Encouraging Employee Ownership Act of 2015
Floor Speech
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Ms. MAXINE WATERS of California. Mr. Chairman, I yield myself such time as I may consume.
Mr. Chairman, I rise today in strong opposition to H.R. 1675. It is really a package of five bills which will harm investors and, perversely, the very small businesses Republicans say they want to help. It does so by ignoring and supplanting the good judgment of the Securities and Exchange Commission, which has already sought to provide small businesses with regulatory relief in these same areas while also ensuring that investors in those businesses have the protections they deserve.
The SEC's balanced approach makes sense as investors who are not confident in the integrity of our markets will simply not invest, which means that job-creating companies will not have the capital they need to grow. In particular, this bill would reduce corporate transparency for employee stockholders by allowing private companies to compensate their employees with up to $10 million in stock every year without having to provide them with relatively simple disclosures about the financials of the company or the risk associated with these securities.
Mr. Chairman and Members, I am not going to attempt to hide the facts of this bill with a lot of rhetoric. The fact of the matter is, if employees are being given stock up to $10 million that they don't know the value of, and the companies don't have to disclose anything about the stock, they could end up with worthless stock, not worth anything, where they had great expectations that somehow in lieu of raises and more money that they probably deserve, they are being given rotten stock.
This provision would double the current disclosure threshold, allowing larger companies with at least $34 million in total assets to encourage overinvestment by employees in a company that they cannot value and that may never permit them to sell except back to the company at a price set by the company. That is another aspect of this.
This type of deregulation invites more Enron-type fraud into the market. Remember Enron? I hope we have not forgotten it already and what happened to those employees. Sometimes you had two members of the family, the husband and the wife, who both had this bad stock that they couldn't sell back, they couldn't do anything with, where employees have to trust the accounting of their companies but instead are left with valueless stock.
Similarly, this bill would exempt over 60 percent of public companies from using a computer-readable format known as XBRL in their SEC filings. Exempting such a large number of filers would prevent these companies from being easily compared to other companies that use XBRL, to the disadvantage of analysts, researchers and the SEC, investors, and even the companies themselves.
Basically, what you are doing is saying, we are going to have a bill here that would prevent the kind of information that analysts and researchers, the SEC and investors should have, comparing them with other companies because somehow we want to protect those who don't want people to really know what their worth is.
This is very serious stuff. According to the SEC's Investor Advocate, this exemption seriously impedes the ability of the SEC to bring disclosure into the 21st century. That is their quote.
Title III of the bill further supplants the SEC's good judgment by significantly expanding the Commission's recently provided relief for certain mergers and acquisition brokers without imposing eight important investor protections granted by the SEC. As a result, bad actors who may have committed fraud and shell companies could use this relief and brokers wouldn't have to make basic disclosures about their conflict of interest.
In committee markup, Democrats attempted to close these loopholes, but our efforts were rejected in a party-line vote.
Can you imagine that the SEC has taken a big step, and they have listened to concerns, they have listened to complaints, and they have gone overboard to make sure that they were providing relief for certain kinds of mergers and acquisitions.
What this bill would do is take away the ability of the SEC to have investor protections that they have already been granted.
So again, this bill, which includes five bills all designed, basically, to disregard the investors, disregard the small-business people, disregard the average American citizen, is a bill that would simply go in the wrong direction, helping the corporations who would simply not want to disclose and not want to be seen for what they are.
Title II also fails to sufficiently protect investors, as it eliminates offering liability for brokers who, under the guise of providing exchange-traded funds, or ETFs, could selectively use data to promote and sell highly risky, complex, and little-known ETFs to unsuspecting investors.
Finally, the bill seeks to impose additional regulatory burdens on the SEC by requiring it to conduct a duplicative and more onerous retrospective review of its rules.
Specifically, title V would require the SEC to, within 5 years of enactment, review and revise all of its rules, which I should mention date back to 1934. It would also allow the SEC to override congressional mandates, including those in the Dodd-Frank Wall Street reform bill.
Republicans on the Financial Services Committee are always claiming that the SEC is unresponsive to Congress, yet this provision in the bill would allow the Commission to unilaterally repeal the will of Congress at their whim. Indeed, this title is a thinly veiled Republican attempt to impose cost-benefit type analyses on our regulators as a means of eliminating rules designed to benefit the public and protect investors.
H.R. 1675 is an anti-investor bill that will reduce transparency, establish additional administrative burdens on the SEC, and create easily exploited loopholes for bad actors.
It is well known that Members on the opposite side of the aisle do not like our ``cop on the block,'' which is the SEC. While they talk about what the SEC will, can, or will not do, they simply try and strangle it by being opposed to them having the adequate funding that they need in order to do their job.
So, when we hear today, for example, as the chairman said, that he would be willing to support some funding for the SEC, it is very important that they put their money where their mouths are and make sure that the SEC has the money to do its job.
