As background, a SPAC serves as a vehicle for private companies to enter the public markets without going through the traditional IPO process. SPACs effectively function in two phases – the SPAC phase and the de-SPAC phase. In their first phase, SPACs function as mutual funds – a type of investment company. In their second phase, de-SPACs function as IPOs – the first time a private company is introduced to the investing public.

With these transactions, however, SPACs’ complex, opaque, and speculative qualities often lead to profound disadvantages and risks for retail investors, especially as compared to a SPAC’s sponsors and early institutional investors. As a result, many SPAC transactions have resulted in significant harm to investors when they lost significant value in the public markets after its sponsors and early investors had exited the company and liquidated their stakes.

The risk and volatility of this market is further demonstrated by the reality that the once booming SPAC market, which peaked in 2021, has given way to a cratered SPAC market today.

[2]

Critically, during the initial stage of a SPAC transaction, nearly all SPACs meet the definition of an investment company, as they are engaged primarily in the business of investing, reinvesting, or trading of securities. And because these entities mirror the operations of investment companies, like money market mutual funds, they should adhere to the same requirements of the ICA as any other investment company. Indeed, the ICA imposes a comprehensive regulatory framework on investment companies which includes rules designed to protect investors whose funds are managed and controlled by another entity.

However, many SPACs have failed to follow even the most basic of ICA’s requirements and therefore operate as illegal investment companies. Among other violations, SPAC sponsors’ compensation structure is likely to be impermissible under the ICA, SPAC sponsors and their affiliates engage in conflicts of interest that are impermissible under the ICA, SPACs issue warrants with terms that are impermissible under the ICA, and many SPACs’ governance structures are impermissible under the ICA.

When the SEC proposed its new SPAC rules, it provided a new safe harbor under the ICA that would have provided special treatment to SPACs, allowing them to effectively function as investment companies for two years without having to comply with the investor protections afforded by the ICA. Accordingly, CFA raised strong objections to this part of the proposal, arguing that this safe harbor exceeded existing limits for inadvertent investment companies. CFA’s comment urged the Commission to significantly narrow the scope of any safe harbor and emphasized that SPACs operating outside the safe harbor should always be deemed in violation of the law.

In response to these concerns that were raised by CFA and others, the SEC adjusted its approach in the final rule, eliminating the proposed safe harbor.

In addition to this important adjustment, the final rule retained other investor protections from its proposal, and adopted reforms that will benefit market integrity writ large. For example, the rules will require additional disclosures about SPAC sponsors’ compensation and conflicts of interest, disclosures about possible dilution of investors’ shares, and other information that is vital to investors involved in SPAC transactions.

In conclusion, the SEC’s efforts to strengthen investor protections in the SPAC market is laudable, and CFA applauds the SEC for addressing concerns related to illegal investment company practices within the SPAC market.

[1] See Consumer Federation of America, Comment Letter Re: Special Purpose Acquisition Companies, Shell Companies, and Projections at 1 (June 13, 2022), https://bit.ly/3UsDq5W.

[2]  Bailey Lipschultz, SPAC Industry Fears SEC’s Rules Could Finish Off Ailing Market, Bloomberg (January 24, 2024), https://bit.ly/47Yjw5U.

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“Based on our initial review, the DOL has drafted a strong rule that would help bring millions of retirement savers much closer to a secure, dignified retirement. This rule aims to protect workers and retirees by closing significant legal loopholes, ensuring that the retirement investment advice they receive serves their best interests rather than the self-interest of financial professionals they turn to for advice.

Among other important protections, the proposed rule covers advice about rollovers to IRAs, the most important financial decision many people will ever make. It also covers advice to retirement plans, such as 401(k)s, where savers hold a significant portion of their retirement investments. The rule also covers advice about insurance products that are not currently protected under the securities laws or are covered insufficiently under weak and ineffective state insurance laws.

This rule promises to be a major improvement over the status quo, which allows too many financial professionals and firms to offer self-serving retirement advice at the expense of retirement savers. Given the financial stakes, it’s not surprising that certain Wall Street and insurance industry allies have immediately begun attacking the rule. Despite these attacks, there are many financial professionals who already meet these standards and want to see rules in place that require high-quality retirement investment advice that is not tainted by conflicts of interest.

