During House Hearing, SEC Chairman Jay Clayton Queried about US Attorney in Southern District of New York Selection, Expects Much of the Exempt Securities Ecosystem Review to be Finished by End of Fiscal Year

SEC Chairman Jay Clayton parried with members of the House Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets today. The topic of the hearing was, “Capital Markets and Emergency Lending in the COVID-19 Era,” but too few of the questions aligned with the subject the title claimed.

Much of the questioning line had to do with Clayton’s pending appointment as the new US Attorney for the Southern District of New York – something that turned into a bit of a political imbroglio when the person holding the office, Geoffrey Berman, was told he had resigned in an announcement by US Attorney General Bill Barr. Berman differed on the status of his resignation so President Trump fired him.

Escape from DC

Clayton expressed his ongoing desire to return to New York, where he was located prior to taking up the leadership role at the Commission. He explained that he was interested in continuing in a public service role and the Southern District of New York was of interest to him – something that was entirely his idea.

The Southern District of New York is sometimes called the Sovereign District of New York due to its clout and influence in the region. In the past, it has been used as a stepping stone to other political positions. In fact, Rudy Guiliani once held the position.

Clayton assured the subcommittee he was entirely dedicated to his leadership at the SEC and focused on the matters at hand – something that did not please some members of the subcommittee. Regardless, it can be anticipated that Clayton will move on to a different pursuit once his term has ended (or sooner).

Regarding other comments of note, Clayton was not willing to disclose any timing on the Commission’s review of the exempt securities ecosystem – a review that impacts all forms of investment crowdfunding. Clayton did state that he anticipates the review to be completed prior to the end of the fiscal year.

Clayton did state his interest in removing some of the “choppiness” for early-stage ventures seeking capital beyond a friends and family round up to, perhaps, $25 million.

Congressman Patrick McHenry, a long time advocate of small business and capital formation, urged Clayton to fix some of the things Congress got wrong in the JOBS Act of 2012 – the legislation that legalized online capital formation.

Regarding the current accredited investor definition,  Clayton, once again, expressed his belief that the current rule was binary and a “wealth test” is not the right test.

Clayton was asked about Robinhood, and the recent story of a young options trader who tragically took his life following his belief that his account was in the negative of around $730,000 – an amount that may have been an error. Clayton said that the SEC and FINRA are looking into this after telling the subcommittee he had just read the individual’s suicide note over the weekend. The trading app has boomed in popularity during the COVID lockdown and due to its commission-free service. The Fintech is now making certain changes following the suicide.




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