Former SEC Commissioners Reject Political-Disclosure Rulemaking

This post originally appeared on the blog of the Republican National Lawyers Association on June 3, 2016.

Freedom of Speech; it’s what matters

The Federalist Society’s Jeff Dinwoodie recently hosted three former Securities and Exchange Commission commissioners to discuss past and future issues at the powerful financial agency. Troy Paredes, Annette Nazareth, and Paul Atkins graded the commission on various issues ranging from Dodd-Frank to esoteric oversight boards.

While the commissioners disagreed on many issues they spoke unanimously on one major issue where securities law and election law overlap: political-spending disclosure. No one spoke in favor of pressuring the Commission into a rulemaking requiring disclosure of public-company political spending.

The issue has bedeviled the Commission for years. Shortly after the Supreme Court decided Citizens United v. FEC, the Senate considered a bill requiring this disclosure but it failed to garner requisite support. More recently Senators Charles Schumer, Elizabeth Warren, Robert Menendez, and Jeff Merkeley threatened to scuttle Commissioner nominees Lisa Fairfax and Hester Pierce because they refused to declare ex ante they would support a political-spending rulemaking.

Senator Schumer responded to this heresy with trademark vapidity: “If one feels that undisclosed special interest money cascading into our politics is one of the worst problems American faces, then this approach is very logical.” Apparently fighting ISIS, trillions in debt, and stagnant job growth take a backseat to learning whether corporation X supported its trade association. SEC chairwoman Mary Jo White disagrees with Schumer’s priority assessment and has thus far deflected attempts by politicos and agitprops to force her hand.

Paul Atkins has long opposed this potential rulemaking, laying out his rationale in a 2013 law review article, MATERIALITY: A BEDROCK PRINCIPLE PROTECTING LEGITIMATE SHAREHOLDER INTERESTS AGAINST DISGUISED POLITICAL AGENDAS. In it, he articulated three reasons why this disclosure is deleterious: (i.) materiality is lacking, (ii.) cost/benefit analysis is off balance, and (iii.) it is antithetical to the Commission’s mission and a low priority compared to 2008 crisis-related issues.

Atkins revived his reasoning at the panel. The SEC’s mission is to maintain fair, orderly, and efficient markets, facilitate capital formation, and to protect investors by ensuring that market participants have accurate material information about SEC-registered securities. Whether corporations support 501(c)(4)s or (c)(6)s that advocate certain policies or support certain candidates is immaterial to that mission. In fact, the groups pushing companies to reveal their political spending do not represent average investors but entities that usually take positions adversarial to corporate objectives. Thus they have incentives to force business perspectives from the political marketplace. These include state and union pension funds (unions coincidentally aren’t affected).

In fact, more than 75% of the corporate public policy spending proposals in 2012 were proposed by a coalition of special-interest investors coordinated by the Center for Political Accountability, Walden Asset Management, and the American Federation of State, County and Municipal Employees. These groups ‘name and shame’ resisting corporations to bring unwanted publicity so they retreat from important policy battles.

Paredes agreed that the Commission should carefully analyze the cost/benefit to disclosure requirements not directly related to the touchstone “materiality” requirement. So did Democrat Commissioner Annette Nazareth who praised Chairwoman White for not bowing to outside pressure and suggested the SEC was ill-suited for this responsibility with all the other issues facing the Commission.

In his paper discussing this issue, Atkins wrote, “Efforts to force mandatory disclosure of corporate spending on political and other advocacy activities should be viewed as primarily political rather than economic and, as such, would not serve to help shareholders evaluate corporate performance or promote shareholder value.” Commissioners nominated on both sides of the aisle realize the political nature of these disclosure efforts and deserve praise for saying so.

Paul H. Jossey is campaign finance lawyer in Alexandria, Virginia. Please follow him on Twitter.

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