lot of information besides financial information that's material that can inform the investment decisions that investors want to make, and certainly things like the effect of climate change on a company's operations would be one of those things.

Now, I think one of our witnesses has suggested the idea that we permanently have an evenly split SEC. I find that intriguing. It's probably a good idea. But at least we've had a situation where there would be two from the minority party. Congress structured the SEC to be an independent, bipartisan regulator. Yet we were down to one Democratic commissioner for 12 months, and now we're down to zero, and there's no end in sight. Mr. Schiffrin, why is it important to have two Democrats on the SEC and a bipartisan board?

Well, because you need a diversity of viewpoints on the commission that's going to not only make the commission's rules better in the long run, but also more durable in the long run. And I think Congress is kind of a good example. My perception is that Congress tries to do everything on a bipartisan basis. And I think it would be better for the SEC to do that as well. That way, if another administration comes in, it's going to be way harder to undo something that was passed 5-0 versus 3-0 or 3-2.

Then we had this with the CFPB in discussions as to whether to have a board or an individual. Those who wanted the most extreme actions taken went with the single member. And so we had a single person making the decisions. Now we have a single person erasing all the decisions. Well, actually, they've erased the board altogether. And there's something to be said for moving the pendulum less in one direction and less in the other. And I yield back.

Gentleman yields back. The chair now recognizes the gentleman from Arkansas, the chairman of the full Financial Services Committee, Mr. Hill, for five minutes.

Thanks, Chair Wagner. And again, appreciate the panel being here. I've spent really almost three decades as a registered person, the last 10 years not registered, but I reflect back on that. I was NASD FINRA registered since 1986. I was chairman of the District Business Conduct Committee in New Orleans, District 6. I was on the Small Firms Advisory Board. I've been a corporate director for public company. So I spent a lot of my life with the '33 and '34 Acts and all the great work all of you have advocated for. But one of the things as a CEO, a managing general principal with three different firms that just irritated the absolute tar out of me is this idea that we're going to start with enforcement before we inform anybody of what it is that we're trying to solve. And I want to visit with Mr. Iacovella because this one really burns me up because it's a classic example where people assert that if they don't correct this immediately, our world will come to an end, it'll cease spinning on its axis. So the government decides to shut down the economy during COVID-19. None of us knew what was going to be the, we were here, we didn't know what the real result of all this was. We were dealing with the crisis in real time, just like the private sector was. But so people who were financial advisors, registered broker-dealer employees were sent home. And I don't think they were told not to ever talk to their customers again. And so they were sent home and they probably had a VPN to dial into a laptop that maybe was company-owned, maybe it wasn't. And a lot of people in the modern world don't have a landline, so they were talking on their cell phone. And this is the case for everyone here, all the members of Congress, exactly the same situation. Not ideal. But here comes the commission suddenly in 2021 and suddenly dreams up this idea that, oh my god, there are people with off-channel communications. These registered broker-dealers are not storing every text message. Clearly, this is a violation of the communications rules, the correspondence rules, the approval by a principal of anything you say to a client rule. And they began to enforce that. And I don't think my friends on either side of the aisle really appreciate how outrageous this was. Starting with the C-suite, we want all your texts, we're going to write you a letter, our lawyer's going to contact you, and if you don't give us all your texts and access to your phone, we're going to then, I guess, take action against the firm. And it resulted in billions and billions and billions of dollars of fines for these firms for something that all you had to do was say in a notice to members under FINRA or under a proper rulemaking from the SEC, we believe now in the modern age that we want to collect and treat as correspondence, treat as principal-approved communication, texting or emails or even a telephone call on your personal phone because you were sent home from your office, so no, we're not recording it. And there's nobody here that would dispute that. But instead of publishing a notice to members, we just start fining people. And yet we have a chairman of the SEC who has lost his text messages that we've subpoenaed from this committee for. So the hypocrisy is not lost on me or on the Inspector General at the SEC. So Mr. Iacovella, how do we get this back on track? Firms want to do good faith compliance. All you have to do is tell a firm, here's our expectation, here's the timeframe, and we want you to comply. How did the scale and structure of these penalties affect perceptions of fairness and credibility at the SEC?

Thank you, Congressman. I think what you said is exactly what should have been done. There should have been a notice to the industry that said, we understand there were extenuating circumstances during COVID and that people communicated through texting. We would expect you before the next examination to collect all that information and have it ready. And if you don't, then there better be a good reason why, and you could be subject to fines as a result of that. But that's not what happened. What happened was...

I go into the detail because I think it's a perfectly good case study about exactly what we're talking about today under the leadership of Ann Wagner. And I would say what hypocrisy that the chairman of the SEC cannot produce and retain his own text messages for review by this committee. Yield back.

Chairman yields back. And the chair now recognizes the gentleman from California, Mr. Vargas, for five minutes.

