The New Deregulatory SEC

Big changes are afoot at the Securities and Exchange Commission. More IPOs, more crypto, and less enforcement are coming as the SEC becomes smaller and much more corporate-friendly. What might this mean for investors? Michelle Leder is a researcher covering corporate SEC filings; she founded the research service “Footnoted,” focusing on uncovering material information hidden in corporate SEC filings. She's the author of the book, “Financial Fine Print, Uncovering A Company's True Value.” Each week, “At the Money” discusses an important topic in money management. From portfolio construction to taxes and cutting down on fees, join Barry Ritholtz to learn the best ways to put your money to work. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

  At Brookfield, we believe you can own wealth that's measured in generations. Because true ownership looks beyond today and beyond cycles. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future. Providing investors access to alternative strategies built for what's next. Brookfield. Own what's next. Learn more at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. Past performance is not indicative nor a guarantee of future results. Please review performance and offering materials before investing.

• 0:38Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 1:21Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

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• 3:24Barry Ritholtz?

  Hey, what's going on with the rules for company disclosures? Are they changing? What's happening with crypto companies, mergers and acquisitions, even executive comp? It's now under a new regime at the SEC, and some shareholder activists are crying foul. What's going on with the new deregulatory zeal? To help us unpack all of this and what it might mean for your portfolio, let's bring in Michelle Leder. She is an SEC filing specialist and founder of the research service Footnoted, focusing on material information hidden in corporate SEC filings. She's also the author of the book Financial Fine Print.

• 4:10Barry Ritholtz?

  Covering a company's true value. So Michelle, let's start out talking about the new regulatory stance, or should I say deregulatory stance at the SEC. It's a little easier. It's a little more corporate friendly. What's the state of regulations for public companies these days?

• 4:30Speaker 05

  Yeah, I mean, you know, obviously, the basic rules haven't changed. I mean, you know, the 1933 Act is still there. All of those rules are still there. It's the enforcement that is, you know, a bit up in the air. You know, studies are showing that the SEC is doing a lot less enforcement these days, you know, and some of it is partly due to staffing issues, right? Like, the SEC, I think about 20% of the staff have left since the beginning, well, since January 20th, since, you know, Trump term two. You know, people left, or they took the buyout, or, you know, what have you. But, you know, enforcement, you know, either by number of cases, or the size of the settlements, the SEC is just

• 5:15Speaker 05

  kind of sleeping. They're just not as active as they've been in the past. And that's been well documented by some academic studies and some other people who follow that part of the SEC. You know, there's also been the dismissal of several big name cases, right? You know, so it's overall a deregulatory environment, much more so than, you know, the first Trump administration.

• 5:35Barry Ritholtz?

  So, Michelle, you mentioned the reduction in headcount. The IRS has seen a large headcount reduction, and that legitimately shows up in both enforcement and collection actions. The Senate released a report last year. You can actually see, for every dollar they spend on the IRS, here's how much we generate in taxes collected. That reduction has been some attrition, some of it from DOGE. It sounds like you're saying the SEC is seeing a very similar reduction. Did I hear you right? Did you say it's more than 20% of the staff? Is that enforcement staff, or just across the board?

• 6:16Speaker 05

  I think it's across the board. So presumably, it would include, you know, administrative folks, you know. I mean, it's, the numbers I've seen, it's about 20% across the board. And of course, the SEC has a lot of contractors, like outside people, so I think it also includes contractors. You know, there's no definitive headcount that I've seen, but this has been reported, you know, by multiple outlets, that's around 20%.

• 6:40Barry Ritholtz?

  Really interesting. And there's a new sheriff in town. Paul Atkins is the head of the SEC. Tell us a little bit about the philosophy and policies of the new SEC chairman.

