House Financial Services Committee And House Of Representatives Address Capital Formation Related Bills
This past week, the House Financial Services Committee considered and passed a few bills that would, if passed by the House, result in changes to the securities laws. These include:
The Investor Protection and Capital Markets Fairness Act (H.R.4344), a bill by Representative Ben McAdams (D-UT), would substantially strengthen the authority of the Securities and Exchange Commission (SEC) to recover the wrongful gains of securities law violators for investors. The bill passed the Committee by a bipartisan vote of 49-5. This would overturn the recent Supreme Court decision in Kokesh v. SEC, which held that disgorgement is a penalty and is therefore subject to a five-year statute of limitations. As a result of that case, the SEC may only bring cases for disgorgement within five years of the date of the violation, regardless of whether the SEC was able to detect it within five years of the violation.
The Greater Accountability in Pay Act (H.R. 4242), a bill by Representative Nydia Velázquez (D-NY), would require public companies to disclose the pay raise percentage of their executives and of their median-pay employees over the past year and compare these percentages to the rate of inflation. The bill passed the Committee by a vote of 32-21.
The 8-K Trading Gap Act (H.R. 4335), a bill by Representative Carolyn Maloney (D-NY), Chair of the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, would fix a supposed loophole to prevent corporate insiders from profiting based on nonpublic information. The bill passed the Committee by a unanimous, bipartisan vote of 52-0. The bill would address the 4-day "gap" that may exist between the occurrence of a material event and its disclosure on a Form 8-K and the possibility that insiders may trade on material nonpublic information.
The ESG Disclosure Simplification Act (H.R. 4329), a bill by Representative Juan Vargas (D-CA), would require public companies to disclose information on their environmental, social and governance (ESG) practices. The bill passed the Committee by a vote of 31-22. The bill would require the SEC to engage in rulemaking to identify ESG information that would be required to be disclosed by public companies in their proxy statements.
The Corporate Management Accountability Act (H.R. 4320), a bill by Representative Katie Porter (D-CA), would require public companies to disclose their policies on whether senior executives or shareholders bear the costs of paying the company's fines and penalties, in order to help prevent the cost of fines being passed off to investors. The bill passed the Committee by a vote of 31-22.
The House of Representatives passed H.R. 3625, the PCAOB Whistleblower Protection Act of 2019, a bill that would protect individuals who blow the whistle on violations and bad actors by establishing a whistleblower program at the Public Company Accounting Oversight Board (PCAOB) similar to the program at the SEC. This bill was introduced by Rep. Sylvia Garcia (D-TX). It was passed by a voice vote.