Thank you very much, Madam Chair and ranking member. And especially I want to thank the witnesses today. Mr. Cohen, you set up a very provocative analogy. You set up this analogy of a ship that has barnacles on it and it's been sailing for 93 years and it has collected these in such a way that it's caused this ship not to be very efficient in its movement. So they should be, and I want to quote you, 'sandblasted off.' So then it can move more efficiently. The analogy is a good one. However, I'm from San Diego and I worked in a shipyard. You normally don't sandblast, depends on the hull. You wouldn't sandblast the barnacles because you'd actually damage the ship. If it was fiberglass, you'd water blast them. Only if it was a steel ship would you sandblast. The reason I say that is because sandblast is much more harsh than water blasting, although there are some water blasters, of course, they're very profound. The reason I say that is because I think that there probably are some rules and regulations that should be taken off this ship. And by the way, if I had to hire an attorney, I'd hire you. You're very capable. I see your background. And you're also very precise. I know you wouldn't churn my case. Your testimony was fantastic. I don't think you could afford him. I couldn't afford him either, that's true too. So, Mr. Schiffrin, how would you confront that reality that there are barnacles on this ship, but instead of sandblasting, how would you water blast them off? And I do want to give you a chance to come back to you, Mr. Cohen. Mr. Schiffrin, why don't you start with that? I mean, if we're going to blast, aren't we blasting too hard? If he's going to use sand, I mean, isn't that the problem that we then erase a lot of these investor protections?

Thank you for the question. I think that's exactly right. We have to be careful not to throw the baby out with the bathwater, so to speak. It's one thing for the SEC to go back and look at its rules and say, well, this particular rule that was passed 50 years ago maybe no longer makes any sense. But right now what the SEC is doing is seemingly eliminating core investor protections. Chair Atkins has talked about revising Regulation S-K, which is core disclosures, not financial disclosures, but other material information that investors rely on. Disclosure is the bedrock of securities regulation in this country, and we can't just be doing away with that.

Mr. Cohen, I do want to give you an opportunity then to discuss that.

Well, thank you, Congressman. And you're quite right, I did make the assumption that the SEC's hull was steel rather than fiberglass. And having had the experience as a teenager of having to hand-clean fiberglass hulls, I wouldn't wish it on Congress or anyone else. But I think the point that I was really trying to make is that the success of U.S. securities regulation does not mean that we have to regard the system as static and that in fact we should be open to making changes. For example, one of the proposals that I made in my appendix was to add a vice chairman to the position of the chairman. My observation from being in the chairman's office is that the chairman of the SEC has too many direct reports, too many statutory responsibilities, and it impedes his or her ability to be effective in the job. And I think we all would like the SEC to be run on an effective basis.

Right, but you do have a vice chair at the Fed, and I don't know that that necessarily makes it more efficient. How would that protect really investors' rights?

Well, I think the issue is that it's very difficult when a chairman has, and I think from the last time I looked at the org chart, something like 26 direct reports plus statutory responsibilities at FSOC, at Federal Housing Finance Agency, at IOSCO. It's just difficult to spend time doing the kind of strategic thinking that you would really want an SEC chair to do and to really drive forward regulation in the right way. You risk being bogged down in too much detail. And again, I think from all of our perspectives, effectiveness is really what we would like to see of regulation.

Mr. Schiffrin, would you like to comment on that, the last comment he made, that really what they're looking at is effectiveness, trying to move, be more efficient?

Well, I agree we want the SEC to be as effective as possible. I don't know that it has been in the last year. I'm not sure adding a vice chair position is what it needs to do so much as recognize that its mission is investor protection, and I think it's seemed to lose track of that in the last year.

Okay. And I guess with my last 20 seconds, I'd say, you know, it's obvious that in one administration it goes one way a little bit more than the other way. But when there's no representation at all, I think there is the danger that it swings too far one way. I do think there should be Democratic representation on the SEC. And with that, I thank the chair and I yield back.

Gentleman yields back, and the chair recognizes the gentlewoman from Michigan, Mrs. McClain, for five minutes.

Thank you, Madam Chair, and thank you for holding this hearing. And thank you all for being here. Appreciate it. I spent a little time in the financial services industry myself, about 35 years, and I saw the evolution, especially around FINRA. When I started, FINRA used to be an agency that was really concerned with overseeing the educational arm, right, our CE credits, making sure we're properly licensed, etc., etc. And it seems that FINRA's grown out of that a little bit. Not really sure how it got there. So Mr. Iacovella, I was wondering if you could enlighten us a little bit on how FINRA has evolved from more a licensing and educational organization, which is what it originally was set out to do, into its current form of really an unaccountable regulatory agency. Can you explain how that happened?

Well, I mean, what it does now, it's regulating broker-dealers, and the SEC delegates what it does not want to do in relation to broker-dealers and oversight of the securities markets to FINRA and to other SROs. And I think that's the concern that you're trying to raise here, is that that delegation has not been authorized by Congress, and it's happened by virtue of the agency doing it on its own accord.

