REPORT ON ACTIVITIES FISCAL YEAR 2021

Office of the 

Investor Advocate

U.S. SECURITIES AND EXCHANGE COMMISSION

REPORT ON ACTIVITIES: FISCAL YEAR 2021 | i

OFFICE OF THE INVESTOR ADVOCATE

REPORT ON ACTIVITIES

FISCAL YEAR 2021

Section 4(g)(6) of the Securities Exchange Act of 1934 (Exchange Act), 15 U.S.C. § 78d(g)(6), 

requires the Investor Advocate to file two reports per year with the Committee on Banking, 

Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House 

of Representatives.1 A Report on Objectives is due no later than June 30 of each year, and its 

purpose is to set forth the objectives of the Investor Advocate for the following fiscal year.2 On 

June 29, 2020, the Office of the Investor Advocate (Office) filed a Report on Objectives for Fiscal 

Year 2021.3

In addition to the Report on Objectives, a Report on Activities is due no later than December 31 

of each year.4

 The Report on Activities describes the activities of the Investor Advocate during the 

immediately preceding fiscal year. As required, this Report on Activities includes information on 

steps the Investor Advocate has taken during Fiscal Year 2021 to improve the responsiveness of 

the Securities and Exchange Commission (Commission or SEC) and self-regulatory organizations 

to investor concerns; a summary of the most serious problems encountered by investors during 

the reporting period; identification of action taken by the Commission or self-regulatory 

organizations to address those problems; and recommendations for administrative and legislative 

actions to resolve problems encountered by investors.5
Functions of the Investor Advocate Reporting Obligation

According to Exchange Act Section 4(g)(4), 

15 U.S.C. § 78d(g)(4), the Investor Advocate shall:

(A) assist retail investors in resolving significant 

problems such investors may have with the 

Commission or with SROs;

(B) identify areas in which investors would 

benefit from changes in the regulations of the 

Commission or the rules of SROs;

(C) identify problems that investors have with 

financial service providers and investment 

products;

(D) analyze the potential impact on investors of 

proposed regulations of the Commission and 

rules of SROs; and

(E) to the extent practicable, propose to the 

Commission changes in the regulations or 

orders of the Commission and to Congress 

any legislative, administrative, or personnel 

changes that may be appropriate to mitigate 

problems identified and to promote the 

interests of investors.

According to Exchange Act Section 4(g)(6)(B), 15 

U.S.C. § 78d(g)(6)(B), the Investor Advocate shall 

submit to Congress, not later than December 31 of 

each year, a report on the activities of the Investor 

Advocate during the immediately preceding fiscal 

year. This “Report on Activities” must include the 

following:

(I) appropriate statistical information and full and 

substantive analysis;

(II) information on steps that the Investor 

Advocate has taken during the reporting 

period to improve investor services and the 

responsiveness of the Commission and SROs 

to investor concerns;

(III) a summary of the most serious problems 

encountered by investors during the reporting 

period; 

(IV) an inventory of the items described in 

subclause (III) that includes—

(aa) identification of any action taken by the 

Commission or the SRO and the result 

of such action;

(bb) the length of time that each item has 

remained on such inventory; and 

(cc) for items on which no action has been 

taken, the reasons for inaction, and 

an identification of any official who is 

responsible for such action;

(V) recommendations for such administrative and 

legislative actions as may be appropriate to 

resolve problems encountered by investors; 

and 

(VI) any other information, as determined 

appropriate by the Investor Advocate.

Disclaimer: Pursuant to Exchange Act Section 4(g)(6)(B)(iii), 15 U.S.C. § 78d(g)(6)(B)(iii), this Report on Activities is 

provided directly to Congress without any prior review or comment from the Commission, any Commissioner, any other 

officer or employee of the Commission outside of the Office of the Investor Advocate, or the Office of Management and 

Budget. This Report on Activities expresses solely the views of the Investor Advocate. It does not necessarily reflect the 

views of the Commission, the Commissioners, or staff of the Commission, and the Commission disclaims responsibility 

for this Report on Activities and all analyses, findings, and conclusions contained herein.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | iii

CONTENTS

MESSAGE FROM THE INVESTOR ADVOCATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

ADVOCACY FOR INVESTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Corporate Disclosure and Investor Protection in Registered and Exempt Offerings. . . . . . . 3