As the comment process moves forward, we’ll continue to evaluate all aspects of the rule to ensure it is as strong as possible. And we’ll encourage all savers to share their views with the DOL so they can finally get the unbiased retirement investment advice they deserve.”

MEDIA CONTACTS:

AARP is the largest nonprofit, nonpartisan organization dedicated to empowering Americans age 50 and older to choose how they live as they age. With a nationwide presence, AARP strengthens communities and advocates for what matters most to the more than 100 million Americans 50-plus and their families. To learn more, visit www.aarp.org. Media Contact: Colby Nelson, (202) 706-8416, media@aarp.org.

The AFL-CIO is a federation of 60 national and international labor  unions that represent 12.5  million working people.  To learn more, visit https://aflcio.org/about-us. Media Contact: Liz Vlock, (202) 637-5034, LVlock@aflcio.org

Americans for Financial Reform Education Fund is a nonpartisan, nonprofit coalition of more than 200 civil rights, community-based, consumer, labor, small business, investor, faith-based, civic groups, and individual experts.  We fight for a fair and just financial system that contributes to shared prosperity for all families and communities.  To learn more, visit www.ourfinancialsecurity.org. Media Contact: Carter Dougherty, Carter@ourfinancialsecurity.org.

Better Markets is an independent, nonprofit, nonpartisan organization that promotes the public interest in the financial markets. Better Markets advocates for reforms that stabilize our financial system, prevent financial crises, and protect investors and consumers, ultimately so that our financial system serves all Americans more equitably.   To learn more, visit www.bettermarkets.org. Media Contact:  Madeline Tucker, Press Secretary, at 202-618-6433 or mtucker@bettermarkets.org.

Center for American Progress is an independent, nonpartisan policy institute that is dedicated to improving the lives of all Americans through bold, progressive ideas, as well as strong leadership and concerted action. Media Contact: Sarah Nadeau, 603-496-9417, snadeau@americanprogress.org.

Consumer Federation of America is a non-profit association of more than 250 national, state, and local pro-consumer organizations. It was formed in 1968 to represent the consumer interest through research, advocacy, and education. To learn more, visit www.consumerfed.org. Media Contact: Micah Hauptman, mhauptman@consumerfed.org.

Economic Policy Institute is an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans. To learn more, visit www.epi.org/. Media Contact: Monique Morrissey, 202-360-8526, mmorrissey@epi.org

The Pension Rights Center is a nonprofit consumer organization committed to protecting and promoting the retirement security of American workers, retirees, and their families. To learn more, visit www.pensionrights.org. Media Contact: Kate Pixley, (202) 296-3776, kpixley@pensionrights.org

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• expose public school teachers saving for retirement to harmful, sales-driven conflicts of interest and the risk of unrecoverable losses,
• increase the amount of risky, costly, illiquid, and opaque private funds that are sold to retail investors, and
• undermine the SEC’s and state regulators’ ability to oversee and police private securities markets.

The committee’s ongoing deregulatory agenda, as further demonstrated by the proposals expected to be included in the markup, would expose retirement savers and other investors to dire and untenable risks, would further diminish market transparency, efficiency, and accountability, and would continue to expand risky, opaque private markets at the expense of our public markets.

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Accordingly, financial professionals are increasingly being asked about investing in crypto assets and they are increasingly saying that they expect to recommend these assets to clients in the future. For example, according to a Cerulli survey, 80% of advisors surveyed said that clients of all ages have asked them about cryptocurrencies. While just 10% are using it because of client requests, 45% of advisors say they expect to use crypto in the future in response to client requests.

In addition to increasing investor interest in crypto, there’s also growing competitive pressure within the market as more firms, including traditional securities firms, are offering access to crypto-related assets to retail investors. At a certain point, firms and financial professionals are likely to ask themselves, “Investors seem to want crypto, other firms are offering it, maybe I should too?”