Yeah, and that is extremely concerning to me because it seems like we have one more layer of bureaucracy out there, but even more concerning with that is the lack of transparency, right? I'm curious to get your information or your opinion on what threats do you think FINRA poses to capital markets because they write the rules, they enforce the rules, and they really keep a lot of those proceeds from the plaintiffs.

You're touching on a very important topic right now, and I think it's been the subject of multiple lawsuits by individuals against FINRA. And I think it's something that this body should really take up, which is what is FINRA? Is it a private institution that's member-driven, or is it a governmental entity? What powers does it have that it should be using? Should it be an enforcement agency? That is an open question that this body should answer. Should it be an adjudicatory agency for arbitration? I mean, these are functions that were set out in three different branches in our Constitution, and they've been rolled up into one entity that's not accountable to anybody but the SEC, and hopefully this body.

Yeah, I would agree with you, and I think I would encourage Congress to really take a look at the role of FINRA and get some definition of what their job and what their responsibilities truly are. Because I think the problem people have with FINRA is they don't know what they don't know. When you are the judge, the jury, and the executioner, people kind of get a little weary of that. So just curious, when FINRA comes in and assesses a fine to a firm, what happens to those fines? Do those fines get back to the plaintiff? What happens to those fines?

I believe that when FINRA assesses a broker-dealer with a fine, that the money goes into its general fund.

Into FINRA's general fund? Yes, ma'am. Any idea what that general fund is worth?

There were previous reports that FINRA has over $2 billion in its funds.

Wow, $2 billion. Do they use that for educational training, for helping firms do a better job, maybe as Chairman Hill was talking about earlier, helping people get out of the state of uncertainty that they may be in? What do they use that $2 billion for?

Salaries. They salaries to go back and collect more fines. Yes. Oh.

Well, just curious, what does the president of FINRA make? Do you know?

I'm not sure of the exact figure, but I understand that...

Would you call me a liar if it was around $4 million?

That sounds about right.

Okay, just curious. Can you explain a little bit of the lack of accountability that FINRA has and how that results in higher fees, fewer investment choices, and lower returns? Because the biggest concern I have is with all the rules and regulations right now, it'd be really tough to start a new firm. So I'm curious if you could touch on that.

I think it's extremely difficult to start a new firm, and the compliance costs are overwhelming for small firms, and that's why a lot of them are going away. They're either being bought out, merging, or they just go out of business.

Yet FINRA's sitting on about $2 billion. With that, Madam Chair, I yield back. Thank you.

Pardon me, the gentlewoman's time has expired. The chair now recognizes the gentleman from Illinois, Mr. Casten, for five minutes.

Thank you, Madam Chair. Thanks all you for being here. So I want to lay my biases out first. I have some real concerns with Chair Atkins' leadership, and particularly for the way that he's weakened investor protections and in so doing weakened confidence in U.S. markets. And I want to get specific, and there's no way to say this without getting political, but the SEC's recent decision to stop reviewing no-action decisions for shareholder proposals is going to allow firms to exclude various ESG requests. You can't say the word ESG without getting in some nonsense culture war fight right now. But the debate as I understood capitalism in most of my adult life was between Milton Friedman's view of shareholder capitalism and some broader view of stakeholder capitalism. And if the owners of a company have things they want to know about the risk exposure of that company and management disagrees, if you believe Milton Friedman, the shareholders should have the final say. And yet these no-action rules saying, well, if you're doing things that affect environmental issues or governance issues or employment issues, somehow that's off the table, says we're basically just going to say forget about shareholders, forget about stakeholders, I'm just going to elevate the C-suite. I want to specifically get on a recent example. Last year, the SEC granted no-action relief to ExxonMobil over their program which would enable retail investors to automatically cast their votes on shareholder proposals in favor of management at future meetings before they even know what they're voting on. Mr. Iacovella, you issued a statement in support of that, saying that the SEC's decision prioritizes the interests of working family savers and retirees. And I guess what I'm wondering is how does that meaningfully prioritize individual investors' preferences if they have to vote before they know what they're voting on?

Well, that particular program that you just described, I think that there are some issues with it. I wasn't aware of exactly what you...

But you had put a statement in support of this. I mean, I sort of think like, in Illinois, respect Mr. Chan, Illinois, we have a primary on March 17th. Which means my voters will know who my opponent is on the Republican side of the ticket on March 18th. If I went and asked them to vote for me now before they know who my opponent is, I'm hard-pressed to say how that enhances democracy. And yet that's essentially what the SEC has allowed Exxon to do. Let me move on. Mr. Cohen, Exxon's stated purpose was, they said, to enhance retail participation at shareholder meetings. Is it your understanding that that's why Exxon created that program?

Well, I can't comment specifically to it.

I asked because there was a client alert from your firm saying that retail voting is an effective tool to help defeat an activist investor in a proxy fight. But I think in practical reality, as we all know, there are large sophisticated investors, the pension funds, the mutual funds, what have you, and there's a lot of small retail folks. If you've basically baked them in, I go back to my example. If I could get everybody to vote for me before, why do forums? I've already baked in the win, right? Aren't you effectively just disenfranchising the most sophisticated participants in your capital structure? ...allow companies to get out of SEC jurisdiction just because they had a tokenized security?