Proxy Voting and Other Proxy Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Equity Market Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Novel Exchange-Traded Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Registered Fund Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Broker Conduct. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Accounting and Auditing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

PROBLEMATIC INVESTMENT PRODUCTS AND PRACTICES. . . . . . . . . . . . . . . . . . . . 17

Payment for Order Flow from Retail Investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Meme Stocks and Fundamental Valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Special Purpose Acquisition Companies (SPACs). . . . . . . . . . . . . . . . . . . . . . . . . . . 21

RESEARCH AND INVESTOR TESTING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Mutual Fund Knowledge in the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26

Mutual Fund Fee Jargon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

OUTREACH AND INVESTOR ENGAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

OMBUDSMAN’S REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Service By the Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Service Behind the Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

Streamlined Communications with Retail Investors. . . . . . . . . . . . . . . . . . . . . . . . . . 41

Ombudsman Role and Standards of Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Areas of Interest and Importance to Retail Investors. . . . . . . . . . . . . . . . . . . . . . . . 46

Outreach and Engagement Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

Outlook for Fiscal Year 2022. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

SUMMARY OF INVESTOR ADVISORY COMMITTEE RECOMMENDATIONS AND

SEC RESPONSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

ENDNOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 1

MESSAGE FROM THE

INVESTOR ADVOCATE

As we conclude another busy year, I am 

pleased to submit our annual report on the 

wide-ranging and important activities of 

the Office of the Investor Advocate. Earlier this year, 

staff in the Office were honored with the prestigious 

Chair’s Award for Investor Protection, and I join 

SEC Chair Gary Gensler in thanking my team for 

their dedication to the mission of our Office and 

their service to investors throughout America.

Fundamentally, our advocacy role involves 

providing a voice for investors when, unbeknownst 

to most of those investors, important policy 

decisions are being made that will have an impact 

on them. Of course, the vast majority of investors 

are not familiar with the regulatory structure that 

protects their interests, nor does the typical retail 

investor stay abreast of rulemaking initiatives at the 

Commission or participate in the public comment 

process. So we work to help ensure that the needs 

of these investors—the Commission’s most critical 

constituency—are being considered as changes are 

made to the regulations that create an environment 

for investors to pursue their financial goals.

As described in the section of this Report entitled 

“Advocacy for Investors,” the attorneys in 

our Office of Chief Counsel review numerous 

rulemakings during the course of the year. Less 

apparent, though, are their constant interactions 

and negotiations with rulemaking teams across the 

Commission, advocating for investors behind the 

scenes. During Fiscal Year 2021, we have engaged 

in advocacy related to a multitude of topics, 

including corporate disclosure requirements, the 

proxy voting process, and 

equity market structure, 

among others. These 

are highly technical 

areas that are of great 

importance to investors, 

and the experienced 

attorneys in our Office 

of Chief Counsel provide 

incalculable service to 

investors as they analyze 

rulemaking proposals and 

help to ensure that the interests of investors are 

being served to the fullest possible extent. 

Meanwhile, we continue to conduct investorfocused research to determine how rulemaking 

activities will affect individual investors. We 

believe this initiative is a critical part of our work, 

as it lays an evidence-based foundation for our 

advocacy efforts. In the section below entitled 

“Research and Investor Testing,” we describe 

the projects that were part of our research efforts 
2 | OFFICE OF THE INVESTOR ADVOCATE

in Fiscal Year 2021. I am also pleased to report 

that Chair Gensler is allocating more resources 

to this important work, and we look forward to 

harvesting even more fruit from this labor in the 

months and years ahead.

To help us judge what is in the best interest of 

investors, we also engage in outreach with a diverse 

array of them. These outreach efforts, organized by 

our Investor Engagement Manager Adam Anicich 

with the assistance of numerous staff, generate 

conversations with real people who are making 

investment decisions. This gives us an opportunity 

to hear what they think about topics such as 

cryptocurrency and sustainability-focused investing. 

These activities are described in more detail below 

in a new section of this Report entitled “Outreach 

and Investor Engagement.”

Finally, I am pleased to include below the 

Ombudsman’s Report from SEC Ombudsman 

Tracey McNeil. She and her team interact daily 

with members of the public on a wide range of 

issues. These interactions often require a high 

degree of patience, and it takes wisdom and 

persistence to address the problems that investors 

identify. We take pride in the level of service we 

provide to investors, as more fully detailed in the 

Ombudsman’s Report. 

