The recent financial crisis and subsequent events  show the dangers that can result when banks trade for their own accounts while disregarding their customers’ interests. During the financial crisis, U.S. taxpayers were forced to cover losses sustained by major financial institutions that resulted from speculative proprietary trading activities.  While several factors combined to cause the financial crisis, proprietary trading by major financial institutions was a key contributor to that crisis.  In particular, proprietary trading by deposit-taking institutions exposed a bank’s capital—and FDIC-insured deposits—to unacceptable risks and saddled taxpayers with massive losses. 
Archive for the ‘Speeches & Testimony’ Category
It is a great honor to have been asked to give the Fifth Annual Judge Thomas A. Flannery Lecture. And it is especially meaningful to be joined tonight by Tom Flannery’s daughter Irene, son Tom, and so many friends, colleagues, and former law clerks who knew and served with him.
I unfortunately did not have the privilege of knowing and working with Judge Flannery. But one of the great benefits of being asked to speak tonight is that it gave me the opportunity to come to know him a little—through learning about his many impressive career accomplishments and through reading his own words and those of others about him. I wish I had known him. He was indeed a remarkable man, lawyer, and judge.
As all here know, Judge Flannery was a highly-respected Assistant United States Attorney, United States Attorney, trial lawyer, and jurist on this court for over 35 years. In fact, he spent most of his life within a few miles of this courtroom.
As part of the Historical Society’s Oral History Project for this Circuit, Judge Flannery gave an interview in 1992. It is a fascinating account of his professional life and the life of this court. Judge Flannery said that his view of the justice system was shaped in great part by watching police court trials here in Washington as a law student.
I want to commend the NACD on its mission to “advance exemplary board leadership” with the compelling vision of aspiring to “a world where businesses are sustainable, profitable, and trusted; shareowners believe directors prioritize long-term objectives and add unique value to the company; [and] directors provide effective oversight of the corporation and strive to deliver exemplary board performance.”
Audit committees are instrumental in achieving this vision and maintaining public trust and investor protection through their oversight of corporate financial reporting and auditing. I would also like to recognize the important role and difficult jobs that each of you have as audit committee members in these oversight functions, as well as the many other areas that are being assigned to audit committees during a time of ever increasing business complexity and risk.
It is a privilege to appear before a group that is so important to the strength and integrity of the fund industry. Independent directors have significant responsibilities, and it requires tremendous effort and time on your part to do your job well. I applaud your efforts to learn from the professionals who are participating in this conference. The insights of the panels you heard yesterday and this morning, and those you will hear after lunch will provide valuable information.
The importance of mutual funds in the lives of American investors is clear. Mutual funds hold close to $14 trillion of the hard earned savings of over 53 million American households. The majority of Americans access the markets through mutual funds. They invest in funds, and hope their investments will grow, for many reasons—to make a down payment on a house, to save for a college education, and ultimately to pay for a retirement.
Today [Oct. 23, 2013], the Commission is proposing new rules to implement Title III of the JOBS Act, which exempts qualifying crowdfunding transactions from the registration and prospectus delivery requirements of the Securities Act. The new Regulation Crowdfunding is expected to be used primarily by small companies. As is well known, although personal savings is the largest source of capital for most start-ups, external financing is very important to many small and medium-sized businesses. Unfortunately, as is also well known, many small businesses have difficulty finding external capital. It is worth noting that the need for outside investment is even greater among minority entrepreneurs, who tend to have lower personal wealth than their non-minority counterparts.
Supporters of crowdfunding believe that it may offer a potential solution to the small business funding problem. Observers point to the success of existing crowdfunding services around the world, which raised almost $2.7 billion in 2012, an increase of more than 80% from the prior year.
Private funds, including hedge funds, play a critical role in capital formation, and are influential participants in the capital markets. And, perhaps more than ever before, the hedge fund industry as a whole is experiencing dynamic change—moving from what some would say was a secretive industry, to a widely-recognized and influential group of investment managers.
Today [Oct. 18, 2013], I want to focus on this change within your industry, as well as on what the SEC must do as the primary regulator in this space.
There is little doubt that hedge funds have entered a new era of transparency and public openness—a transformation that I believe will benefit investors, the public and regulators. And, one that I believe will ultimately and significantly redound to your benefit as well.
It is a substantial and fairly sudden change brought on as a result of two recent and significant pieces of legislation: the Dodd-Frank Act and the JOBS Act. Although both are designed to promote additional transparency, they do so from different, but complementary perspectives.
It is an honor to be with you today [Oct. 15, 2013]. The National Association of Corporate Directors has long played an important leadership role providing the insight and guidance that board members need to enhance shareholder value and effectively confront the various business challenges their companies face. The NACD has also been a very important partner to the SEC—providing valuable input on a number of our rulemaking efforts that affect companies and their boards of directors.
As members of boards of directors, each of you has an incredibly important job. You are fiduciaries and tasked with the oversight of company management—which requires a tremendous amount of time, knowledge and dedication. As a former director, I know all-too-well the heavy responsibility you have and the hard and time-consuming work involved to do the job properly.
One aspect of the job, which has taken on increasing importance in the last several years, is the role that you play in shareholder engagement and ensuring that management is considering the needs of investors in connection with the information that is provided to them.
As market professionals, you obviously live the U.S. equity markets first hand, day in and day out. As an association, you have used your voice to focus attention on the value of our equity markets—an all-important engine for capital formation, job creation, and economic growth.
Like you, I believe that we must constantly strive to ensure that the U.S. equity markets continue to serve the interests of all investors. That mutual challenge must come fully of age and address today’s, not yesterday’s, markets. And today, I will speak about the path forward.
This is truly an opportune time to examine the regulatory landscape for hedge funds and their advisers—many of you are probably returning from vacations during a summer that witnessed the third anniversary of the enactment of the Dodd-Frank Act and just in time for the effective date of some significant rulemakings relating to a private placement exemption often used by hedge funds. As you know, the Dodd-Frank Act imposed greater oversight on advisers to hedge funds, while recent changes were made to the private placement exemptions by the JOBS Act. These changes create both opportunities and challenges for those advisers managing hedge funds.
For this morning, I will begin with a discussion on what you are likely most interested in—the general solicitation and the “bad actor” rules. Afterward, I will focus on our continuing efforts to be better informed regulators. In the post-Dodd-Frank era, we are more cognizant regulators not only because of the enhanced data we receive from you regarding the size and operations of your industry, but also due to our continuous efforts to improve our ability to use that data and our heightened focus on industry awareness. After an overview of what we now know about your industry and how we intend to use it, I’ll highlight some regulatory initiatives of interest to the hedge fund industry. However, before I finish this morning, I want to briefly share some thoughts on the importance of a robust culture of compliance, which is underscored by the recent Commission actions against hedge fund managers for insider trading.
It is an honor to be here today [September 26, 2013]. The Council is an extremely important voice on behalf of investors and an excellent source of input for the SEC on new rules or guidance that is needed, existing rules that need to be changed and market practices that may be harming investors.
As the Chair of an agency that is focused on the needs of investors, I very much want to hear what you have to say—on everything from corporate governance to shareholders’ rights to 10b5-1 plans.
So I urge you to use your voice. We are listening. Continue to be our eyes and ears.
This morning, I will first talk briefly about some of the agency’s near-term priorities. And then I will go into more depth about how we are deploying our full enforcement arsenal for the benefit of investors. I was told that enforcement was one of the topics you would be interested in hearing about and, well, I never pass up an opportunity to talk about enforcement. But I want to start with some of the agency’s other overall priorities.