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The New Deregulatory SEC · Masters in Business

• 0:06
  Speaker 1: Tops on, Hey, what's going on with the rules for
• 0:16
  Speaker 1: company disclosures? Are they changing? What's happening with crypto companies,
• 0:22
  Speaker 1: mergers and acquisitions, even executive comp It's now under a
• 0:26
  Speaker 1: new regime at the SEC, and some shareholder activists are
• 0:31
  Speaker 1: crying foul. What's going on with the new deregulatory zeal
• 0:37
  Speaker 1: To help us unpack all of this and what it
• 0:39
  Speaker 1: might mean for your portfolio, let's bring in Michelle Leader.
• 0:43
  Speaker 1: She is an SEC filing specialist and founder of the
• 0:47
  Speaker 1: research service Footnoted, focusing on material information hidden in corporate
• 0:54
  Speaker 1: SEC filing. She's also the author of the book Financial
• 0:58
  Speaker 1: fine Print, Uncover a Company's True Value. So Michelle, let's
• 1:04
  Speaker 1: start out talking about the new regulatory stance or I
• 1:08
  Speaker 1: should should I say deregulatory stance at the SEC. It's
• 1:13
  Speaker 1: a little easier, it's a little more corporate friendly. What's
• 1:16
  Speaker 1: the state of regulations for public companies these days?
• 1:21
  Speaker 2: Yeah, I mean, you know, obviously the basic rules haven't changed.
• 1:24
  Speaker 2: I mean, you know, the nineteen thirty three Act is
• 1:26
  Speaker 2: still there. All of those rules are still there. It's
• 1:29
  Speaker 2: it's the enforcement that is, you know, a bit up
• 1:32
  Speaker 2: in the air. You know, studies are showing that the
• 1:36
  Speaker 2: SEC is doing a lot less enforcement these days, you know,
• 1:40
  Speaker 2: and some of it is partly due to staffing issues,
• 1:42
  Speaker 2: right Like, the SEC, I think a lot about twenty
• 1:45
  Speaker 2: percent of the staff have left since the beginning, well
• 1:48
  Speaker 2: since January twentieth, since since you know, Trump term two.
• 1:53
  Speaker 2: You know, people left or they took the buyout or
• 1:56
  Speaker 2: or you know what have you. But you know, enforcement,
• 1:59
  Speaker 2: you know, either by number of cases or the size
• 2:02
  Speaker 2: of the settlements, the SEC is just kind of sleeping.
• 2:05
  Speaker 2: They're just not as active as they've been in the past.
• 2:08
  Speaker 2: And that's been well documented by some academic studies and
• 2:11
  Speaker 2: some other people who follow that part of the SEC.
• 2:14
  Speaker 2: You know, there's also been the dismissal of several big
• 2:17
  Speaker 2: name cases, right you know. So it's overall a de
• 2:20
  Speaker 2: regulatory environment, much more so than you know, the first
• 2:23
  Speaker 2: Trump administration.
• 2:25
  Speaker 1: So, Michelle, you mentioned the reduction in headcount. The IRS
• 2:29
  Speaker 1: has seen a large head count reduction, and that legitimately
• 2:33
  Speaker 1: shows up in both enforcement and collection actions. The Senate
• 2:39
  Speaker 1: released report last year you can actually see for every
• 2:43
  Speaker 1: dollar they spend on the IRS, here's how much we
• 2:46
  Speaker 1: generate in taxes collected. That reduction has been some attrition,
• 2:52
  Speaker 1: some of it from DOGE. It sounds like you're saying
• 2:56
  Speaker 1: the SEC is seeing a very similar reduction. Did I
• 2:59
  Speaker 1: hear you right? Did you say it's more than twenty
• 3:01
  Speaker 1: percent of the staff? Is that enforcement staff for just
• 3:05
  Speaker 1: across the board?