No. We wouldn't oppose that. Oh, absolutely. We would oppose that. Yes. Sorry. I'm sorry. I'm confused.

Okay. Well, that was why I opposed the Clarity Act last year that passed out of this committee, because what the Clarity Act said is if you tokenize your securities, you can get away from those sorts of protections. And I leave that to come back where I started. Either this SEC is going to protect investor rights and investor disclosure and not pretend that something isn't a security if it walks and talks and quacks like a security, or it's not. And I think it behooves us to fix some pretty bad legislation we sent out of this committee. Yield back.

The chair now recognizes the gentleman from Oklahoma, Mr. Lucas, who is the chair of the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity. You're recognized for five minutes.

That's a mouthful, Chairman. Thank you. And thank you to our witnesses here today. I think one of the things we would all agree on so far in the course of this hearing is that the SEC looks dramatically different from the SEC two years ago. It's truly a new day at the Commission. Mr. Chan, can you speak to the enforcement side of the Commission? How would you characterize the change in the capital markets under Chairman Atkins' leadership?

It's been dramatic and it is going back to common sense. If you take a quick look at the enforcement cases since Chairman Atkins have appointed Judge Ryan to be Director of Enforcement, you will notice that majority of the cases involve going after intentional fraud. And I think that is something that sitting here in this room, we all agree that that's what the SEC should be doing. And as someone who has gone after fraudsters, Ponzi schemers, executives who have lied, cheated, and stolen, it is tough to go after fraudsters who try to avoid detection. And I think if you think about what the SEC did in the previous administration, where they spent the entire resources of the SEC going after people who might have used an emoji on a text message or might have, going by the interpretation, crushed a little yellow sticky and that's considered a violation of the law, I worry about how much was missed in terms of failure to detect intentional fraud. So I really applaud the Chairman in terms of returning the SEC going back to its core, which is going after intentional fraud from an enforcement perspective.

Mr. Cohen, this committee reported out my bipartisan bill last month that would establish a Public Company Advisory Committee within the SEC. That seems to align with the progress Chairman Atkins has already made increasing transparency with the Commission and seeking broad industrial feedback on potential regulatory changes. What is your view? Does the Commission benefit from thoughtful rulemaking that takes into the account the impacts to market participants?

Absolutely. There's no question that that makes regulation better when you have that kind of feedback.

Continuing with you, Mr. Cohen, can you describe the benefits of using the process established under the Administrative Procedures Act to regulate market behavior rather than staff bulletins that previous administration relied on?

Well, notice and comment rulemaking is an extremely effective tool because the complexity of our financial markets, it's simply very difficult even for very knowledgeable regulators to actually be able to get the full understanding of what the import of the actions that they're taking are. There's of course always a room for interpretation, there's always room for staff action. You need that almost as a safety valve, but certainly notice and comment ought to be the preferable way to go.

Absolutely. Mr. Iacovella, the Commission has begun right-sized regulation, restoring pro-growth opportunities to capital markets. How does the INVEST Act build on that work and make these policies durable for future administrations?

There's a few ways. Section 301, Title III, allowing EGCs to do two years of financial statements instead of three. That's very important. That's going to be taken up immediately once the INVEST Act passes the Senate. Also, you're directing the SEC to expand the test the waters provision. That's a very useful provision. That provides good feedback between companies and the SEC so that they know and they have a fully prepared statement when it's time to go IPO. And I think lowering the well-known seasoned issuer requirement from 700 to 400 was very important as well. I mean, it allows ease of follow-on offerings for small and mid-cap companies and that's what allows them to become large-cap.

Absolutely. Want to thank the panel for your observations and insights and yield back, Madam Chair.

Gentleman yields back and the chair now recognizes the gentlewoman from California, Ms. Waters, who is also the ranking member. Thank you, Madam Chair.

Thank you. Mr. Schiffrin, in this and prior Congresses, I've offered proposals to increase transparency and accountability in our private markets. Your testimony echoes many of the concerns my proposal would remedy and paints a troubling picture of the SEC's agenda to undermine our public markets. You say that Chairman Atkins prioritizes the needs of private equity firms over the safety of everyday American investors. You also argue that the private markets are inherently riskier, less transparent, more expensive, and less liquid than our public markets. I'm going to ask you a series of questions about private markets and would appreciate, to the extent possible, a brief yes or no answer. Is it true that private markets have performed worse than the S&P 500 over the past five years?

Yes.

Is it true that institutional investors like private equity and pension funds are currently fleeing private markets due to underperformance?

Yes.

Is the SEC now attempting to steer retail investors into these private markets at the exact moment that large institutional investors are pulling back from them?

Yes.