In conclusion, this bill goes in the wrong direction. It is unfortunate that, at a time when we have gone through a recession based on 2008 and the unwillingness or the inability for our regulatory agencies to watch over our investors and to watch over our average small-business people and homeowners, et cetera, and while we are trying desperately to clean up this mess with Dodd-Frank reforms, we would come in here at this time, having experienced all of this, with a bill like this that would try and protect the worst actors in the financial services industry.
I urge my colleagues to oppose H.R. 1675.
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Ms. MAXINE WATERS of California. I yield 3 minutes to the gentlewoman from Ohio, (Mrs. Beatty), a member of the Financial Services Committee.
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Ms. MAXINE WATERS of California. Mr. Chairman, I yield 3 minutes to the gentleman from Massachusetts (Mr. Lynch), the ranking member of the Task Force to Investigate Terrorism Financing on the Financial Services Committee.
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Ms. MAXINE WATERS of California. I yield another 30 seconds to the gentleman.
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Ms. MAXINE WATERS of California. Mr. Chairman, I yield 3 minutes to the gentlewoman from New York (Mrs. Carolyn B. Maloney), the ranking member of the Subcommittee on Capital Markets and Government Sponsored Enterprises of the Financial Services Committee.
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Ms. MAXINE WATERS of California. I yield the gentlewoman an additional 1 minute.
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Ms. MAXINE WATERS of California. Mr. Chairman, I yield 3 minutes to the gentlewoman from Illinois (Ms. Schakowsky), a true progressive champion.
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Ms. MAXINE WATERS of California. Mr. Chairman, I yield myself such time as I may consume.
Mr. Chairman and Members, when my colleague from Massachusetts came to the floor and started to talk about this bill, he said this is a bad bill, and included in this bill a total of five bad bills.
As we go through each of these bills, we cannot help but wonder why any public policymaker would want to endanger small businesses and investors in the way that this bill does. One must ask one's self why, why would any elected official want to eliminate financial disclosures for employees regarding their stock compensation? Why would you want to do that? Why don't you want employees to know what they are being given? Why don't you want employees to understand that this stock that they are being given may or may not be worth the paper that it is written on? Why would we want to keep this information away from them?
As it was stated by the gentlewoman from Illinois, she said basically that many of these companies are not increasing wages. As a matter of fact, we have stagnation in wages in this country and in all of the major companies, for example. So what is happening is these employees believe that when they are being given stock instead of a raise, then maybe they have something valuable.
They need to know what they are getting. They need to know exactly what their company is holding out to them is valuable. So I raise the question, why would any public policymaker want to keep this information from employees?
Further, the opposite side of the aisle always talks about they are for dealing with crime, that they are about criminal justice. But here they are allowing bad actors to engage in small business mergers and acquisitions. I am talking about people who have been convicted. I am talking about people whom you have administrative orders against. I am talking about swindlers. I am talking about bad people that will be allowed, by this bill, to engage in small business mergers and acquisitions. I don't understand it, and I don't know why.
Increasingly, the people of this country are looking at the Members of Congress, and they are saying that they are not with us, they are against us, and that we don't have anybody that is really protecting our interests. More and more, it is being discussed. They are finally getting on to it that somehow too many of the Members of Congress are siding with the big guys, siding with the large corporations, and with the big banks, and not looking out for the interests of the people. They want to know why.
Again, title III of this bill would significantly expand an exemption for registration granted by the SEC to certain mergers and acquisition brokers who deal with small businesses without providing significant protections for those businesses or investors.
Last Congress when we considered this exemption, it was meant to prompt action by the SEC to finalize its no-action letter to exempt these merger and acquisition brokers from registration. Two weeks after that bill passed the House floor, the SEC granted relief. Yet you wouldn't know it if you read this bill. This bill ignores that relief, and, worse, it inexplicably omits eight--omits eight--of the important investment protections that it includes.
As a result, it would allow, again, these bad actors, these cheaters, these people who commit fraud, and these scammers to use this exemption providing them with an opportunity just to swindle our small businesses. Yet they claim they support small business.
It is fashionable to say, ``I am for small business.'' Everybody is for small business. But when you take a look at what we do, you can determine who is for the small business and who really are for the big businesses, for the swindlers, and for the cheaters who rob small businesses of the opportunity to be successful.
It would also allow M&A brokers to merge public shell companies that have no assets of their own.
Even some of my Republican colleagues who will be offering an amendment to add in these two protections are unable to justify the omission, but my friends on the opposite side of the aisle completely ignore the other six investor protections in the SEC's no action relief.
I am not going to go any further with that. That is quite obvious.
But let me say this. Not only do we have these bad bills with bad public policy, we have a trick in the bill and the bill attempts to tie the hands of the SEC by saying they need to go back--oh, back to 1934 and review everything that they have done, all of these regulations.
Do you know why they are doing that? It is the same reason that they won't support them getting additional funding to do their job. They just want to tie their hands so that they won't be able to do the job that they are supposed to do.