• 3:06
  Speaker 2: I think it's across the board, so, and presumably it
• 3:08
  Speaker 2: would include you know, administrative folks, you know, I mean
• 3:12
  Speaker 2: it's it's the numbers I've seen. It's about twenty percent
• 3:15
  Speaker 2: across the board. And of course the SEC has a
• 3:17
  Speaker 2: lot of contractors, like outside people, so I think it
• 3:20
  Speaker 2: also includes contractors. You know, There's no definitive head count
• 3:24
  Speaker 2: that I've seen, but this has been reported, you know,
• 3:27
  Speaker 2: by multiple outlets. Sin it's around twenty percent.
• 3:30
  Speaker 1: Really interesting, and there's a new sheriff in town. Paul
• 3:33
  Speaker 1: Atkins is the head of the SEC. Tell us a
• 3:36
  Speaker 1: little bit about the philosophy and policies of the new
• 3:40
  Speaker 1: SEC chairman.
• 3:42
  Speaker 2: Well, you know, he's a former SEC commissioner, so you know,
• 3:45
  Speaker 2: this is not his first time, you know, at the SEC,
• 3:49
  Speaker 2: but it is the first time that you know, he's chairman.
• 3:52
  Speaker 2: He's known for being you know, he's an attorney. You
• 3:54
  Speaker 2: don't have to be an attorney to be an SEC commissioner,
• 3:58
  Speaker 2: but almost always it is an attorney who is doing it.
• 4:02
  Speaker 2: And he's just known for being a big booster of crypto.
• 4:05
  Speaker 2: In between the time, like when he left the SEC
• 4:07
  Speaker 2: last time and you know, went to work, you know,
• 4:10
  Speaker 2: in private practice, he was you know, representing a number
• 4:12
  Speaker 2: of crypto firms, and so he's of course taking that
• 4:15
  Speaker 2: you know background with him to the SEC. And so
• 4:18
  Speaker 2: there's a lot of like, you know, I joke around,
• 4:21
  Speaker 2: like you know, and I'm gonna be dating myself here,
• 4:23
  Speaker 2: but like you know that you know episode of The
• 4:25
  Speaker 2: Brady Bunch where it was like Jan Jan Jan, Well,
• 4:28
  Speaker 2: this is like crypto, crypto, crypto, and that's all. It
• 4:32
  Speaker 2: seems like the SEC is really focused on, you know,
• 4:36
  Speaker 2: and you know, there's normally The other thing is that
• 4:38
  Speaker 2: there's normally five SEC commissioners, and there's only been four
• 4:42
  Speaker 2: since Akins came on board. It's typically the party in power,
• 4:46
  Speaker 2: so the Republicans named three commissioners, and then the party
• 4:51
  Speaker 2: out of power, the Democrats, name two, but there hasn't
• 4:54
  Speaker 2: been I'm sorry not the president has to name the
• 4:57
  Speaker 2: SEC commissioners. So three from you know, the majority party,
• 5:04
  Speaker 2: and two from the minority party, and so, needless to say,
• 5:08
  Speaker 2: there hasn't been a Democratic Commissioner that's been named, so
• 5:11
  Speaker 2: they're operating with only four and it's so there's basically
• 5:14
  Speaker 2: only one person who is kind of like sounding the
• 5:17
  Speaker 2: alarm on all this crypto stuff. Anytime there's like a
• 5:20
  Speaker 2: new regulation or like a change in regulations, you know,
• 5:25
  Speaker 2: it's it's kind of interesting to see, you know, what's
• 5:29
  Speaker 2: said there, you know about you know, all of these
• 5:32
  Speaker 2: changes that are.
• 5:33
  Speaker 1: Going on beyond crypto. I've heard Atkins talk about the
• 5:39
  Speaker 1: initial public offerings market and he wants to jump start again.
• 5:44
  Speaker 1: I kind of laughed at make I POS great again.
• 5:49
  Speaker 1: What What are your thoughts on the regulation that some
• 5:53
  Speaker 1: people have said the burdensome reporting requirements are leading American
• 5:59
  Speaker 1: companies to stay private longer. What are your thoughts there?
