The New Deregulatory SEC

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0:58Hey, what's going on with the rules for company disclosures? Are they changing? What's happening with crypto companies, mergers and acquisitions, even executive comp. It's now under a new regime at the SEC, and some shareholder activists are crying foul. What's going on with the new deregulatory zeal? To help us unpack all of this and what it might mean for your portfolio, let's bring in Michelle Leder. She is an SEC filings specialist and founder of the research service Footnoted, focusing on material information hidden in corporate SEC filings. She's also the author of the book Financial Fine Print, Uncovering a Company's True Value.

1:47So, Michelle, let's start out talking about the new regulatory stance, or should I say deregulatory stance, at the SEC. It's a little easier. It's a little more corporate friendly. What's the state of regulations for public companies these days? Yeah, I mean, you know, obviously the basic rules haven't changed. I mean, you know, the 1933 Act is still there. All of those rules are still there. It's the enforcement that is, you know, a bit up in the air. You know, studies are showing that the SEC is doing a lot less enforcement these days, you know, and some of it is partly due to staffing issues, right?

2:28Like the SEC, I think about 20 % of the staff have left since the beginning, well, since January 20th, since, you know, Trump turned term two. You know, people left or they took the buyout or, you know, what have you. But, you know, enforcement, you know, either by number of cases or the size of the settlements, the SEC is just kind of sleeping. They're just not as active as they've been in the past. And that's been well documented by some academic studies and some other people who follow that part of the SEC. You know, there's also been the dismissal of several big name cases, right? So it's overall a deregulatory environment, much more so than the first Trump administration.

3:10So, Michelle, you mentioned the reduction in headcount. The IRS has seen a large headcount reduction, and that legitimately shows up in both enforcement and collection actions. The Senate released a report last year. You can actually see for every dollar they spend on the IRS. Here's how much we generate in taxes collected. That reduction has been some attrition, some of it from Doge. It sounds like you're saying the SEC is seeing a very similar reduction. Did I hear you right? Did you say it's more than 20 percent of the staff? Is that enforcement staff or just across the board? I think it's across the board.

3:53So presumably it would include, you know, administrative folks, you know, I mean, it's, it's the numbers I've seen, it's about 20 % across the board. And of course the SEC has a lot of contractors like outside people. So I think it also includes contractors. You know, there's no definitive head count that I've seen, but this has been reported, you know, by multiple outlets. That's around 20%. Really interesting. And there's a new sheriff in town. Paul Atkins is the head of the SEC. Tell us a little bit about the philosophy and policies of the new SEC chairman. Well, he's a former SEC commissioner, so this is not his first time at the SEC, but it is the first time that he's chairman.

4:37He's known for being – he's an attorney. You don't have to be an attorney to be an SEC commissioner, but almost always it is an attorney who is doing it. And he's just known for being a big booster of crypto in between the time, like when he left the SEC last time and went to work in private practice. He was representing a number of crypto firms. And so he's, of course, taking that background with him to the SEC. And so there's a lot of like, you know, I joke around like, you know, and I'm going to be dating myself here. But like, you know, that, you know, episode of the Brady Bunch where it was like, Jan, Jan, Jan.

5:13Well, this is like crypto, crypto, crypto. And that's all it seems like the SEC is really focused on. You know, and, you know, there's normally the other thing is that there's normally five SEC commissioners and there's only been four since Atkins came on board. It's typically the party in power. So the Republicans named three commissioners and then the party out of power, the Democrats named two. But there hasn't been I'm sorry, not the president has to name the SEC commissioners. So three from, you know, the majority party and two from the minority party. And so needless to say, there hasn't been a Democratic commissioner that's been named.

5:56So they're operating with only four. And so there's basically only one person who is kind of like sounding the alarm on all this crypto stuff. Anytime there's like a new regulation or like a change in regulations, you know, it's kind of interesting to see, you know, what's said there, you know, about, you know, all of these changes that are going on. Beyond crypto, I've heard Atkins talk about the initial public offerings market and he wants to jumpstart again. I kind of laughed at make IPOs great again. Um, uh, what, what are your thoughts on the regulation that some people have said, uh, the burdensome reporting requirements, uh, are leading American companies to stay private longer?