However, because of the unique risks that are inherent in the crypto market, firms should consider the following very carefully before doing so. Among other concerns, crypto-related assets:

• Can be speculative and volatile investments, with prices that can swing wildly and crash without warning – this volatility can be particularly devastating for investors who are approaching retirement;
• It can be extraordinarily difficult, even for expert investors, to separate the facts from the hype with regard to crypto assets;
• Crypto-related assets are not held like traditional assets in trust or custodial accounts, which can expose them to heightened risk of fraud, theft and loss – FTX’s recent failure illustrated these risks and the harms that can flow from them;
• Crypto-related assets raise valuation issues because they may not be subject to traditional, empirically-validated valuation methodologies;
• Crypto-related assets may be unregistered or otherwise offered by or through providers who are operating outside of or not complying with existing regulatory frameworks; and
• Crypto-related assets may be subject to additional regulation, which may evolve in unpredictable ways.

Recognizing these unique risks, it is important for financial professionals who recommend or advise investors to include crypto-related assets in investors’ portfolios to fully understand the implications of doing so. Principally, recommending crypto-related investments raises the potential for them to violate their standards or conduct,[1] specifically their care obligation under Regulation Best Interest (Reg BI), if they are a broker, and their Duty of Care under the Investment Advisers Act, if they are a registered investment adviser.

When an investor is being recommended a security:

• Reg BI requires a broker-dealer to exercise reasonable diligence, care, and skill to, among other things, to have a reasonable basis to believe that the recommendation is in the best interest of a particular retail customer based on that retail customer’s investment profile and the potential risks, rewards, and costs associated with the recommendation.;
• Similarly, the Investment Advisers Act fiduciary duty requires to adviser to have a reasonable belief that the advice it provides is in the best interest of the client based on the client’s objectives. The formation of a reasonable belief would involve considering, for example, whether investments are recommended only to those clients who can and are willing to tolerate the risks of those investments and for whom the potential benefits may justify the risks.

With all of this in mind, here are some potential fact patterns regarding the recommendation of crypto-related assets that would likely raise concerns under Reg BI or the Investment Adviser’s Act fiduciary standards of care:

• If a financial professional recommends crypto to an investor despite the investor not having an appropriate risk tolerance of risk capacity for crypto. In other words, if either the investor would not be personally comfortable with the risk of losing a significant or even the total amount of their investment or they can’t objectively absorb the risk of losing a significant or the total amount of their investment, it would raise serious questions about whether the financial professional complied with their standard of care when recommending that the investor invest in crypto-related investments.
• If a financial professional recommends a larger allocation than is prudent for the investor, subjecting the investor to significant losses they can’t absorb.
• If a financial professional recommends a particular crypto-related asset without understanding that specific asset, its features, and its potential risks/rewards relative to other crypto-related assets that are reasonably available
• If the financial professional recommends a particular crypto-related asset without considering the costs associated with investing in that crypto-asset relative to other reasonably available assets.
• If the financial professional does not custody the crypto-related assets prudently, subjecting the investor’s investment to enhanced risk of theft/loss.
• If the financial professional isn’t clear about if or how they will monitor the crypto-related asset and as a result, the investor’s asset allocation (and portfolio risk) changes significantly because of volatility of that asset and changes in exposure to that asset.

As you can see, there are many risks regarding recommending crypto to retail investors and financial professionals must tread carefully. If they don’t, they may expose clients to significant harm and expose themselves to significant legal liability for doing so.

Update Dec. 1, 2022: On November 30, 2022 the Certified Financial Planner Board of Standards (CFP^® Board) published a Notice to CFP^® Professionals regarding financial advice about cryptocurrency-related assets. Consistent with this blog’s analysis regarding recommendations and advice by broker-dealers and investment advisers about crypto-related assets, the CFP^® Board Notice highlights the need for CFP^® Professionals to undertake careful analysis when providing financial advice about crypto-related assets in order to comply with the CFP^® Board’s Code and Standards, including the Fiduciary Duty and the Duty of Competence. In full disclosure, I am a member of the CFP^® Board’s Standards Resource Commission, which helped to develop the Notice.

[1] As a primary matter, Reg BI only applies when there’s a securities transaction that’s recommended. To the extent that a broker recommends a crypto-related asset that is not considered a security, then Reg BI would not apply (notably, key regulators have indicated that most crypto-related assets are securities). However, because an adviser’s fiduciary duty applies to the entire advisory relationship and portfolio, an adviser’s fiduciary duty would apply if they provide advice to invest in a crypto-related asset, regardless of whether the asset is a security or not.