• 6:03
  Speaker 2: Look, I think that you know, there is you know,
• 6:06
  Speaker 2: some regulation that probably could be trimmed. But do you
• 6:10
  Speaker 2: do it with like, you know, a scalpel or do
• 6:12
  Speaker 2: you do it with like a chainsaw? You know. I
• 6:15
  Speaker 2: think with anything, there's things that can always be made
• 6:18
  Speaker 2: better and improved, right, But I think this wholesale approach
• 6:22
  Speaker 2: to like all regulation is bad and it's costing people money.
• 6:27
  Speaker 2: Is a little bit of an overkill, you know. I mean,
• 6:30
  Speaker 2: you can make an argument, for example, they nixed the
• 6:32
  Speaker 2: climate rules that they had been working on forever. You
• 6:35
  Speaker 2: could probably make an argument that, you know, maybe the
• 6:38
  Speaker 2: climate rules went a little bit too overboard. It was
• 6:41
  Speaker 2: going to be cumbersome for companies to do. You know,
• 6:45
  Speaker 2: but you know, climate change is real, and you know
• 6:49
  Speaker 2: some companies are impacted by it more than others, and
• 6:52
  Speaker 2: you know there should be disclosures because there is a
• 6:54
  Speaker 2: risk to investors about that.
• 6:56
  Speaker 1: So let's talk about what's probably the single biggest idea
• 7:01
  Speaker 1: that's been floated by President Trump doing the way with
• 7:05
  Speaker 1: quarterly earnings reporting. You're an SEC geek. What does this
• 7:11
  Speaker 1: sort of thing mean from your perspective and what does
• 7:14
  Speaker 1: it mean for investors?
• 7:16
  Speaker 2: Yeah, so I think that you know, first of all,
• 7:19
  Speaker 2: let's remember, you know, I think they say, like, oh,
• 7:21
  Speaker 2: small companies, this is not like your corner store, you know,
• 7:25
  Speaker 2: your little bodega in Manhattan, and they're suddenly having to like,
• 7:28
  Speaker 2: you know, put out a ten K or ten Q.
• 7:30
  Speaker 2: These are publicly traded companies that have gone you know,
• 7:34
  Speaker 2: are asking me and thousands of other investors for our
• 7:38
  Speaker 2: for our money to grow their business and to you know,
• 7:42
  Speaker 2: build their businesses. Now, this idea that you know you
• 7:46
  Speaker 2: can go you know again, I think, like, you know,
• 7:49
  Speaker 2: you can throw out I guess the baby with the
• 7:51
  Speaker 2: bath water, so to speak. I hate to use that expression,
• 7:54
  Speaker 2: but you know, could there be a little bit less
• 7:59
  Speaker 2: you know, uh in the quarterly earnings? Yeah, maybe we
• 8:03
  Speaker 2: don't have to do like the PowerPoint presentation and the
• 8:06
  Speaker 2: detailed earnings call and like the big thing, but still
• 8:10
  Speaker 2: report earnings, you know, and you know, give people a
• 8:13
  Speaker 2: taste of what's going on. I think going to every
• 8:16
  Speaker 2: six months would be really, you know, bad for investors overall.
• 8:20
  Speaker 2: I mean, maybe it'll benefit the largest, most sophisticated investors,
• 8:23
  Speaker 2: but you know, other people who are invested in stocks,
• 8:26
  Speaker 2: I think it's it's just bad news because a lot
• 8:30
  Speaker 2: can happen in six.
• 8:31
  Speaker 1: Months, to say the very least a lot happens in
• 8:33
  Speaker 1: three months. So so let's let's talk about executive compensation.
• 8:38
  Speaker 1: I have a lot of a lot of questions to
• 8:40
  Speaker 1: throw you away with this, and obviously we have to
• 8:43
  Speaker 1: start with Elon Musk and the trillion dollar package that
• 8:48
  Speaker 1: the board approved. I don't see anyway how he ever
• 8:51
  Speaker 1: gets anywhere near that amount of money. But still it
• 8:54
  Speaker 1: seems like just crazy sky's the limited amount of compensation.
