December 5, 2019

The SEC Chair Touts ‘Fishy’ Comment Letters

Not too long after I blogged about how nothing much happens at open Commission meetings, an interesting thing happened – the SEC Chair cited “fishy” comment letters submitted by alleged retail investors ahead of the agency’s proxy advisor rulemaking. This Bloomberg article broke the story by contacting the purported authors of the comment letters. Here’s the intro of the article:

When Securities and Exchange Commission Chairman Jay Clayton handed a policy win to corporate executives this month, he pointed to a surprising source of support: a mailbag full of encouragement from ordinary Americans. To hear Clayton tell it, these folks are really focused on the intricacies of the corporate shareholder-voting process. “Some of the letters that struck me the most,” he said at a commission meeting in Washington, “came from long-term Main Street investors, including an Army veteran and a Marine veteran, a police officer, a retired teacher, a public servant, a single mom, a couple of retirees who saved for retirement.” Each bolstered Clayton’s case for limiting the power of dissenting shareholders.

But a close look at the seven letters Clayton highlighted, and about two dozen others submitted to the SEC by supposedly regular people, shows they are the product of a misleading — and laughably clumsy — public relations campaign by corporate interests.

The two Bloomberg reporters called up the folks listed as the authors of the letters – and the article details a number of responses indicating that the letters were not genuine. The submission of fake letters on rulemakings is more common than you would think (see this old WSJ article) – but it’s not typical that an agency head is touting them publicly (see this article)…

How Much Diligence Should the SEC Chair Conduct Before Touting a Comment Letter?

My answer is “at least some.” An inspection of these letters pretty quickly reveals clues that something is not right. Consider the excerpt from this Matt Levine column:

What is particularly bad here is that “at least 20” of the fake letters contain “an out-of-context phrase inserted into the SEC’s mailing address”: If you’re writing a letter to the SEC, you put the SEC’s address at the top just for old time’s sake (of course you don’t mail it, you just submit it online), and for some reason the person mass-writing these letters inserted the phrase “A Coalition of Growth Companies” into the address that he or she cut and pasted into all the fake letters. Oops!

“Fictional” Comment Letters: Creative Writing Project?

Matt’s suggested solution to this issue is noted in his column:

The obvious solution here is to explicitly allow fictional comment letters. Of course the SEC already allows fictional comment letters, in the sense that it doesn’t seem to do any identity checking, and we have talked before about how lots of comment letters are blatantly fictitious. Many fictitious comment letters seem to be submitted for the sake of numbers: It is nice to say “a hundred ordinary investors wrote in to support this,” or whatever, but that’s rarely true and should not be taken seriously. But other fictitious letters are like these letters; they are submitted for the sake of their argument, and for a certain ordinary-investor flavor that comes from a talented writer of fiction trying to channel what he thinks an ordinary investor would actually feel and say. Why not let those fiction writers practice openly?

Why not submit a letter from like the Coalition of Giant Company CEOs saying “as CEOs, we like this rule, but we also think it’s in the interests of ordinary investors, and to give you a sense of that here’s what we imagine an 83-year-old Army veteran might hypothetically have to say about it.” And then you write the fake letter, and the SEC can say “we too can easily imagine that an elderly veteran might say ‘how disgusted I am that my financial investments are being used as a political pawn,’” etc. etc. etc., it loses almost none of its rhetorical effect for being fake. Just admit that it’s all fake!

For anyone out there who enjoys “creative writing,” maybe you could get into writing fictional comments to regulatory proposals. I doubt it’s a lucrative gig – but maybe it could be? Provide your anonymous input in this poll:

survey services

Broc Romanek