• 6:52Speaker 05

  Well, you know, he's a former SEC commissioner, so you know, this is not his first time, you know, at the SEC, but it is the first time that, you know, he's chairman. He's known for being, you know, he's an attorney. You don't have to be an attorney to be an SEC commissioner, but almost always it is an attorney who is doing it. And he's just known for being a big booster of crypto in between the time like when he left the SEC last time and, you know, went to work, you know, in private practice. He was, you know, representing a number of crypto firms. And so he's of course, taking that, you know, background with him to the SEC. And so there's a lot of like, you know, I joke around like, you know, and I'm going to be dating myself here, but like, you know,

• 7:34Speaker 05

  that, you know, episode of the Brady Bunch where it was like Jan, Jan, Jan. Well, this is like crypto, crypto, crypto. And that's all it seems like the SEC is really focused on, you know, and, you know, there's normally, the other thing is that there's normally five SEC commissioners and there's only been four since Atkins came on board. It's typically the party in power. So the Republicans name three commissioners and then the party out of power, the Democrats name two, but there hasn't been, I'm sorry, not, the president has to name the SEC commissioners. So three from, you know, the majority party and two from the minority party.

• 8:16Speaker 05

  And so needless to say, there hasn't been a Democratic commissioner that's been named. So they're operating with only four. And it's so there's basically only one person who is kind of like sounding the alarm on all this crypto stuff. Anytime there's like a new regulation or like a change in regulations, you know, it's, it's kind of interesting to see, you know, what's said there, you know, about, you know, all of these changes that are going on.

• 8:44Barry Ritholtz?

  Beyond crypto, I've heard Atkins talk about the initial public offerings market, and he wants to jumpstart again. I kind of laughed at make IPOs great again. What are your thoughts on the regulation that some people have said the burdensome reporting requirements are leading American companies to stay private longer? What are your thoughts there?

• 9:12Speaker 05

  Look, I think that, you know, there is, you know, some regulation that probably could be trimmed, but do you do it with like, you know, a scalpel or do you do it with like a chainsaw? Um, you know, I think with anything, there's things that can always be made better and improved, right? Um, but I think this wholesale approach to like all regulation is bad and it's costing people money, um, is a little bit of an overkill. You know, I mean, you can make an argument, for example, they nixed the climate rules that they had been working on forever. You can probably make an argument that, you know, maybe the climate rules went a little bit too overboard. It was going to be cumbersome for companies, um, to do, you know, but, um, you know, climate

• 9:57Speaker 05

  change is real and, you know, some companies are impacted by it more than others and, you know, there should be disclosures because there is a risk to investors about that.

• 10:06Barry Ritholtz?

  So let's talk about what's probably the single biggest idea that's been floated by President Trump, doing away with quarterly earnings reporting. You're an SEC geek. What does this sort of thing mean from your perspective and what does it mean for investors?

• 10:26Speaker 05

  Yeah, so I think that, you know, um, first of all, let's remember, you know, I think they say like, oh, small companies. This is not like your corner store, you know, your little bodega in Manhattan and they're suddenly having to like, you know, put out a 10K or a 10Q. These are publicly traded companies that have gone, you know, are asking me and thousands of other investors for our money to, um, grow their business and to, you know, build their businesses. Now, this idea that, you know, you can go, um, you know, I, again, I think like, you know, you can throw out, I guess, the baby with the bathwater, so to speak. I hate to use that expression, but, um, you know, could there be a little bit less, um, you know,

• 11:10Speaker 05

  uh, in the quarterly earnings? Yeah, maybe we don't have to do like the PowerPoint presentation and the detailed earnings call and like the big thing, but still report earnings, you know, and, you know, give people a taste of what's going on. I think going to every six months would be really, you know, bad for investors overall. I mean, maybe it'll benefit the largest, most sophisticated investors, but, you know, other people who are invested in stocks, I think it's, it's just bad news.

• 11:39Barry Ritholtz?

  Yeah.

• 11:40Speaker 05

  Because a lot can happen in six months.

• 11:42Barry Ritholtz?