• 8:59
  Speaker 1: Are are these giant stock grants a new trend? Is
• 9:03
  Speaker 1: this something that's here to stay?
• 9:05
  Speaker 2: Well, I mean there's of course always been stock grants.
• 9:08
  Speaker 2: I mean, you know, and you want to reward someone,
• 9:11
  Speaker 2: you know, I'm all about, you know, rewarding someone for
• 9:13
  Speaker 2: doing a good job, right, Like if a CFO you know,
• 9:16
  Speaker 2: manages to or a CEO manages to turn around the company,
• 9:19
  Speaker 2: you know, they should be rewarded. That's what you know,
• 9:22
  Speaker 2: That's what capitalism is about. Right. But I think that
• 9:26
  Speaker 2: what we're seeing in the wake of the Elon vote,
• 9:29
  Speaker 2: you know, where shareholders overwhelmingly approve the compensation. And I think,
• 9:34
  Speaker 2: you know, Tesla is sort of a special situation, right
• 9:37
  Speaker 2: because it's like a cult of personality. I mean, you know,
• 9:40
  Speaker 2: nobody I can't think of many other CEOs, let's say,
• 9:44
  Speaker 2: that have that kind of like you know, platform, that
• 9:47
  Speaker 2: kind of you know, personal you know, identification to I mean,
• 9:52
  Speaker 2: you know, obviously because of uh, you know X and
• 9:54
  Speaker 2: and you know all of his followers on X, so
• 9:58
  Speaker 2: you know, and and the fans of Tesla, you know,
• 10:01
  Speaker 2: the cars and everything. So it's just a bit of
• 10:03
  Speaker 2: a unique situation. But we're seeing in the wake of
• 10:06
  Speaker 2: that situation, we're seeing a number of examples where executives
• 10:10
  Speaker 2: are also being rewarded and what seems like outsize awards,
• 10:14
  Speaker 2: and it's almost like, well, Tesla did it, so why
• 10:16
  Speaker 2: can't wait. It's almost like it's created like a green
• 10:20
  Speaker 2: light for you know, giving away you know, additional equity.
• 10:26
  Speaker 2: You know. I was just looking the other day new Menfo,
• 10:28
  Speaker 2: which is you know, a company that sells all our
• 10:31
  Speaker 2: information to whoever, you know, the highest bidder, you know,
• 10:34
  Speaker 2: gave its founder and its ceo. The guy had been there,
• 10:37
  Speaker 2: has been there eighteen years, and it gave him nearly
• 10:40
  Speaker 2: ten million shares to incentivize him. Does this guy really
• 10:43
  Speaker 2: need ten million shares to be incentivized? I mean, he's
• 10:45
  Speaker 2: been at the company eighteen years, you know, So where's
• 10:49
  Speaker 2: the guy going? You know? I think also the stock
• 10:53
  Speaker 2: is not doing so great, so why is he being rewarded?
• 10:56
  Speaker 2: And again I think it comes down to the stock
• 10:58
  Speaker 2: is doing great, Sure, reward the ceo, reward the c suite,
• 11:02
  Speaker 2: you know, But if the stock isn't doing good and
• 11:04
  Speaker 2: you're giving away ten million shares to someone you know
• 11:07
  Speaker 2: who's been there to incentivize them. You shouldn't need to
• 11:09
  Speaker 2: be incentivized to like turn the stock price around, Mark
• 11:13
  Speaker 2: do a good job.
• 11:13
  Speaker 1: Makes a lot of sense to me. Let's let's talk
• 11:15
  Speaker 1: about executive compensation clawbacks. How often do we see either
• 11:22
  Speaker 1: the company or a shareholders or perhaps the SEC saying, hey,
• 11:27
  Speaker 1: this compensation was very undeserved, unearned, and we're going to
• 11:35
  Speaker 1: try and claw some of this back. Tell us about that, Yeah.