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The letter traced the history of how, for too long, Congress and the Commission have promoted policies that expanded private securities markets, at the expense of public markets. In addition, the letter highlighted the implications for investor protection and market integrity that result from such a decline. “The benefits to investors, market integrity, and capital formation of public securities markets are manifest and indisputable. Public markets require registrants to operate with transparency and accountability, and have critical safeguards,” the letter stated. “By comparison, private markets carry significantly higher risks for investors, and permit issuers to operate with neither transparency nor accountability,” the letter added.

“Given the unbridled expansion of private markets, we encourage you to prioritize the public/private-related reforms on the Commission’s regulatory agenda,” Bruce wrote. “Without regulatory changes, the excessive growth of private markets is unlikely to slow anytime soon. This unchecked growth will exacerbate the decline of public markets, erode investor protections, and diminish the integrity of our capital markets,” the letter concluded.

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As stated in the comment letter, these proposed amendments would bring SPACs into closer alignment with how traditional IPOs are treated under the Securities Act of 1933 and the Securities Exchange Act of 1934 and, in doing so, provide critical transparency and accountability to the SPAC market. Accordingly, CFA expressed strong support for these aspects of the proposal, which would be particularly helpful in addressing deficiencies in the market that have resulted in significant harm to retail investors.

The proposal also includes a new safe harbor under the Investment Company Act of 1940 (ICA) that would provide special treatment to SPACs, allowing them to effectively function as investment companies for two years without having to comply with the investor protections afforded by the ICA. Because the proposed safe harbor goes well beyond the existing safe harbor for inadvertent investment companies, which imposes a 12-month time limit, CFA urged the SEC to narrow the proposed safe harbor.

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The letter reiterates support for Gensler’s recent statement that “[i]t doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These products are subject to the securities laws and must work within our securities regime.” In further support, the letter points to the longstanding regulatory framework that has for decades guided issuers, practitioners, and investors on what is and is not a security, extolling the clear yet flexible tests that have been established by the U.S. Supreme Court. The letter urges the Commission to refrain from creating new carve-outs for digital asset offerings – a “well-intentioned, but ill-advised” effort that risks “undermine securities regulation and its investor protections” – and instead simply continue to apply this durable framework to digital assets.

Specifically, the letter outlines several particularly concerning digital asset trends, including that there are currently “many existing digital assets [that] meet the definition of a “security” under these longstanding Supreme Court standards” that “are offered without registration with the Commission.” Accordingly, additional regulatory attention should also be directed at the “brokers, custodians, exchanges, and [those] providing other products or services related to those securities [that] are not registering with the Commission,” stressing the potential risks to “the basic investor and consumer protections that are ensured by the federal securities regulatory regime.” The letter further details alarming aspects of two of the largest “stablecoins,” calls for further regulatory scrutiny of digital asset-linked “lending services,” and finally, raises further questions following “recent press reports and studies [that] have established that several foreign brokers, custodians, and exchanges for digital assets are permitting trading activity by US investors and customers, again without complying with the federal securities regulatory regime.”

The letter commends recent regulatory action taken by the Commission, but notes that significantly more must be done. The letter concludes that: “Without significant regulatory guidance, the digital asset marketplace has been born and grown into a Wild West. It is urgent for the Commission and other federal financial regulators to enforce the law to better protect investors and improve the integrity and stability of the digital asset markets.”

The post SEC Urged to Review Certain Digital Assets for Compliance with Securities Laws appeared first on Consumer Federation of America.

For 35 years Barbara Roper has served to protect consumers at the Consumer Federation of America.  “Her efforts to institutionalize a fiduciary responsibility in the financial marketplace is legendary and has served as the benchmark for those interested in a healthy, responsible and fair financial marketplace,” added Gillis.

As the Federation looks to find a permanent successor for Barbara, Mike Canning will be joining CFA in a consulting capacity as Investor Protection Consultant. Mike has recently announced that he will be leaving the North American Securities Administrators Association at the end of September to form The LXR Group, a public policy consulting firm.  He and Dylan Bruce, CFA’s Financial Services Counsel, will be continuing Barb’s work in protecting American Investors.