It is a high honor to have this role in advocating 

for investors. On behalf of the professionals in the 

Office of the Investor Advocate, who are the true 

tireless advocates, I present this Report on Activities 

for Fiscal Year 2021. I would be pleased to answer 

any questions from Members of Congress.

Respectfully Submitted,

Rick A. Fleming

Investor Advocate 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 3

ADVOCACY FOR 

INVESTORS

On June 29, 2020, the Office of the 

Investor Advocate filed a Report on 

Objectives for Fiscal Year 2021.6 The 

Report on Objectives identified six key policy 

areas that would be the primary focus of the Office 

during Fiscal Year 2021:7

 corporate disclosure, 

proxy voting, equity market structure, novel 

exchange-traded funds, registered fund disclosure, 

and broker conduct. This section of our annual 

Report on Activities describes our activities and 

recommendations within each of those policy areas 

from October 1, 2020 to September 30, 2021 

(the Reporting Period). It also describes some 

additional work we have done related to 

accounting and auditing.

CORPORATE DISCLOSURE AND 

INVESTOR PROTECTION IN 

REGISTERED AND EXEMPT OFFERINGS

As described in our prior reports, the Commission 

has undertaken a comprehensive Disclosure 

Effectiveness initiative to review and modernize 

public company reporting requirements. The 

disclosure rules govern the information contained 

in registration statements, routine periodic 

reports, and proxy statements. Many of these 

rulemaking projects have been in the nature 

of streamlining, clarifying, and updating rules 

where feasible. During the Reporting Period, we 

generally supported revisions that codified prior 

guidance, accounted for changes in related rules 

or accounting standards, or mandated the use 

of structured and standardized disclosures. At 

the same time, we opposed the elimination of 

disclosures that investors deemed decision-useful.

On November 19, 2020, the Commission adopted 

changes that eliminated Item 301 (selected financial 

data) and amended Item 302 (supplementary 

financial data) and Item 303 (management’s 

discussion and analysis) to modernize, simplify, and 

streamline these items with a more principles-based 

approach that focuses on material information.8

We advocated for retaining a number of the 

prescriptive disclosure requirements based on 

feedback from investors that the disclosures elicited 

were valuable and otherwise difficult to derive. The 

Investor Advisory Committee (IAC) recommended 

that the Commission reconsider proposed changes 

that would permit registrants to omit fourthquarter data from annual reports and forego 

presenting contractual obligations in an easy-tofollow tabular format.9

 The Commission, however, 

adopted the changes substantially as proposed.

We reviewed other rulemakings that were not part 

of the Disclosure Effectiveness initiative but were 

otherwise relevant to capital raising, disclosure, and 

investor protection. We have previously reported 

on the Commission undertaking a broad review 
4 | OFFICE OF THE INVESTOR ADVOCATE

of the regulatory framework for exempt offerings 

with the objective of harmonizing and streamlining the rules. During the Reporting Period, the 

Commission advanced rulemakings stemming from 

that review.

On November 24, 2020, the Commission 

proposed amendments to Securities Act Rule 701, 

which provides an exemption from registration 

for the issuance of compensatory securities by 

non-reporting issuers, and Form S-8, the Securities 

Act registration statement for compensatory 

offerings by reporting issuers.10 These proposed 

amendments seek to modernize the framework

for compensatory securities offerings in light

of the significant evolution in compensatory 

offerings and composition of the workforce 

since the Commission last substantively amended 

these regulations.11

The proposed amendments to Rule 701 would 

raise two of the three alternative regulatory 

ceilings and make the exemption available for 

compensatory benefit plans established by the 

issuer’s subsidiaries, whether or not majorityowned. Specifically, the proposed changes would 

raise the asset cap from 15 percent to 25 percent 

of the total assets of the issuer, and would increase 

the aggregate dollar amount from $1 million to $2 

million during any consecutive 12-month period. 

The third alternative ceiling, 15 percent of the 

outstanding amount of the class of securities being 

offered and sold, would remain the same. With 

respect to Form S-8, the proposed amendments 

would clarify the ability to add multiple plans to 

a single Form S-8 and to allocate securities among 

multiple incentive plans on a single Form S-8, and 

permit the addition of securities by automatically 

effective post-effective amendments.12

In a companion release, the Commission proposed 

rules that, on a temporary basis and subject to 

percentage limits (no more than 15 percent of 

annual compensation), dollar limits (no more than 

$75,000 in three years), and other conditions, 

would permit an issuer to provide equity 

compensation to certain “platform workers” who 

provide services available through the issuer’s 

technology-based platform or system.13 We are 

pleased that, to date, neither this proposal nor the 

proposed changes to Rule 701 have been finalized 

by the Commission.