• 11:37
  Speaker 2: I mean, usually you're seeing that on the plaintiff lawyer side,
• 11:41
  Speaker 2: Like you know, of course, there's a very active plaintiff's
• 11:43
  Speaker 2: bar here in the US where you know, if a
• 11:45
  Speaker 2: company says that they're going to earn twenty five cents
• 11:48
  Speaker 2: a chair and suddenly they you know, report twenty cents
• 11:51
  Speaker 2: a share, there's you know, a whole group of lawyers,
• 11:54
  Speaker 2: law firms that you know, will then sue the company
• 11:56
  Speaker 2: and try to you know, do clawbacks and that type
• 11:58
  Speaker 2: of thing. You don't you're not really seeing that on
• 12:02
  Speaker 2: the SEC side so much. You know, a lot most
• 12:04
  Speaker 2: companies where I would say a majority of companies do
• 12:07
  Speaker 2: have clawback policies, but usually it's kind of rare that
• 12:12
  Speaker 2: you know, uh, the clawback money. I mean, I can
• 12:15
  Speaker 2: really only think of a couple of examples, you know,
• 12:18
  Speaker 2: where there's been you know, uh, you know, a clawback
• 12:22
  Speaker 2: of compensation. It's it's not something that happens all that regularly.
• 12:26
  Speaker 1: So you mentioned crypto earlier. What does the regulatory framework
• 12:31
  Speaker 1: look like for crypto? How how have the rules changed?
• 12:35
  Speaker 1: It seems like the SEC has fully embraced this.
• 12:39
  Speaker 2: Yeah, I think there's just a general uh let's say
• 12:41
  Speaker 2: they are approach to crypto at the SEC, whereas you know,
• 12:44
  Speaker 2: which is very very different, you know than the prior
• 12:49
  Speaker 2: you know, SEC chairman Gary Gensler. You know, he was
• 12:54
  Speaker 2: all about regulating crypto and trying to call it into
• 12:57
  Speaker 2: account and you know, making sure or that you know,
• 13:01
  Speaker 2: it wasn't you know, scamming people. And I would say
• 13:04
  Speaker 2: that the current SEC is basically, you know, a one
• 13:07
  Speaker 2: to eighty degree turn from that, you know, and in fact,
• 13:11
  Speaker 2: you know, I mean I feel like crypto in terms
• 13:13
  Speaker 2: of some of their rules and regulations, it seems to
• 13:16
  Speaker 2: be the only thing that they care about. You know,
• 13:18
  Speaker 2: they're talking about, you know, combining with you know, doing,
• 13:23
  Speaker 2: you know, regulatory combinations to kind of make it easier
• 13:26
  Speaker 2: to do this. I think in general, different people have
• 13:29
  Speaker 2: different views about crypto. I think that anything that makes
• 13:33
  Speaker 2: it easier for people to get into crypto, especially less
• 13:37
  Speaker 2: sophisticated investors, is problematic for me as someone who cares
• 13:42
  Speaker 2: about you know, I don't think like someone's grandma should
• 13:45
  Speaker 2: be in.
• 13:45
  Speaker 1: Crypto, to say the very least. So what about cyber
• 13:49
  Speaker 1: security disclosures that that seems to be a new requirement.
• 13:53
  Speaker 1: It seems to be really important in the financial industry.
• 13:58
  Speaker 1: How important is is cybersecurity to any publicly traded company?
• 14:03
  Speaker 1: What what are their obligations there?
