February 17, 2017

Enforcement: Acting SEC Chair Trims Subpoena Power

Mike Piwowar may only be “Acting” SEC Chair – but he’s never going to be accused of just keeping the seat warm for Jay Clayton.  This WSJ article reports that Piwowar has revoked subpoena authority from about 20 senior Enforcement staffers. That action leaves the Director as the sole member of the Division of Enforcement with the authority to approve a formal order of investigation & issue subpoenas.

Traditionally, the Staff had to obtain the full SEC’s sign-off on a formal order before issuing subpoenas. Former Chair Mary Shapiro gave the Staff temporary subpoena power in 2009, in the wake of the Bernie Madoff fiasco – & the SEC adopted a rule making that authority permanent a year later.  Interestingly, because that rule was deemed to relate solely to internal agency procedures, the SEC adopted it without notice & an opportunity to publicly comment.

Acting Chair Piwowar has long been a critic of both the delegation of this authority to the Staff & the manner by which the SEC accomplished it.  Here’s an excerpt from his 2013 remarks to the LA County Bar:

Finally, the delegation of authority for approval of formal orders was deemed by the Commission to relate solely to agency organization, procedure, and practice, and therefore not subject to the notice and comment process under the Administrative Procedure Act. The mere fact that we can institute certain rules without obtaining comment from the public does not necessarily mean that we should. Given the significant ramifications for persons who are on the receiving end of a subpoena issued pursuant to a formal order, we should make sure that public comment is allowed on any review of the formal order process.

This action – which ironically occurred without a public announcement – is consistent with Piwowar’s longstanding concerns that the Staff has had too much power & too little oversight when it comes to investigations.

Conflict Minerals Case: Is a Final Judgment Looming?

This blog from Steve Quinlivan reports that a final judgment from a DC federal district court in the long-running challenge to the SEC’s conflict minerals rule may be on the horizon.  Judge Jackson has ordered the parties in National Association of Manufacturers, et al, v. SEC to file a joint status report by March 10, 2017 “indicating whether any further proceedings are necessary, and whether the Court should enter an order of final judgment to effectuate the Circuit’s decision.”

As Broc blogged at the time, the DC Circuit previously rejected the SEC’s appeal of an earlier ruling holding that the rule’s requirement to disclose whether products were “not found to be DRC conflict free” violated the 1st Amendment.

Acting SEC Chair Mike Piwowar recently announced that Corp Fin’s 2014 guidance for compliance with the conflicts minerals rule was also under scrutiny by the agency.

Audit Committees: Top Concern Is Risk Management

According to KPMG’s Global Audit Committee Survey, risk management heads the list of concerns for audit committees:

The effectiveness of risk management programs generally, as well as legal/regulatory compliance, cyber security risk, and the company’s controls around risks, topped the list of issues that survey participants view as posing the greatest challenges to their companies. It’s hardly surprising that risk is top of mind for audit committees—and very likely, the full board—given the volatility, uncertainty, and rapid pace of change in the business and risk environment. More than 40 percent of audit committee members think their risk management program and processes “require substantial work,” and a similar percentage say that it is increasingly difficult to oversee those major risks.

“Tone at the top,” corporate culture & short-termism also feature prominently in audit committee concerns.

John Jenkins