In recent public remarks, SEC Chair Gary Gensler 

announced that proposing rules regarding 

climate change and human capital risks would 

be among his top priorities and “an early focus” 

of his tenure.14 These objectives follow increasing 

demand from investors for Commission emphasis 

on environmental, social, and governance 

(ESG) factors. Last year, for example, the IAC 

recommended that the Commission begin serious 

efforts to update public company reporting 

requirements, rejecting voluntary privatesector reporting initiatives as insufficient and 

inadequate to meet investor demand for reliable, 

material ESG information.15 Similarly, the Asset 

Management Advisory Committee (AMAC), in 

its recommendations to the Commission in July 

2021, recognized a need for mandatory disclosure 

standards; however, the AMAC specifically 

declined to recommend any change in the 

disclosure laws, suggesting instead the issuance of 

clear standards tailored by industry and overseen 

by an independent standard-setting entity.16

In our view, investors would benefit from a careful 

balance of prescriptive and principles-based ESG 

disclosure requirements. Principles-based measures 

are more flexible and can generate decision-useful 

information for investors that is most relevant 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 5

within the context of a particular business. On 

the other hand, principles-based requirements 

tend to generate disclosures that can be difficult to 

compare across a variety of companies. Currently, 

despite an abundance of ESG data, there is often 

a lack of consistent, comparable, and reliable ESG 

information available to investors upon which to 

make informed investment decisions.17 Moreover, 

the existing principles-based approach to human 

capital disclosure has resulted in low levels of 

disclosure that are highly variable.18 Accordingly, 

we favor more prescriptive requirements to 

promote comparability wherever possible, 

particularly with respect to disclosure requirements 

for objectively-determinable facts.

Recently, the Division of Enforcement launched 

a task force to oversee division efforts to 

identify ESG-related misconduct proactively,19

and the Division of Examinations highlighted 

a greater focus on climate-related risks in its 

2021 examination priorities.20 In addition, the 

Division of Corporation Finance issued a sample 

comment letter to companies regarding climate 

change disclosures.21 This sample comment letter 

is consistent with the Commission’s 2010 Climate 

Change Guidance.22 We will monitor these efforts in 

parallel with our work on rulemaking proposals so 

that investors benefit from consistent enforcement.

Another area of corporate disclosure that we 

have been monitoring in Fiscal Year 2021 is the 

administration and composition of so-called Rule 

10b5-1 trading plans. Exchange Act Rule 10b-5 

specifies that the purchase or sale of a security is 

“on the basis of” material nonpublic information, 

and thus potentially prohibited insider trading, 

if the trader is aware of material nonpublic 

information when making the purchase or sale.23

Exchange Act Rule 10b5-1 allows a person 

to establish a trading plan before coming into 

possession of material nonpublic information, and 

thus offers traders an affirmative defense against 

insider trading claims.24

In Chair Gensler’s view, “these plans have led 

to real cracks in our insider trading regime,” so 

he has directed staff to make recommendations 

for the Commission’s consideration. Potential 

reforms could include cooling-off periods before 

initial trading under these plans, limitations on 

when 10b5-1 plans can be canceled, mandatory 

disclosures, and limits on the number of 10b5-1 

plans that insiders can adopt.25 The IAC has made 

similar recommendations concerning Rule 10b5-1 

plans, including a cooling-off period, a prohibition 

on overlapping plans, and plan reporting and 

disclosures.26 The Investor Advocate supported 

the IAC recommendations and has advocated for 

reforms in this important area.

In another disclosure work stream, the Holding 

Foreign Companies Accountable Act (HFCAA) 

requires the Commission to prohibit the listing 

of securities for companies whose auditors, or 

accounting firms engaged to assist in the audit, 

are located in jurisdictions that limit the ability 

of the Public Company Accounting Oversight 

Board (PCAOB) to inspect the auditors.27 In 

March 2021, the Commission adopted interim 

final amendments to implement the submission 

and disclosure requirements of the HFCAA and 

requested comment on the process for identifying 

the affected issuers and implementing the trading 

prohibition requirements.28 On December 2, 

2021, the Commission adopted amendments to 

finalize these interim final rules, which will impose 

disclosure requirements and trading prohibitions 

on certain registrants that the Commission 
6 | OFFICE OF THE INVESTOR ADVOCATE

identifies as having filed an annual report with an 

audit report issued by an accounting firm located 

in a foreign jurisdiction and that the PCAOB is 

unable to inspect or investigate. We supported 

the Commission’s rulemaking, which addresses a 

significant risk to U.S. investors. 