6:46What, what are your thoughts there? Look, I think that, you know, there is, you know, some regulation that probably could be trimmed, but do you do it with like, you know, a scalpel or do you do it with like a chainsaw? You know, I think with anything, there's things that can always be made better and improved, right? But I think this wholesale approach to like all regulation is bad, and it's costing people money is a little bit of an overkill. You can make an argument, for example, they nixed the climate rules that they had been working on forever. You can probably make an argument that maybe the climate rules went a little bit too overboard.

7:25It was going to be cumbersome for companies to do. But climate change is real and some companies are impacted by it more than others. And there should be disclosures because there is a risk to investors about that. So let's talk about what's probably the single biggest idea that's been floated by President Trump, doing away with quarterly earnings reporting. You're an SEC geek. What does this sort of thing mean from your perspective and what does it mean for investors? Yeah, so I think that, you know, first of all, let's remember, you know, I think they say like, oh, small companies. This is not like your corner store, you know, your little bodega in Manhattan, and they're suddenly having to like, you know, put out a 10K or a 10Q.

8:16These are publicly traded companies that have gone, you know, are asking me and thousands of other investors for our money to grow their business and to, you know, build their businesses. Now, this idea that, you know, you can go, you know, again, I think like, you know, you can throw out, I guess, the baby with the bathwater, so to speak. I hate to use that expression. But, you know, could there be a little bit less, you know, in the quarterly earnings? yeah maybe we don't have to do like the powerpoint presentation and the detailed earnings call and like the big thing but still report earnings you know and you know give people a taste of what's going on i think going to every six months would be really you know bad for investors overall i mean maybe it'll benefit the largest most sophisticated investors but you know other people who are invested in stocks i think it's it's just bad news because a lot can happen in six months.

9:16To say the very least. A lot happens in three months. So let's talk about executive compensation. I have a lot of questions to throw your way with this. And obviously, we have to start with Elon Musk and the trillion dollar package that the board approved. I don't see any way how he ever gets anywhere near that amount of money. But still, it seems like just crazy sky's the limit amount of compensation. Are these giant stock grants a new trend? Is this something that's here to stay? Well, I mean, there's of course always been stock grants. I mean, you know, and you want to reward someone, you know, I'm all about, you know, rewarding someone for doing a good job, right?

9:59Like if a CFO, you know, manages to, or a CEO manages to turn around the company, you know, they should be rewarded. That's what, you know, that's what capitalism is about, right? But I think that what we're seeing in the wake of the Elon vote, you know, where shareholders overwhelmingly approve the compensation. And I think, you know, Tesla is sort of a special situation, right? Because it's like a cult of personality. I mean, you know, nobody, I can't think of many other CEOs, let's say, that have that kind of like, you know, platform, that kind of, you know, personal, you know, identification to, I mean, you know, obviously, because of, you know, X, and, you know, all of his followers on X.

10:43So, you know, and the fans of Tesla, you know, the cars and everything. So it's a bit of a unique situation. But we're seeing in the wake of that situation, we're seeing a number of examples where executives are also being rewarded, and what seems like outsized awards. And it's almost like, Well, Tesla did it, so why can't we? It's almost like it's created like a green light for, you know, giving away, you know, additional equity. You know, I was just looking the other day, Numinfo, which is, you know, a company that sells all our information to whoever, you know, the highest bidder, you know, gave its founder and its CEO, the guy had been there, has been there 18 years, and it gave him nearly 10 million shares to incentivize him.

11:27Does this guy really need 10 million shares to be incentivized? I mean, he's been at the company 18 years, you know, so where's the guy going? You know, I think also the stock is not doing so great. So why is he being rewarded? Again, I think it comes down to the stock is doing great. Sure, reward the CEO, reward the C-suite, you know, but if the stock isn't doing good and you're giving away 10 million shares to someone, you know, who's been there to incentivize them, you shouldn't need to be incentivized to like turn the stock price around. Or to do a good job. Makes a lot of sense to me. Let's talk about executive compensation clawbacks.

12:04How often do we see either the company or its shareholders or perhaps the SEC saying, hey, this compensation was very undeserved, unearned, and we're going to try and claw some of this back? Tell us about that. Yeah, I mean, usually you're seeing that on the plaintiff lawyer side. Like, you know, of course, there's a very active plaintiff's bar here in the U.S. where, you know, if a company says that they're going to earn 25 cents a share and suddenly they, you know, report 20 cents a share, there's, you know, a whole group of lawyers, law firms that, you know, will then sue the company and try to, you know, do clawbacks and that type of thing.