Is it also true that Chairman Atkins recently permitted an exchange-traded fund to invest in private credit despite SEC career staff concerns regarding the liquidity and valuation of those assets?

Yes.

Well, doesn't the expansion of private offerings without the same kinds of disclosures required for public companies increase the risk of fraud for retail investors?

Yes.

Is it your opinion that pushing mom and pop investors to add these unregistered securities to their nest eggs will likely lead to significant financial losses for them and millions of American families?

Yes, I think it's very risky for retail investors to enter the private markets.

And finally, what advice would you have for both Congress and the SEC as it contemplates allowing companies and their Wall Street brokers to sell private assets to everyday investors?

Well, I think you have to bear in mind that that's kind of antithetical to the federal securities laws. If you're talking about selling private market assets to retail investors, you're talking about selling them to the general public. If you're making a public offering of securities, you're supposed to register that with the SEC and provide all the disclosures that a public offering entail. And those disclosures are designed to protect investors. So if you're talking about offering private market securities to retail investors, you're talking about doing something that really the law doesn't provide for without detailed disclosures under the securities laws.

Do you consider that the SEC is independent?

Can you repeat the question?

The SEC. Who controls it? Is it independent or the President and Bob, what, who controls it?

Well, it should be an independent agency and that's historically what it has been. I think Chair Atkins seems to view it more as an arm of the administration.

Well, let me just tell you this. You know, we have fought very hard and we have to keep fighting to fund and make sure the SEC has what it needs to be the cop on the block. And so all you have to do is not help them get any resources, no money to do the job, and they get to do what they want to do and nothing gets done. So is that an issue that is of concern to you and others?

Yes, I think the SEC needs resources in terms of funding and in terms of staff so that it can do its main job, which is to be the cop on the Wall Street beat and ensure that financial fraudsters aren't taking advantage of everyday Americans.

Has it traditionally been understaffed?

I think that the SEC has to regulate a $100 trillion capital markets and it's always been underfunded and understaffed in that respect. I think that the recent staffing cuts at the SEC only exacerbate the already difficult task that the SEC has in regulating the size of those markets.

Well, thank you very much. I'm concerned. I yield back.

The ranking member yields back. The chair now recognizes the gentleman from Ohio, Mr. Davidson, the chair of the Subcommittee on National Security, Illicit Finance, and International Financial Institutions. You're recognized for five minutes.

Thank you, Chairwoman. Witnesses, I thank you for your testimony and your work in the field. You know, we're coming off the wake of Gary Gensler's failed leadership at the Securities and Exchange Commission. You know, for years, I sought to fire Gary Gensler. We never succeeded in that, but frankly, one of the first things that happened when Donald Trump became President is we fired Gary Gensler. And all of capital markets are better because of it. So we saw, really, a mindset in terms of the senior leader at the Securities and Exchange Commission really shape everything. And that led me to question, is the structure even right at the Securities and Exchange Commission? So I looked at it, maybe, maybe it should be at parity so that no one party has it because everybody kind of deferred to Gary Gensler. And we didn't have the votes to change course on it. So then you have a yo-yo back and forth, one idea versus the other. And I thought, you know, maybe the 80/20 issues the Commission ought to deal with because then partisanship wouldn't be the driver for some of the policy approaches. Because that's really what we saw as the war on crypto led out of Elizabeth Warren's office in the Senate was basically had a foot soldier in Gary Gensler. But now we're trying to pass regulatory clarity in Congress. I had a colleague earlier characterize that if you tokenize a security under the Clarity Act, it's not a security. No, if you tokenize a security, it's still a security. What the Clarity Act says is that if you tokenize something that isn't a security, it's not a security. Gary Gensler struggled with that idea. And he sued, he did sue and settle things not to provide clarity. He didn't do structured rulemaking with notice and comment periods. He did regulation by enforcement. And one of the examples I always point out to is they sued one of the Kardashian people and settled for, you know, million, $2 million for marketing an unregistered security. But then they took no action against the unregistered security that was supposedly the problem. They didn't shut it down because it was some bad offering and dangerous to the public. They created chaos on purpose. They told everyone come in and talk to us and we'll work with you. And then they used that information to target them for enforcement actions. They didn't produce an escape. I said it was like Hotel California, you can check in but you can never leave. So I want to thank Chairman Atkins for providing a great direction. But a couple questions. Mr. Cohen, in the Coinbase case, the Biden SEC issued a Wells notice advancing novel legal theories about digital assets without identifying a clear statutory authority or rules adopted through notice and comment. How could Congress reform the Wells process to require disclosure of specific legal theories or evidence so that Wells notices cannot be weaponized?

I think that's probably more appropriately directed to Mr. Chan who has more enforcement than they do.

Mr. Chan, my apology. All right.

As someone who has gone both on both ends on the Wells process, I do think it would be very helpful, consistent with what Chairman Atkins has done, to reform the Wells process to make sure that if I'm getting sued, I should know what I'm getting sued for and I should know what the evidence is against me because the whole point of the Wells process is so that the Commission can hear in a fair process what the potential defendants' voice is. So I do think that having clarity as to the evidence, the legal theory, but also, you know, what exactly is going on, I do think transparency would be very much needed.

