Senator Elizabeth Warren Expresses Skepticism about SEC Chair’s Real Agenda

By Pam Martens and Russ Martens: September 27, 2017

Senator Elizabeth Warren Questions SEC Chair Jay Clayton During Senate Banking Committee Hearing, September 26, 2017


Donald Trump’s pick for Chairman of the Securities and Exchange Commission, Jay Clayton, had good reason to be nervous yesterday morning as he prepared to testify before the U.S. Senate Banking Committee. The ranking member of that Committee, Senator Sherrod Brown, had previously made his feelings known about Clayton’s fitness to serve as Wall Street’s top cop prior to Clayton’s Senate confirmation. Brown had stated:

“It’s hard to see how an attorney who’s spent his career helping Wall Street beat the rap will keep President-elect Trump’s promise to stop big banks and hedge funds from ‘getting away with murder.’ I look forward to hearing how Mr. Clayton will protect retirees and savers from being exploited, demand real accountability from the financial institutions the SEC oversees, and work to prevent another financial crisis.”

Wall Street On Parade did further investigation of Clayton around the time of his pending Senate confirmation and found that over the prior three years, Clayton had represented 8 of the 10 largest Wall Street banks as a law partner at Sullivan & Cromwell, where he had been employed for two decades.

Another problem for Clayton on the Senate Banking Committee is Senator Elizabeth Warren, who is known for coming to hearings armed with a deep trove of facts and statistics on Wall Street’s big, bad banks. Clayton seemed totally unprepared for Warren’s line of questioning yesterday, giving answers that raised further questions as to whose interests he was really representing.

SEC Chair Jay Clayton Responds to Questioning by Senator Elizabeth Warren During Senate Banking Committee Hearing, September 26, 2017


Warren reminded Clayton that in one of his first speeches as the SEC Chair, he had remarked that there had been “a 50 percent decline in the total number of U.S. listed public companies over the last two decades.” Warren said Clayton has used this rationale for reviewing and possibly reducing the disclosure burdens on public companies. Then Warren went in for the kill:

“I want to understand your thinking on this. You compared the number of companies today with the number of companies in 1996 and 1997… which as you know was at the height of the boom. And, as you know, there was a sharp increase in the number of public companies leading up to the 1996 and 1997 years and then a lot of those companies failed over the next few years, leaving Mr. and Mrs. 401(k) losin’ a whole lot of money. So when you pick 1996 and 1997 as your target years for comparison, were you arguing that those were the ideal market conditions for ordinary investors?”

Clayton responded that he would be happy to pick any five to seven year period over the last 20 years.

Warren then explained that the evidence shows that the decline in publicly-traded companies is primarily the result of public companies merging and acquiring other public companies. Warren said she hoped Clayton would soon be giving a speech supporting stronger anti-trust enforcement.

Warren then presented her hard data, stating:

“But let’s just look at the IPOs, since that has been your focus. You said you want to get more investors involved in emerging companies, which is why you want to see more companies going public. Now in 1996, the peak of the bubble, there were 624 IPOs with a total of $36 billion in deal volume. From 2012 to 2016, there were about half that number of IPOs but the average annual deal volume was higher than it was in 1996. In 2014, IPOs raised $96 billion, nearly triple the total deal volume in 1996. So, in other words, in the last few years, people are investing more money in IPOs than they did even at the height of the boom.

“So if your primary focus is on investors and not bankers and deal lawyers who make money on each of these IPOs, why do you care if there are fewer IPOs so long as IPOs overall are attracting more investor dollars?”

Clayton said he thought it was better for investors to get on board earlier in the growth stage of new companies. Warren pulled out more research debunking that claim, stating:

“The data show that having fewer but bigger IPOs is better for investors. The IPO companies now tend to have more revenue, they tend to perform better in the long run than in the past when there were more IPOs and more failures. Which looks to me like a positive outcome for Mr. and Mrs. 401(k).”

Warren continued:

“Loosening the disclosure and registration requirements may make life a whole lot more profitable for a handful of bankers and for corporate attorneys, who just want more IPOs in the system, but there is no evidence that it will make life better for investors. And it is investors, not bankers and lawyers, who you are supposed to be watching out for at the SEC.”

Clayton’s response was simply, “I understand that.”

Senators are given very little time to make their case at these Senate hearings. While Warren has honed her ability to get critical information before the American people in a short period of time, here is what else she could have gotten on the record about Wall Street’s jaded history of rigged IPOs, had she had more time.

As we explained in detail in 2008, this is how the IPO market actually operated on Wall Street:


“Why did people buy into this mania for brand new, untested companies when there is a basic caveat that most people in this country know, i.e., the majority of all new businesses fail? Common sense failed and mania prevailed because of massive hype pumped by big media, big public relations, and shielded from regulation by big law firms, all eager to collect their share of Wall Street’s rigged cash cow.”

If history is any guide, Jay Clayton will be returning to his lucrative partner status at Sullivan & Cromwell after he leaves the SEC. Does he really want to anger his colleagues at the firm or their Wall Street clients?

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