The House Financial Services Subcommittee on Capital Markets recently held a hearing titled Oversight of the SEC's Division of Corporation Finance. The purpose of the hearing was to scrutinize the division's actions under Director Erik Gerding's leadership.
"It is crucial that the SEC changes its course and fosters a market system that is competitive and dynamic," U.S. Rep. Ann Wagner (R-MO), chairman of the subcommittee, said in a July 18 Financial Services press release on the hearing.
During the hearing, Wagner expressed concerns about the implications of the division's actions on retail investors and the overall health of public markets, the release said. She accused Gerding of pursuing a controversial and partisan agenda that could potentially undermine the attractiveness of public markets and hinder economic growth, especially amid increasing global competition.
Wagner criticized the Division of Corporation Finance for deviating from its mission by imposing excessive regulations and politically motivated disclosure requirements, primarily burdening small and medium-sized companies and hindering their growth.
One specific concern Wagner raised was the rollback of the July 2020 proxy advisor rule, which was intended to ensure transparency in proxy voting decisions.
"This rollback undermines necessary reforms to the proxy advisory duopoly and fails to protect the interests of retail investors seeking to maximize the return on their investment," she said.
Additionally, Wagner highlighted the harmful effects of costly disclosure regulations on environmental and social policies, which could obstruct companies' expansion and hiring efforts. She cited examples of politicized investors proposing disclosure requirements that have little material impact on a company's financial performance but could lead to lower returns or higher risks for investors, including retail investors who rely on returns for their retirement savings.
In his testimony before the subcommittee on on July 18, 2023, Gerding discussed the activities and responsibilities of the division.
"In support of the Commission's tripartite mission, the Division of Corporation Finance seeks to ensure that investors are provided with material information in order to make informed investment decisions, both when a company initially offers its securities to the public and on an ongoing basis as it continues to give information to the marketplace," he said during the hearing.
Gerding also emphasized during the hearing that the Division of Corporation Finance does not evaluate transaction merits or investment suitability. Instead, it focuses on enhancing transparency in the filing review process and improving compliance with disclosure requirements through comments. He highlighted a significant increase in active public companies since 2021, attributed to a surge in initial public filings. Additionally, the Division recommends new rules to bolster investor protection and capital formation while issuing public guidance on various topics, including crypto assets, Russia's invasion of Ukraine, and risks related to investing in China-based companies. The division's communications, such as Staff Legal and Accounting Bulletins, are informative but not legally binding. They also serve as a valuable resource for investors and businesses, addressing legal and interpretive questions on securities laws and regulations.