As noted in our most recent Report on Objectives, 

we have concerns about the resurgence of interest 

in special purpose acquisition company (SPAC) 

transactions.29 In 2020 and 2021, record numbers 

of companies chose SPACs as their preferred 

capital-raising approach.30 A SPAC is a company 

with no operations that offers securities for cash 

and places substantially all the offering proceeds 

into a trust or escrow account for future use in 

the acquisition of one or more private operating 

companies. Following its initial public offering, 

the SPAC identifies acquisition candidates and 

attempts to complete an acquisition, after which 

the combined company will continue operations as 

a public company.31

Chair Gensler has asked staff to develop 

rulemaking recommendations to elicit enhanced 

disclosures about SPACs, including about the 

fees, costs, and conflicts that may exist with 

SPACs.32 Recently, the IAC recommended that 

the Commission enhance disclosures and analysis 

related to SPACs.33 We describe our concerns with 

SPACs in the section below entitled “Problematic 

Investment Products and Practices.”

PROXY VOTING AND OTHER 

PROXY ISSUES

During the Reporting Period, the Commission 

undertook two rulemakings, one regarding the use 

of universal proxy cards and the other on proxy 

voting advice, that affect the ability of investors to 

vote their shares on matters related to corporate 

governance. Both of these topics were the subject of 

previous IAC recommendations to the Commission 

and, as a member of the IAC, the Investor 

Advocate supported those recommendations.

On July 25, 2013, the IAC recommended that the 

Commission explore revising the proxy rules to 

provide proxy contestants with the option to use 

a universal proxy card in connection with short 

slate director nominations.34 In October 2016, the 

Commission proposed amendments to the proxy 

rules to require the mandatory use of universal 

proxies in connection with all non-exempt director 

election contests.35 On September 5, 2019, the IAC 

issued another recommendation in support of the 

proposed mandatory universal proxy system, while 

noting that a minority of Committee members 

favored making universal proxy voluntary rather 

than mandatory.36 Earlier this year, the Commission 

reopened the comment period for the October 

2016 proposed amendments,37 and on November 

17, 2021, the Commission adopted final rules 

relating to the use of universal proxy cards in 

contested director elections.38 The most significant 

change between what was proposed in 2016 and 

what was adopted in 2021 was a requirement for 

dissident shareholders to solicit a minimum of 67 

percent of the eligible voting shares rather than 50 

percent as originally proposed.39

On December 4, 2019, the Commission proposed 

amendments to the proxy rules regarding proxy 

advisory firms, which are third-party vendors 

hired by institutional investors for advice and 

assistance in voting.40 In January 2020, the IAC 

adopted a recommendation that the Commission 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 7

revise and republish the rulemaking proposal,41 but 

in July 2020, the Commission adopted the final 

rules without heeding the IAC’s recommended 

approach.42 We, too, opposed the rulemaking 

and, in our previous Report on Activities (filed 

December 2020), encouraged the Commission to 

reconsider the amendments. 

On June 1, 2021, Chair Gensler directed the 

staff to consider whether to recommend further 

regulatory action regarding proxy voting advice, 

including revisiting the 2020 Rule Amendments.43

The Division of Corporation Finance subsequently 

issued a statement indicating that it would not 

recommend enforcement action to the Commission 

based on the 2020 Rule Amendments during the 

period in which the Commission is considering 

further regulatory action in this area.44 Then, on 

November 17, 2021, the Commission proposed 

amendments to the proxy rules governing proxy 

advice expressly in light of feedback from market 

participants and certain developments in the 

market for proxy voting advice.45 These proposed 

amendments would rescind conditions requiring 

that companies be made aware of the proxy 

voting advice, and that clients of proxy voting 

advice businesses be provided with responses 

by companies to the proxy voting advice.46 In 

addition, the Commission proposed to remove 

paragraph (e) of the note to Exchange Act Rule 

14a-9 in order to avoid any misperception that 

the addition of Note (e) to Rule 14a-9 purported 

to determine or alter the law governing that rule’s 

application and scope, including its application to 

statements of opinion. We support these proposed 

amendments, which rescind the most problematic 

aspects of the 2020 rule amendments. 