When we call these bills bad, we are simply not sharing with you some rhetoric about some meaningless harm that may come because of these bills. We are telling you these are harmful bills, these are truly bad bills.
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Ms. MAXINE WATERS of California. Mr. Chairman, I continue to reserve the balance of my time.
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Ms. MAXINE WATERS of California. Mr. Chairman and Members, I yield myself such time as I may consume.
Since the gentleman from New Jersey talked about the President and blamed him for everything he could think of, the administration is sending you a message. The administration strongly opposes H.R. 1675.
``Among other flaws, this bill includes several provisions that pose risks to investors, are overly broad, allow financial institutions to avoid appropriate oversight, and are duplicative of existing administrative authorities.''
Thank you from President Obama.
H.R. 1675 is yet another Republican attempt to deregulate Wall Street during the 114th Congress. We have seen time and time again that Republicans will stop at nothing to launch attacks at the expense of American consumers and taxpayers in order to help the largest Wall Street banks. This bill is another example of these tactics.
So far during this Congress, Republicans on the Financial Services Committee have taken a number of measures to undermine consumers, undermine investors, and undermine financial stability. Some of the worst examples of this include:
Change in the structure of the Consumer Financial Protection Bureau. Ladies and gentlemen, the Republicans hate the Consumer Financial Protection Bureau, and they have tried to bog the agency down in partisan gridlock and disfunction. Republicans never wanted to create the CFPB. Now that it is there and it is successful, they want to undercut it.
Deregulating large banks by removing the enhanced prudential standards established by the Dodd-Frank Act. This would allow large regional megabanks to escape basic rules related to capital, liquidity, and leverage established after the crisis.
Allowing discriminatory markups on automobile loans for racial and ethnic minority borrowers. Republicans want auto finance companies to be able to gouge minority consumers with interest rate markups even when those consumers are equally creditworthy compared to their White counterparts.
Removing consumer protections on mortgages for the largest banks. The Republicans would remove vital consumer protections from the riskiest mortgage products sold by the largest banks in this country.
The bill also would allow mortgage brokers to get hefty bonuses for steering borrowers into expensive and complex mortgage products.
Eliminating Dodd-Frank protections related to manufactured housing loans, thereby allowing consumers to be charged sky-high interest rates without providing them guaranteed housing counseling or legal recourse.
Undermining the Financial Stability Oversight Council. Our consolidated regulator in charge of monitoring systemic risk among the financial system by doubling the time it would take for them to designate risky nonbank companies for extra supervision.
We should not be surprised about this bill today. It is consistent with everything that they have been doing in order to protect Wall Street, the biggest banks that are too big to fail. This again is consistent with everything they have been doing.
I yield back the balance of my time.
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Ms. MAXINE WATERS of California. Mr. Chairman, I rise in opposition to the amendment even though I am not opposed to the amendment.
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Ms. MAXINE WATERS of California. Mr. Chairman, I would like to thank Mr. Huizenga for addressing one of the many glaring problems with this bill.
Title III of this bill significantly expands an exemption granted by the SEC to certain brokers but without providing the significant protections the SEC deemed important for small businesses or investors.
This amendment would prevent people who have committed fraud and securities violations--individuals who couldn't sell used stock but who could sell your small business in the underlying bill--from claiming this exemption.
However, why does the amendment limit the bad actor provision to just this title? Why not make it explicit that persons and companies that have committed fraud are not eligible to take advantage of any of the exemptions provided in this act?
I also appreciate that the amendment prevents public shell companies from taking advantage of this title, which would otherwise allow private companies to circumvent important public company disclosure requirements.
Mr. Chairman, I would like to know why the author completely ignores the other six investor protections in the SEC's no action relief. I am not aware of any witness before our committee who explained how these other investor protections were burdensome. Indeed, they seemed like commonsense protections.
For example, the SEC required merger and acquisition brokers who represent both parties of the transaction to obtain the consent of both parties to that conflict of interest. Similarly, the SEC prohibited M&A brokers from engaging in private placements and arranging buyer financing because the narrow exemption from registration is intended for persons who fairly facilitate the merger of small businesses, not for the promoters who are compensated for their ability to hype up the value of the companies and attract new investment.
If Republicans truly wanted to codify the SEC's administrative action to provide legal certainty for these brokers, then they should have accepted the Democratic amendment adding back in these protections. But that isn't the point of this bill, and this amendment is just a sleight of hand that all is well.
Let me just mention here that registered broker-dealers are subject to a variety of regulatory requirements that nonbroker-dealer M&A advisers are not, including, without limitation, regarding antimoney laundering, privacy of customer information, supervisory reporting and recordkeeping requirements, inspections by the SEC and SRO, such as FINRA, supervision and regulation of employees' trading and outside business activities, insider trading, and regulations governing interactions between a broker-dealer's investment banking and research departments.
H.R. 686 risks promoting lower standards and less rigor and regulatory oversight in the providing of this important advice.
It is worthy to add that SIFMA is opposed to the amendment.
I yield back the balance of my time.
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