Yeah. And we hope the Commission brings that, but we need to pass laws to provide clarity. And you know, we're trying to do that in digital assets, but there are things just like the Wells notice that the loophole there was weaponized by the previous SEC. So in recent years, the SEC's advanced other legal theories, they were rebuked in court even for arbitrary and capricious actions, you know, so including efforts to treat decentralized finance protocols as securities. So they held software developers and programmable programmers liable for how their code was used. This would be like holding, you know, Bill Gates accountable for somebody tracking illicit finance in Excel. I mean, Excel is usable for all kinds of things, whatever you want to track with it. This is just a different version of software. What guardrails can Congress put in place to ensure enforcement actions cannot be weaponized in the future?

Well, first of all, the oversight by this very subcommittee is actually important. I do think in terms of guardrails, it goes back to hardwiring fairness and clarity in the enforcement process. One of the things Congressman you highlighted is the problem of the SEC making up standards through enforcement, even with new technology and innovation.

Chairman's time is expired. Thank you and I yield back.

Gentleman's yield back and the chair now recognizes the gentleman from Indiana, Mr. Stutzman, for five minutes.

Thank you, Madam Chair. The SEC was created to protect investors, to maintain fair, orderly, and efficient markets, and facilitate capital formation, not to serve as a vehicle for advancing political or social priorities. However, under President Joe Biden and Chair Chairman Gary Gensler, the SEC strayed beyond its statutory mandate and pushed forward a large and complex regulatory agenda. The result of this was higher compliance costs, reduced market competition, and fewer opportunities for businesses to raise capital. Much like our banking industry, our capital markets are among the most heavily regulated sectors in the world. Therefore, it's important that regulators carefully calibrate their actions to address market deficiencies without causing undue harm. Mr. Iacovella, I'd like to ask you how important is it for the SEC to evaluate the total economic impact of its rulemakings and what happens when regulators move too fast without fully understanding the consequences?

It's extremely important to fully evaluate and ask the public for information so that you can quantify the cost, the real cost to everybody of different sizes. You can't aggregate those costs and then extrapolate them onto the industry. People need to understand at what levels they're going to be impacted. And the unfortunate part is that when those are not done properly, you are left with one scenario, which is to either comply with a rule that's faulty and that you know could potentially put you out of business or could have a constraint on competition or to sue. And that's not good for the industry, it's not good for our economy.

Yeah. Thank you. So one of the things that we saw during the Gensler SEC was a departure from the traditional 60-day public comment period on proposed rules. So this shorter timeline is makes it harder for or might be feasible for large firms with plenty of lawyers on a retainer, but I'm sure that for smaller firms it's much more difficult. Mr. Cohen, how do public shorter public comment periods negatively affect smaller firms and independent researchers?

Well, I think exactly for the reason that you stated, digesting several hundred pages of release and coming up with coherent views on them, it's just not something one does overnight and you got to put aside a lot of other press of business to do it.

Yeah. So broadly speaking, how would you see a difference between the Biden's SEC's activity and the Trump era SEC?

Yes, in one of the market aspects of it is comment.

Comment?

Yeah.

Anything else?

Well, regulation by enforcement as has been as has been mentioned.

Yeah. Mr. Iacovella, how about you?

I would agree. I think we've covered that.

So so much easier to I mean, it's better for the industry, it's better to move business along, giving people an opportunity to raise the capital that they need. This committee is currently considering legislation that would guarantee a 60-day comment period with certain exemptions. Would this sort of policy help improve the quality of stakeholder feedback? Any of you could answer that.

Yes, absolutely. I think the more time that people have to be able to absorb, get their teams together, ask them how this kind of a policy would work, let let those business people and operational people actually understand what's being proposed and tell management and the legal and compliance folks what it's going to do to the business. That's how you get informed comment.

Yeah. Thank you. Thank you. I'll yield back.

Gentleman yields back. The chair now recognizes the gentleman from Montana, Mr. Downing, for five minutes.

Thank you, Madam Chair. And thank you to the panel for being here. You know, as an entrepreneur and a former regulator, you know, I cut my teeth in tech venture, did alternatives, a lot of Reg D exemption, you know, coming out of the space. It's really exciting to me to once again have an SEC that cares about its core mission of facilitating capital formation rather than pursuing a political agenda. You know, I'm glad that this hearing is focused on ways to reform the SEC to ensure that the Gensler era antics can no longer plague our capital markets. I'm going to start with Mr. Iacovella. Thank you for being here. Under former Chair Gensler, the SEC finalized 34 substantive rules. You know, this exceeded the average of his three most recent predecessors by 36 percent, matching only the financial crisis era pace of former Chair Mary Schapiro. Can you discuss the harm caused to US capital markets by rushing through so many rules?

