By ignoring the deadline to implement a key provision of a bipartisan law approved a year ago, the Securities and Exchange Commission (SEC) is costing America's struggling economy desperately needed jobs, members of the Financial Services Oversight and Investigations Subcommittee said today during a hearing.
While some provisions of the bipartisan JOBS -- Jumpstart Our Business Startups -- Act went into effect when it was signed into law, the SEC has failed to meet the law's deadlines to write required rules for other provisions that will help small businesses raise capital and hire workers.
The subcommittee hearing focused specifically on one section of the JOBS Act that would remove an outdated SEC regulatory ban preventing small companies from using advertisements to find accredited investors. The law required the SEC to implement this section by July 4, 2012.
SEC attorneys recommended issuing an interim final rule by the legal deadline. However, the SEC instead adopted a proposed rule rather than an interim final rule -- meaning the agency will not be able to finalize regulations to lift the advertisement ban until sometime later this year.
Internal SEC emails later revealed that then-SEC Chairman Mary Schapiro delayed implementing the JOBS Act after a Washington lobbyist informed her that special interest groups "were prepared to be quite aggressive" in criticizing the SEC if it moved forward.
Schapiro told her chief of staff and a SEC commissioner in an email about the lobbyist's comments and worried that the criticism would tarnish her "legacy" at the agency.
"The SEC's decision to delay implementation of major provisions of the JOBS Act is certainly disappointing, but to learn the former chairman prioritized special interest groups over adhering to the implementation of a strong bipartisan law is entirely unacceptable," said Subcommittee Chairman Patrick McHenry (R-NC). "I understand the SEC is under new leadership, and I have hope that the commission is poised to begin finalizing the provisions in the JOBS Act, as promised in the Rose Garden one year ago this month."
Subcommittee members noted the SEC's decision to disregard the legal deadline to implement the JOBS Act comes while the SEC has suffered a series of recent legal setbacks. This is prompting concerns the agency is both misallocating its resources and misapplying its regulatory enforcement authorities.
In 2011, the D.C. Circuit Court of Appeals struck down an SEC rule, finding that the SEC "inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters."
In 2013, a unanimous U.S. Supreme Court rejected an attempt by the SEC to avoid the statute of limitations in an enforcement action. Specifically, the SEC sought to have the statute of limitations begin to run upon the commission's discovery of the possible fraud violation, instead of when the alleged violation actually took place.