12:44um you don't you're not really seeing that on the sec side so much you know a lot most companies or i would say a majority of companies do have clawback policies but usually it's kind of rare um that you know uh they claw back money i mean i can really only think of a couple of examples um you know where there's been you know uh uh you know a clawback of compensation it's it's not something that happens all that regularly. So you mentioned crypto earlier. What is the regulatory framework look like for crypto? How have the rules changed? It seems like the SEC has fully embraced this. Yeah, I think there's just a general, let's say, fair approach to crypto at the SEC, whereas, you know, which is very, very different, you know, than the prior, you know, um sec chairman gary gensler um you know he was all about regulating crypto and and trying to call it into account and and you know making sure that you know it wasn't um you know scamming people and i would say that the current sec is basically you know a 180 degree turn from that um you know and in fact you know i mean i feel like crypto in terms of some of their rules and regulations it seems to be the only thing that they care about.

14:03You know, they're talking about, you know, combining with, you know, doing, you know, regulatory combinations to kind of make it easier to do this. I think in general, different people have different views about crypto. I think that anything that makes it easier for people to get into crypto, especially less sophisticated investors, is problematic for me as someone who cares about, you know, I don't think someone's grandma should be in crypto. To say the very least. So what about cybersecurity disclosures? That seems to be a new requirement. It seems to be really important in the financial industry.

14:43How important is cybersecurity to any publicly traded company? What are their obligations there? Well, anytime there's a cybersecurity, a couple of years ago in 2022, the SEC put in new rules. again this was under Gary Gensler that required a lot more disclosure about cybersecurity incidents and they required companies to actually disclose this in an 8k using a section a particular section so that it could be found very easily you know instead of a cyber you know so that you know if you were looking for cybersecurity incidents you can find them pretty quickly but you know companies are still disclosing this in haphazard ways even though they're required to disclose this in a specific section of the 8K.

15:25Many companies are not doing that. And, you know, to be fair, the problem with a lot of these cybersecurity incidents is when companies first disclose them, they don't know if it's going to be like a, you know, a$5 ,000, you know, fix or a$500, you know,$1 ,000 ,000 fix, right? You know, oftentimes, you know, it takes time to get in there, figure out what's really going on. But of course, you know, these hacks and these cybersecurity incidents have gotten a lot more, you know, sophisticated these days. I'm sure like, you know, I mean, I can't count the number of text messages I get, you know, that, you know, seem alert.

16:02I got a new one the other day, someone put an event on my calendar, and was waiting for me to accept it. And I'm like, how did you even, you know, find this on my calendar? You know, so there's a lot of scamming going out there. And you can imagine if you're like a big company with a lot more money than, you know, Michelle Leder has, that, you know, the efforts are a lot more intense to try to figure out poke holes.

16:27Unfortunately, there's bad actors out there, and cybersecurity is much more important. I mean, we do everything online these days. We pay our bills online.

16:41I'm sure there's a lot of incidents that are going on, some of which we probably don't even know about. Of course, if it's very big, I mean, we kind of remember the ones like Home Depot had an incident a number of years ago. I mean, I feel like, you know, the number of times I've gotten an email from Kroll offering to like, you know, from some company offering to like, you know, secure my identity for a year, you know, has grown exponentially recently. Really interesting. So to wrap up, there's a new deregulatory regime in Washington, D.C. It's very crypto friendly. It's not particularly ESG or climate change friendly.

17:19And it's going to have an impact on what companies are obligated to disclose to their shareholders. We'll find out the impact of this over the next few years. I'm Barry Ritholtz. You've been listening to Bloomberg's At The Money. I fought the law, the law was. I fought the law, the law was. I fought the law, the law was. I fought the law, the law was. I fought the law, the law was. As our use of AI expands, how do we make sure it doesn't end up breaking the internet? I'm Hannah Fry, host of The Exponential Era, a series that explores the real-world impact of future network technology. And I sat down with two experts to discover how we can support the massive connectivity needs of AI.

18:13Find out what I learned at bloomberg.com forward slash Nokia.