  To say the very least. Lot, lot happens in three months. So, so let's, let's talk about executive compensation. I, I have a lot of, a lot of questions to throw your way with this. And obviously, we have to start with Elon Musk and the trillion dollar package that the board approved. I, I don't see any way how he ever gets anywhere near that amount of money, but still, it seems like just crazy, sky's the limit amount of compensation. Are, are these giant stock grants a new trend? Is this something that's here to stay?

• 12:16Speaker 05

  Well, I mean, there's of course always been stock grants. I mean, you know, and you want to reward someone, you know, I'm all about, you know, rewarding someone for doing a good job, right? Like if a CFO, you know, manages to, or a CEO manages to turn around the company, you know, they should be rewarded. That's what, you know, that's what capitalism is about, right? Um, but I think that what we're seeing in the wake of the Elon vote, um, you know, where shareholders overwhelmingly approve the compensation. And I think, you know, Tesla is sort of a special situation, right? Because it's like a cult of personality. I mean, you know, nobody, I can't think of many other CEOs, let's say, that have that kind of like, you know, platform, that kind of, you know, um, personal.

• 13:01Speaker 05

  You know, identification to, I mean, you know, obviously because of, uh, you know, X and, and, you know, all of his followers on X. Um, so, you know, and, and the fans of Tesla, you know, the cars and everything. So it's a bit of a unique situation. But we're seeing in the wake of that situation, we're seeing a number of examples where executives are also being rewarded. And what seems like outsized awards and it's almost like, well, Tesla did it. So why can't we? Um, it's almost like it's created like a green light for, you know, giving away, um, you know, additional, um, equity. You know, I was just looking the other day, Room Info, which is, you know, a, a company that sells all our information to whoever, you know, the highest bidder.

• 13:44Speaker 05

  You know, gave its founder and its CEO, the guy had been there, has been there 18 years. And it gave him nearly 10 million shares to incentivize him. Does this guy really need 10 million shares to be incentivized? I mean, he's been at the company 18 years. You know, so where's the guy going? Um, you know, I think also the stock is not doing so great. So why is he being rewarded? Again, I think it comes down to the stock is doing great. Sure. Reward the CEO, reward the C suite. You know, but if the stock isn't doing good and you're giving away 10 million shares to someone. You know, who's been there to incentivize them, you shouldn't need to be incentivized to like turn the stock price around.

• 14:22Barry Ritholtz?

  Makes a lot of sense. Makes a lot of sense to me. Let, let's talk about executive compensation clawbacks. How often do we see either the company or its shareholders, or perhaps the SEC? Saying, hey, this compensation, uh, was, was very, um, undeserved, unearned. And we're going to try and claw some of this back. Tell us about that.

• 14:48Speaker 05

  Yeah. I mean, usually you're seeing that on the plaintiff lawyer side, like, you know, of course there's a very active plaintiff spar here in the U.S. Where, you know, if a company says that they're going to earn 25 cents a chair. And suddenly they, you know, report 20 cents a share. There's, you know, a whole group of lawyers, um, law firms that, you know, will then sue the company and try to, you know, do clawbacks and that type of thing. Um, you don't, you're not really seeing that on the SEC side so much, you know, a lot, most companies, or I would say a majority of companies do have clawback policies. But usually it's kind of rare, um, that, you know, uh, they clawback money. I mean, I can really only think of a couple of examples. Um, you know, where there's been, you know, a, you know, a clawback of compensation.

• 15:33Speaker 05

  It's, it's not something that happens all that regularly.

• 15:36Barry Ritholtz?

  So you mentioned crypto earlier. What is the regulatory framework look like for crypto? How, how have the rules changed? It seems like the S E C has fully embraced this.