Contact: Jack Gillis, 202-939-1018

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The letter outlines evidence of investor demand for improved disclosures related to a range of ESG issues, including climate risks, broader environmental concerns, diversity and inclusions, and human capital management. It argues that improved disclosure in this area are not only well within the Commission’s authority, but imperative for it to fulfill its mission to protect investors, promote fair and orderly markets, and facilitate capital formation. And it outlines specific recommendations regarding the content and format of the disclosures, the best mechanism for updating them over time, and other aspects of the securities markets in need of repair to make the disclosures effective.

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The letter outlines deep institutional failures at the Financial Accounting Standards Board (FASB), the Public Company Accounting Oversight Board (PCAOB), and the SEC’s Office of Chief Accountant. It calls on the SEC to:

• Reconstitute FASB and the Financial Accounting Foundation to include a majority of investor members with expertise in the use of financial reports and knowledge of the accounting standard-setting process;
• Undertake a top-to-bottom housecleaning at the PCAOB, including changing its leadership, increasing its budget, restoring the expertise of its staff, increasing the frequency and rigor of inspections and backing them up with strong enforcement, and reinvigorating the standard-setting process; and
• Appointing investor representatives as Chief and Deputy Chief Accountants in order to refocus that office on its investor protection mission.

“Market integrity, investor confidence, and the efficient allocation of capital all depend on complete, accurate, and comparable financial reporting. Currently, however, the institutions that make up the financial reporting infrastructure – FASB, PCAOB, and the SEC Office of Chief Accountant – are in a state of serious disrepair. …  We look forward to working with you to restore these entities to their appropriate role of ensuring that financial reports are complete, accurate, and comparable – to the benefit of investors, the markets, and the health of our economy,” the letter concludes.

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The groups lay out three concerns with the DOL information letter: 1) It fails to give adequate consideration to the capacity of the typical plan sponsor, offering a defined contribution plan to its workers, to conduct the required analysis. 2) It fails to present a balanced presentation of the potential risks and rewards of investing in private funds. 3) It contemplates permitting funds with a private equity component in certain types of investments – including collective investment trusts (“CITs”) and target date funds – without adequately weighing the particular risks they could pose to defined contribution plan participants.

The groups urge DOL to withdraw the June 2020 information letter, or at least suspend its implementation, while it takes the following three actions:

• Revise the information letter to incorporate a more complete and balanced analysis of the potential risks and rewards of private investments in order to support more informed decision-making by defined contribution plan fiduciaries with regard to the appropriateness of these investments for their employees.
• Include a warning to plan fiduciaries that, where they lack the financial knowledge and sophistication to assess the appropriateness of the investments and provide the necessary oversight, they must either get disinterested advice from a fiduciary who has the requisite expertise or refrain from including the investments on the plan menu.
• Study developments since the information letter was released to determine the extent to which funds with private equity exposure have been, or are anticipated to be, added to plan menus, what process is being used in their selection, whether those funds are being designated as QDIAs, and how any CITs with private equity exposure are structured.

“We believe these steps are necessary to help ensure that defined contribution plan fiduciaries base any decisions about whether to add funds with private equity exposure to plan menus on a balanced consideration of the benefits and risks. It would also help arm the Department with the information it needs to ensure that retirement plan participants are not being put at undue risk,” the letter concludes.

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The groups added, however, that “Guidance can only take us so far.” The letter outlines the additional rulemaking that is needed to “close legal loopholes that would otherwise enable firms to evade appropriate application of the fiduciary duty, and to ensure that the duties set forth in the Exemption actually reflect and implement the strong fiduciary standard set forth in ERISA.” The Department has indicated that it is considering additional rulemaking along these lines.

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The PCAOB was created in the wake of the Enron and Worldcom accounting scandals to oversee the audits of public companies “in order to protect the interests of investors and further the public interest in the preparation of informative, accurate, and independent audit reports for companies the securities of which are sold to, and held by and for, public investors.” The letter outlines a number of actions the PCAOB has taken in recent years that conflict with and undermine that mission, including replacing experienced staff with less qualified individuals, reducing its budget including for the critically important inspection function, dissolving its advisory boards, making policy changes without soliciting public comment, and deferring to industry-dominated groups in the standard-setting process, and operating in a non-transparent manner.

“Given the significant personnel changes, budget reductions and anti-regulatory activity at the PCAOB, there is considerable heavy lifting ahead to return the PCAOB’s focus to its primary mission of investor protection. Given their track record, we do not believe the current PCAOB Board members are up

to the task of re-focusing the PCAOB on its core mission because they are responsible for the dramatic shift away from what investors expect,” the former advisory group members wrote. “The circumstances surrounding the PCAOB compel the SEC to take immediate and assertive action to reverse the damage done over the past four years.”