• 14:05
  Speaker 2: Well, you know, anytime there's a cybersecurity A couple of
• 14:08
  Speaker 2: years ago, in twenty twenty two, the SEC put in
• 14:11
  Speaker 2: new rules again, this was under Gary Gensler that required
• 14:15
  Speaker 2: a lot more disclosure about cybersecurity incidents, and they required
• 14:19
  Speaker 2: companies to actually disclose this in an AK using a section,
• 14:23
  Speaker 2: a particular section, so that it could be found very easily,
• 14:27
  Speaker 2: you know, instead of a cyber you know, so that
• 14:29
  Speaker 2: you know, if you were looking for cybersecurity incidents, you
• 14:31
  Speaker 2: can find them pretty quickly. But you know, companies are
• 14:34
  Speaker 2: still disclosing this in haphazard ways. Even though they're required
• 14:37
  Speaker 2: to disclose this in a specific section of the a K,
• 14:40
  Speaker 2: many companies are not doing that, and you know, to
• 14:43
  Speaker 2: be fair, the problem with a lot of these cybersecurity
• 14:46
  Speaker 2: incidents is when companies first disclose them, they don't know
• 14:50
  Speaker 2: if it's going to be like a you know, a
• 14:52
  Speaker 2: five you know, thousand dollars you know fix, or a
• 14:56
  Speaker 2: five hundred you know, million dollar fix, right, you know,
• 15:00
  Speaker 2: oftentimes you know, it takes time to get in there
• 15:02
  Speaker 2: figure out what's really going on. But of course, you know,
• 15:05
  Speaker 2: these hacks and these cybersecurity incidents have gotten a lot
• 15:08
  Speaker 2: more you know, sophisticated these days. I'm sure, like you know,
• 15:11
  Speaker 2: like I mean, I can't count the number of text
• 15:14
  Speaker 2: messages I get, you know that, you know, seem alert.
• 15:17
  Speaker 2: I got a new one the other day. Someone put
• 15:18
  Speaker 2: an event on my calendar and was waiting for me
• 15:21
  Speaker 2: to accept it, and I'm like, how did you even
• 15:23
  Speaker 2: you know, find this on my calendar? You know, So
• 15:25
  Speaker 2: there's a lot of scamming going out there, and you
• 15:27
  Speaker 2: can imagine if you're like a big company with a
• 15:30
  Speaker 2: lot more money than you know, Michelle Leader has that,
• 15:33
  Speaker 2: you know, the efforts are a lot more intense to
• 15:36
  Speaker 2: try to figure.
• 15:37
  Speaker 1: Out polk hoals. You know.
• 15:40
  Speaker 2: It's you know, it's just it's it's you know, unfortunately,
• 15:43
  Speaker 2: there's bad actors out there, and cybersecurity, you know, is
• 15:47
  Speaker 2: much more important. I mean, we do everything online these days.
• 15:50
  Speaker 2: We pay our bills online, you know, and so you know,
• 15:54
  Speaker 2: there's a lot of you know, I'm sure there's a
• 15:57
  Speaker 2: lot of a lot of incidents that are going on,
• 16:00
  Speaker 2: some of which we probably don't even know about, of course,
• 16:02
  Speaker 2: if it's very big. I mean, you know, we kind
• 16:04
  Speaker 2: of remember the ones like home Depot had an incident
• 16:06
  Speaker 2: a number of years ago. I mean, I feel like,
• 16:09
  Speaker 2: you know, the number of times I've gotten an email
• 16:11
  Speaker 2: from Kroll offering to like, you know, from some company
• 16:14
  Speaker 2: offering to like, you know, secure my you know, identity
• 16:17
  Speaker 2: for a year, you know, has grown exponentially recently.
• 16:21
  Speaker 1: Huh, really really interesting. So to wrap up, there's a
• 16:24
  Speaker 1: new deregulatory regime in Washington, d C. It's very crypto friendly,
• 16:30
  Speaker 1: it's not particularly ESG or climate change friendly, and it's
• 16:35
  Speaker 1: going to have an impact on what companies are obligated
• 16:39
  Speaker 1: to disclose to their shareholders. We'll find out the impact
• 16:43
  Speaker 1: of this over the next few years. I'm Barry Riddolts.
• 16:46
  Speaker 1: You've been listening to Bloomberg's At the Money, a flaw
• 17:00
  Speaker 1: US about the loss of the loves at