• 15:49Speaker 05

  Yeah, I think there's just a general, let's say, fair approach to crypto at the S E C. Whereas, you know, which is very, very different. You know, than the prior, um, you know, um, S E C Chairman Gary Gensler. Um, you know, he was all about regulating crypto and trying to call it into account and, and, you know, making sure that, you know, it wasn't, um, you know, scamming people. And I would say that the current S E C is basically, you know, a 180 degree turn from that. Um, you know, and in fact, you know, I mean, I feel like crypto in terms of some of their rules and regulations, it seems to be the only thing that they care about. You know, they're talking about, you know, combining with, um, you know, um, doing, you

• 16:33Speaker 05

  know, regulatory combinations to kind of make it easier to do this. I think in general, different people have different views about crypto. I think that anything that makes it easier for people to get into crypto, especially less sophisticated investors is, is problematic. For me, as someone who cares about, you know, I, I don't think like someone's grandma should be in crypto.

• 16:56Barry Ritholtz?

  To say the very least. So what about cyber security disclosures? That, that seems to be a new requirement. It, it seems to be really important in the financial industry. How important is, is cyber security to any publicly traded company? What, what are their obligations there?

• 17:16Speaker 05

  Well, you know, anytime there's a cyber security, a couple of years ago in 2022, the S E C put in new rules. Again, this was under Gary Gensler that required a lot more disclosure about cyber security incidents. And they required companies to actually disclose this in an 8 K using a section, a particular section so that it could be found very easily. You know, instead of a cyber, you know, so that, you know, if you were looking for cyber security incidents, you can find them pretty quickly. But you know, companies are still disclosing this in haphazard ways, even though they're required to disclose this in a specific section of the AK. Many companies are not doing that. And you know, to be fair, the problem with a lot of these cybersecurity incidents is

• 17:58Speaker 05

  when companies first disclose them, they don't know if it's going to be like a, you know, a five, you know, thousand dollar, you know, fix or a 500, you know, million dollar fix, right? You know, oftentimes, you know, it takes time to get in there, figure out what's really going on. But of course, you know, these hacks and these cybersecurity incidents have gotten a lot more, you know, sophisticated these days. I'm sure like, you know, I mean, I can't count the number of text messages I get, you know, that, you know, seem alert. I got a new one the other day. Someone put an event on my calendar and was waiting for me to accept it. And I'm like, how did you even, you know, find this on my calendar? You know, so there's a lot of scamming going out there. And you can imagine if you're like a big company with a lot more money than, you know, Michelle

• 18:42Speaker 05

  Leader has, that, you know, um, the efforts are a lot more intense to try to figure out poke holes.

• 18:49Barry Ritholtz?

  Huh.

• 18:49Speaker 05

  You know, it's, you know, it's just, uh, it's, it's, you know, unfortunately, there's bad actors out there and cybersecurity, you know, is, is much more important. I mean, we do everything online these days. We pay our bills online, you know, and so, um, you know, there's a lot of, um, you know, I'm sure there's a lot of, a lot of incidents that are going on, some of which we probably don't even know about. Of course, if it's very big, I mean, you know, we kind of remember the ones like Home Depot had an incident a number of years ago. I mean, I feel like, you know, the number of times I've gotten an email from Kroll offering to like, you know, from some company offering to like, you know, secure my, you know, identity for a year, you know, has grown exponentially recently.

• 19:31Barry Ritholtz?

  Huh. Really, really interesting. So to wrap up, there's a new deregulatory regime in Washington DC. It's very crypto friendly. It's not particularly ESG or climate change friendly, and it's going to have an impact on what companies are obligated to disclose to their shareholders. We'll find out the impact of this over the next few years. I'm Barry Ritholtz. You've been listening to Bloomberg's At the Money.

• 20:15Speaker 00

  At Brookfield, we believe you can own wealth that's measured in generations. Because true ownership looks beyond today and beyond cycles. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future, providing investors access to alternative strategies built for what's next. Brookfield: Own What's Next. Learn more at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. Past performance is not indicative nor a guarantee of future results. Please review performance and offering materials before investing.

• 20:54Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk, and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 21:36Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 22:16Speaker 03

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• 25:00Speaker 02

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