They called on the new SEC Chair to act quickly to fill the current vacancy on the Board “with someone who is independent of auditing firms, highly competent and historically supportive of investors’ concerns relating to audit firm oversight and independence,” make that person chair, and reinstate the PCAOB’s advisory groups. “Together, these initial actions should begin to restore investors’ confidence in the public company audit process in the United States, however, more reforms will ultimately be needed,” they wrote.

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The bad news, Roper wrote, is that Regulation Best Interest, the Investment Advisers Act fiduciary guidance, and the Customer Relationship Summary all have serious deficiencies. “The good news is that we do not believe it will be necessary to scrap these rules and start from scratch in order to deliver the protections investors expect and deserve when they turn to financial professionals for help with their investments,” she added. “Despite their many flaws, these regulations can provide a framework on which to build a more robust regulatory approach.”

“For decades, the Commission has failed to live up to its central investor protection mission when it comes to the regulation of broker-dealers and investment advisers,” Roper concluded. “You have an opportunity to correct that failure, and we urge you to do so. It is, in CFA’s view, the most important step you can and should take to protect the interests of millions of financially unsophisticated individuals who turn to the markets to save for retirement or other important life goals and desperately need advice they can trust to navigate those decisions. CFA stands ready to do whatever we can to assist you in this effort.”

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The concern centers on Arkansas Teacher Retirement System v. Goldman Sachs Group Inc., which is scheduled to be taken up by the Supreme Court for oral arguments on March 29^th.

The case dates back to the 2008 financial crisis in which the shareholders held shares in Goldman Sachs stock, which dropped sharply when it became apparent that the financial giant had engaged in conflict-of-interest financial trades. During this time when Goldman was profiting from playing one set of customers off against another, it continued to issue solemn public assurances that it had “extensive procedures and controls that are designed to identify and address conflicts of interest” and that “[o]ur clients’ interests always come first.” When the news of Goldman’s practices finally surfaced, the price of the company’s stock plummeted, and those investors who had placed their trust in Goldman’s assurances about its high standards suffered heavy financial losses.

The statement on the case pending before the Supreme Court is signed by: American Association for Justice, American Federation of State, County and Municipal Employees, Alaska PIRG, American Family Voices, Americans for Financial Reform Education Fund, California Reinvestment Coalition, Center for Economic Integrity, Center for Economic Justice, Center for Justice & Democracy, Chicago Consumer Coalition, Columbia Consumer Education Council, The Committee for the Fiduciary Standard, Consumer Action, The Consumer Assistance Council Inc., Consumer Federation of America, Consumer Federation of California, Consumers for Auto Reliability and Safety, Delaware Community Reinvestment Action Council, Inc., Demand Progress Education Fund, Florida Silver Haired Legislature Inc., Fund Democracy, Institute for Agriculture and Trade Policy, International Brotherhood of Teamsters, Mid-Pinellas (Florida) Coalition of Neighborhood Associations, New Jersey Citizen Action, People’s Parity Project, Public Justice, Revolving Door Project, Service Employees International Union, Strategic Organizing Center, Texas Watch, U.S. PIRG, Virginia Citizens Consumer Council.

Individual signers of the statement include: Phyllis Borzi, Former Assistant Secretary, U.S. Department of Labor, James D. Cox, Professor of Law, Duke University School of Law, Erik F. Gerding, Professor of Law, University of Colorado Law School, Michael Greenberger, Professor of Law, University of Maryland Carey School of Law, and Lev Bagramian, a former Senate Banking Committee staffer.

As the statement notes: “… as Goldman continues to try and evade accountability by fighting against the class action moving forward, the issue before the Supreme Court is not whether the investors should ultimately prevail, but simply whether the investors will even be allowed the opportunity to have their arguments heard.”

