Stock fraud, quarterly financial results and crypotcurrencies were a few of the topics WLRN discussed with the chairman of the Securities and Exchange Commission over the course of two interviews.
The SEC is the nation's top stock market cop. We spoke with Chairman Jay Clayton in July when he visited the agency's regional office in Miami. A second interview was recorded last week with Clayton in his Washington D.C. office.
In between the two interviews, the SEC filed civil charges against Miami biotech billionaire and philanthropist Dr. Phillip Frost. He is accused of participating in a pump and dump scheme between 2013 and 2018 involving two stocks. Frost denies the allegations and says he was "stunned" by the charges.
Clayton did not comment on the specifics of the Frost case, but he did discuss the type of stock trades Frost is accused of and the investigative role of the SEC.
Stock fraud was just one of the issues Clayton spoke about with WLRN.
Quarterly Financial Statements
President Trump announced on Twitter in August he had asked the Securities and Exchange Commission to study the idea of ending a long standing requirement for publicly traded companies -- filing financial reports every 90 days.
In speaking with some of the world’s top business leaders I asked what it is that would make business (jobs) even better in the U.S. “Stop quarterly reporting & go to a six month system,” said one. That would allow greater flexibility & save money. I have asked the SEC to study!
— Donald J. Trump (@realDonaldTrump) August 17, 2018
Clayton says the agency has been exploring the question "for a number of months" before the presidential tweet.
"I think the president touched on an issue that is in the minds of many market participants, and that issue is are we managing our corporations for the long term? Are we investing for the long term in plant, property, equipment, and human capital?"
Clayton makes a distinction between cryptocurrencies like Bitcoin and a "crypto asset," such as tokens issued by companies to raise money -- sometimes referred to as initial coin offerings. Clayton calls those securities.
"Just because you call it a crypto currency doesn't mean it's not a security. We look at substance in the securities laws and we've been looking at substance in the securities laws since 1934. If you're offering interest in the venture, you're most likely offering a security."
Clayton says he's "not going to change the way we're doing things in response to a new technology."
Financial advisors (spelled “or” or “er”), broker-dealers -- all may offer ideas to investors about what to do with their money. But there may be differences in the how they get paid and what drives their recommendations. Registered investment advisors are banned from putting their financial interests ahead of investors. Someone who is a broker does not have that obligation.
Clayton has led the charge at the SEC to hold brokers to the same standard -- something the agency calls Regulation Best Interest.
"You have to put the client to make recommendations to the client that reflect the client's interests. That's where we're going with this."
The proposal runs more than 1,000 pages and hundreds of footnotes.
The drop in stock prices 10 years ago exposed what was a decades-long scam. Bernie Madoff admitted ripping off hundreds of people for billions of dollars in a far-reaching Ponzi scheme. Almost one in every five people scammed lived in Florida. Madoff skirted regulators for years and left the Securities and Exchange Commission with a black-eye for ignoring warnings.
"Have we addressed some of the issues that would have made it easier to detect a Madoff-type situation? Yes, we have. (That) doesn't mean that we're able to catch every fraudster. We need to continue to be vigilant and think of additional ways to use technology, and use our requirements to reduce the risk of a Bernie Madoff. That's that's our job."