Yeah, I think it goes hand in glove with what we were just talking about, Congressman, that when you don't have the time and opportunity and when you have one complex rule, it takes a long time and it takes a lot of resources and manpower. When you have a number of them coming at you at one time, and in the case of market structure, there was four of them and we didn't understand exactly how they were going to work intertwining together to change the entire market structure. And that was very problematic because it it started to make people very nervous about what the changes were going to look like and instead of actually putting comment together, people were contemplating whether they should just sue.

Right. Thank you. I'm going to thank you for that answer. I'm going to move to Mr. Cohen. The SEC currently has 43 offices, yet only seven are established by statute. I currently have legislation noticed for this hearing, H.R. 3318, the SEC Modernization Act, which reorganizes the SEC bureaucracy into just 12 offices. So my question, how can the SEC's current organizational structure be improved so that it operates more efficiently?

Well, in addition to the ideas that are contained in the legislation, as I mentioned in my own appendix, creating the position of a vice chair, as well as I think folding the PCAOB into the SEC, which is I know the subject of another piece of legislation.

Right. Thank you. So under the SEC's previous leadership, market participants heavily criticized how the SEC's economic analyses were performed in its rulemakings, particularly when it came to climate disclosures and market structure reform. As a former regulator, I had to deal with that whole issue. But my question is, how should the SEC properly conduct its analysis for its rulemaking's impact on capital formation?

Well, you know, we talk a lot about tone at the top and tone at the top is incredibly important. Chairman Atkins used to point out quite often when he was a commissioner that the SEC's estimate of the cost of SOX 404(b), the auditor asset attestation, was in the order of 90,000 and probably missed several different zeros. So I think rigor in economic analysis is extremely important.

Thank you. I want to turn now to the SEC's notice and comment period. Historically, the SEC has allowed at least 60 days for notice and comment from the public on its rulemaking. Under Chairman Gensler, public comment periods were frequently shortened, concerningly enough for it to be raised in a 2022 Inspector General report. So first, why is it important for the public to have adequate time to comment on a proposed rule?

Well, again, I think if it's directed to me, the complexity of the financial markets simply makes it very difficult to just react from the hip. I can tell you from my own experience in doing emergency rulemaking in 2008, that input was really valuable.

Right. Do you think that 60 days is adequate or is more time needed?

Well, that's that'd be interesting to see what other people what industry consensus is on this. 60 days at least establishes a reasonable starting point.

Have there been times where the public comments led to a substantial change in the SEC's final rulemaking?

Absolutely. I think the comments on the SEC's SPAC rulemaking, in particular proposed rule 140a, really led to the SEC to pull that one back.

Right. Well, I appreciate your responses there and I appreciate the panel being here. And on that, Madam Chair, I yield back.

Gentleman yields back. Chair recognizes the gentleman from Wisconsin, Mr. Steil, chair of Digital Assets, FTNAI, for five minutes.

Thank you, Chair Wagner. Appreciate all of you being here today. We've got a big opportunity and I think we've made real progress in turning the SEC around to its actual task of being there for investors rather than driving forward political agendas. I want to cover two topics today that I think are really important. One is the politicization of the Gensler era SEC and have we made the reforms that are needed to bring us back and away from that, in particular with staff bulletin 14L. And then I want to cover materiality and what we're doing in that regard. Start with you if I can, Mr. Cohen. Staff legal bulletin 14L really gave staff at the SEC massive authority to make a decision as to what had a societal policy or based what was having a broad societal impact. That's the language. And what we saw is after that staff bulletin comes out, we see a dramatic increase in shareholder proposals that's going before the SEC. We see this whole drive of the liberal left trying to drive through policy agendas via publicly traded companies in the United States that they can't move through Congress because no sane elected individual would support a lot of the stuff that they were trying to force publicly traded companies to do. We finally get sanity back at the SEC. Have we done enough? Where are we at? Can you give us a status update?

Well, certainly the having rescinded staff legal bulletin 14L really brought back the practice in this area to what it traditionally been, which is that you have to have a connection to something company-specific in the proposal.

But the staff that was reviewing it, many of them are still there. Does that cause concern or is the change and the removal of of of the the legal memo sufficient?

Are people still operating in a politicized way at the SEC? I have to be careful in answering that because my wife who is sitting behind me was for 10 years a staff member in the Division of Trading and Markets, but I can say that I just have enormous respect for the profession.

No, many I'm not saying that there aren't many great men and women at the SEC and I wouldn't want to disparage everyone there. But I think it's pretty clear when you were seeing some of the rules coming out of the SEC under the Gensler chairmanship that it was pretty politicized. You had staff members who were making decisions as to whether or not something had a broad societal impact. I don't know if if Mr. Chan or if Mr. Iacovella, if you'd like to comment on that, maybe your wife or partner's not sitting behind you and you could speak broadly on this. I say that teasingly. But do you have concerns with with some of the individuals at the SEC who are clearly pushing a politicized agenda previously?

