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SEC Chairman Speaks Again

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In my last post, I wrote about three major speeches by Securities and Exchange Commission Chair Mary Jo White. She has given two more major speeches: one on enforcement and the second on disclosure. Once again, the speeches offer a mixed message about the direction in which the SEC is heading.

To start with the positive, Ms. White's disclosure speech signals her intention to streamline corporate disclosure requirements. She appreciates that materiality is the appropriate criterion for determining whether something must be disclosed. Moreover, she recognizes that too much disclosure can harm the investors for whom it is purportedly designed. She does not want SEC disclosure to be a catch-all for every special cause of the day. She also acknowledges the role that fears of litigation play in determining what companies disclose.

Ms. White's enforcement strategy "of creat[ing] an environment where you think we are everywhere" may not be in line with her disclosure strategy. The fear that the SEC's enforcement hammer is poised to drop at the slightest hint of a problem is enough to scare most firms into over-disclosing. Ms. White wants the SEC to pursue violations no matter how small and regardless of intent. She has deputized the SEC's compliance personnel in her effort to ensure that the SEC is "felt and feared in more areas than market participants would normally expect that our resources would allow." The SEC's compliance office is distinct from enforcement precisely to avoid scaring well-intentioned firms away from working with the commission towards shared goals of protecting investors and keeping markets working smoothly.

The SEC's loss this week in its case against Mark Cuban is a good reminder that even the commission's new tough-cop image might not be enough to win over a jury.

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