“We believe that no company should be able to hide behind procedural issues to avoid accountability for clear misconduct. For over ten years, Goldman Sachs has done just that; fighting to prevent the case from moving forward to a discussion on the merits. Second, no company should be able to claim that the public statements they make about their high standards of conduct are meaningless. Indeed, the statements Goldman Sachs made about managing conflicts and acting in customers’ best interest carry specific regulatory meaning and thus cannot be dismissed as mere ‘puffery.’ Lastly, we believe that investors’ right to hold corporations accountable in court for securities fraud is critical to both deterring fraud and recouping investor losses. Together with strong government enforcement, private securities litigation helps to deter fraud and ensure the integrity and stability of the US capital markets.”

“Millions of Americans today are deeply disillusioned about the integrity of our markets, convinced that the markets are rigged against them. With this critical case, the Supreme Court has the opportunity to help restore their faith by showing that no company is too big or too powerful to be held accountable. Our hope is that, by allowing defrauded investors the right to seek accountability, the Court will make it clear that words do matter and companies have a responsibility to speak truthfully.”

In a news conference on March 18^th, leading pension, consumer, and legal experts outlined the stakes at play when the U.S. Supreme Court hears oral arguments on March 29^th in the Goldman Sachs case. To see that news event in its entirety, please go to https://www.youtube.com/watch?v=nk04klp8Cvo.

On March 3^rd, six former U.S. Securities and Exchange Commission commissioners – including  SEC Chairs William H. Donaldson and Arthur Levitt, Jr. – were among those cautioning the Supreme Court in an amicus brief about the peril of allowing Goldman Sachs to avoid facing an investor lawsuit related to false and misleading claims that the investment world giant admits that it made. Amicus briefs in opposition to Goldman Sachs also were filed by state securities regulators, investor advocates, pension funds, and others.

Contact: Barbara Roper,  719-543-9468

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“Millions of Americans today are deeply disillusioned about the integrity of our markets, convinced that the markets are rigged against them,” the groups warned. “With this critical case, the Supreme Court has the opportunity to help restore their faith by showing that no company is too big or too powerful to be held accountable. Our hope is that, by allowing defrauded investors the right to seek accountability, the Court will make it clear that words do matter and companies have a responsibility to speak truthfully.”

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“The main issue at stake here is opt-in vs. opt-out – what default works best to protect workers and retirees,” the groups wrote. “The notice-and-access rule adopted by DOL last summer abolishes the actual receipt standard, and replaces it with a rule structured to minimize the chances that workers and retirees will actually receive important disclosures. Under the new rule’s default, the plan’s obligations to furnish disclosures begins and ends with sending an email or text message to a consumer letting them know that a disclosure is available on a website. The entire onus of noticing the electronic alert, logging in and finding the document on the website, and printing it out for future documentation is shifted from the plan to the worker/retiree.

“Notice-and-access goes well beyond, and is far more anti-consumer than, simple electronic delivery of a document like receiving a PDF attachment in an email,” the letter continues. “Contrary to the body of research by behavioral economists to make defaults work to promote desired goals, the rule uses the force of inertia against the retirement security interests of consumers – “automatically enrolling” them in a disclosure regime that will discourage them from receiving, reading or preserving the documents.”

They called on DOL to “make it a priority to propose and adopt major revisions to this rule as soon as possible.”

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“Today’s vote is evidence of an agency that has abandoned its investor protection mission and shirked its responsibility to protect both investors and the health and integrity of our capital markets,” Roper said. “While the rules voted on today are technical, their combined effect is clear: they will make it easier for even very large companies to conduct their securities offerings in the opaque and poorly supervised private markets, thus avoiding having to provide the essential facts needed to value their securities, and they will make it easier for these private issuers to aggressively market those supposedly ‘private’ offerings to the general public.”

“As usual, SEC Chairman Jay Clayton is promoting these rules as beneficial for small company capital formation. But, as he has with increasing frequency in recent months, Chairman Clayton chose to move forward with these rules without any evidence or meaningful analysis of their likely impact on either capital formation or investor protection. With this vote, he cements his reputation as the most partisan, deregulatory, and anti-investor SEC chairman in recent history,” Roper added.

Democratic Commissioners Allison Herren Lee and Caroline Crenshaw both opposed the rules and issued strong statements voicing their dissent. “We greatly appreciate Commissioners Lee and Crenshaw for continuing to champion investor protection at an agency that has clearly lost sight of, or lost interest in, its central investor protection mission,” Roper concluded.

Contact: Barbara Roper, 719-543-9468

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