I think my concern of the past years is the shift of culture of fairness. And I do think that at the core, be it dealing with materiality, be it dealing with a variety of issues, I think the North Star should be creating incentives to get the staff back to focusing on what's fair. And that includes trying to figure out what is material in understanding the investing public, but also that includes making sure...

But is that cultural challenge that was created, I think it's highlighted by staff legal bulletin 14L. Is that culture where people would have been, if you were an individual, you came out of law school and you thought, boy, I like securities law, but man, I want to drive forward a wackadoodle liberal agenda, boy, the SEC might be a great spot to go because under legal bulletin 14L, you could pretty much willy-nilly make a determination as to what had a broad societal impact. Now, good, we remove 14L, positive. But maybe those individuals that came in, again, not everybody at the SEC is of this mindset, but it's pretty clear that there were some people there who were trying to drive forward a politicized agenda under staff bulletin 14L.

Yeah. And I think that that goes back to the culture. If you ask and take a poll of the frontline staff in the Division of Enforcement, people the great people I've worked with, they want to fight fraud. And they want to fight securities fraud and they want to focus on protecting investors. So I think anything that can return the staff to doing what they actually want to do, which is to fight fraud, I think would be great.

Mr. Iacovella, did you want to comment on that as well?

I would just say that the tone is set at the top and Chair Atkins was very clear about what he was going to use staff resources for and what he wasn't going to and I think you see a material change at the agency.

That's that's great to hear because I think Chair Atkins, he's done a spectacular job. I think that there is a massive shift in tone at the top. I think you see it in the removal of staff bulletin 14L. I think you also see it in Chair Atkins and the now SEC board actually diving into what is actually material to the company, not creating and allowing staff to drive forward a political agenda to determine what's material, let alone what some of my colleagues on the left side of the aisle want to do where they want to write in statute that something is by definition material even if it has nothing to do with the company. Appreciate all of you being here. We've made some real progress at the SEC. We got more work to do. Madam Chair, yield back.

Gentleman yields back. Chair recognizes the gentleman from New York, Mr. Garbarino, who is the vice chair of the Subcommittee on Capital Markets. Five minutes, Garbo.

...the United States. SEC's cross-border broker framework, including Rule 15a-6, was written decades ago and generally requires foreign brokers to operate through a registered U.S. intermediary. While intended to protect investors, market participants say these requirements can create unnecessary costs and friction for sophisticated institutions and may put U.S. investors at a competitive disadvantage. By contrast, the CFTC uses equivalency frameworks that allow certain well-regulated foreign firms to serve U.S. participants without duplicating full U.S. registration. With markets now far more interconnected and cross-border trading more common, there's a growing discussion about whether a similar modernization could be considered on the securities side. Mr. Chan, are there areas where the SEC could focus to allow U.S. institutional investors more efficient access to broader global liquidity in non-U.S. markets through well-regulated foreign broker-dealers, such as equivalency regimes with major similarly regulated jurisdictions?

Absolutely. I call this the four corners of global interoperability. The SEC can do a better job on ensuring that investment products can be accessible seamlessly and internationally. Professional licensing can easily be clarified and simplified. The reporting regime and also the examination, there can be a lot of work done with other regulators globally that can make international trading and investment securities much easier. As someone who worked with my partners from all over the other jurisdictions, the key is the SEC understanding what else is going on in the rest of the world.

And you actually just answered my follow-up question, so I appreciate that very much. And just going to switch some gears here. Chairman Atkins has recognized that the SEC's rulebook has become bloated and is an obstacle to growing our markets. To address that problem created over the past five years, the Chairman has noted that the SEC rulemaking agenda includes a number of proposals to reduce compliance burdens and facilitate capital formation. In recent years, the SEC adopted deeply problematic fund-related rulemakings. An example under former Chair Gensler is in 2023 fund names rule amendments, which the SEC estimated would affect 76 percent of funds and introduce new compliance costs and operational complexity for funds. Those added burdens would ultimately be passed on to American savers. Mr. Cohen, consistent with the SEC's goal of reducing unnecessary burdens, how should the commission or staff address those rulemaking excesses?

Well, I think the proposal that Chairman Atkins has made to revisit, for example, Regulation S-K and much that's in it is very welcome. One thing you'll note is that he articulated the concern about too much disclosure overwhelming people, and I think that's a long-standing concern that many SEC chairmen have articulated.

I appreciate that. And I know I have two more questions, but I think I'm going to yield back so Mr. Ogles can get some time.

I appreciate that. The gentleman yields back. Votes have been called about six or seven minutes ago. Mr. Ogles, I appreciate, please submit whatever you have in writing for the panel. I'd like to thank all of our witnesses for your tremendous testimony today. Without objection, all members will have five legislative days to submit additional written questions for the witnesses to the chair. The questions will be forwarded to the witnesses for their prompt response. Witnesses, please respond no later than March 11, 2026. This hearing is adjourned. [Gavel sounds.]