EQUITY MARKET STRUCTURE

During the early months of 2021, unanticipated 

trading volumes and significant pricing volatility 

in a small number of so-called “meme stocks” 

attracted public attention. While much of the 

aftermath appropriately focused on broker-dealer 

conduct, including the digital engagement practices 

(DEPs)47 imbedded in online trading apps, the 

events also touched on aspects of equity market 

structure: the two-day transaction settlement cycle, 

payment for order flow as part of wholesaler 

internalization, and public short sale disclosures. 

Given the significant involvement of retail investors 

with respect to meme stocks, we were pleased 

to see Commission staff issue a public report 

that focused on January 2021 trading activity in 

GameStop Corp (GME).48 The data-driven report 

provided insight concerning the price movement, 

volume changes, short interest, and the social and 

mainstream media coverage of GME. 

Based on the report, it is clear to us that the 

Commission should explore amendments to 

existing equity market regulation to improve the 

experience for retail investors going forward. 

For example, the Commission should encourage 

the industry to move quickly to T+1 or shorter 

settlement for equities, thereby reducing the 

systemic risks observed in late January 2021. 

Cutting the settlement cycle in half could reduce 

intraday margin calls made on clearing brokers 

and unanticipated trading restrictions imposed 

on retail investors by thinly-capitalized brokerdealers in response to these margin calls. Similarly, 

we will encourage the Commission to take the 

experience of retail investors during these events 

into consideration as it evaluates the influence of 

payment for order flow, exchange fees and rebates, 

wholesaler internalization, and off-exchange 

trading more generally. 
8 | OFFICE OF THE INVESTOR ADVOCATE

In more routine matters, we have long been 

supportive of innovative proposals designed to 

improve the secondary market for equity securities, 

especially for thinly-traded securities. Along those 

lines, in March 2021 the Commission approved 

a CBOE BYX Exchange, Inc. (BYX) proposal to 

introduce intra-day periodic auctions, albeit for all 

securities listed on the exchange, not just thinlytraded ones.49 Although broader in scope than our 

Office may have preferred, given the uncertain 

impact of batch auctions on already highly liquid, 

listed equity securities, we supported the proposal 

to the extent it was a voluntary order type that 

could still lessen costs associated with the speed 

“arms race” in the equity market. 

In August 2021, the Commission approved 

a proposal from the exchanges and FINRA 

to modernize the governance of National 

Market System (NMS) plans that produce 

public consolidated equity market data and 

that disseminate trade and quote data from 

trading venues.50 This new governance structure 

should reduce inherent conflicts of interest, in 

no small part by providing for non-SRO voting 

representatives on the operating committees for the 

NMS plans. In Fiscal Year 2022, we will support 

improvements to the governance of NMS plans 

that include the appropriate representation of retail 

and institutional investors.

More broadly on equity market trading data, in 

December 2020 the Commission adopted rules 

to modernize the overall infrastructure for the 

collection, consolidation, and dissemination of 

market data for NMS stocks.51 This should provide 

key upgrades to the content and infrastructure 

for “core data” that is consolidated and widely 

distributed by central securities processors (the 

SIP). Improving the infrastructure around market 

data could ultimately benefit retail investors, either 

directly or indirectly as participants in mutual funds 

and pension funds. We were pleased to see the 

Commission take many of the helpful comments 

into account when finalizing the proposal.

There were a number of other rule proposals 

from self-regulatory organizations (SROs) that we 

monitored closely during the Reporting Period.52

For example, we reviewed the amendments to a 

proposal from the Investors Exchange LLC (IEX) 

to enhance its existing retail price improvement 

program, with the stated goal of attracting more 

retail orders to lit markets to obtain better pricing.53

We were pleased to see the Commission approve 

these enhancements over the summer.

We continue to monitor progress on the 

implementation of the Commission’s Consolidated 

Audit Trail (CAT), which is intended to enhance, 

centralize, and generally update the regulatory data 

infrastructure available to market regulators.54

Promising advances are being made; in October 

2020, the Commission sought public comment 

on possible amendments to enhance data security 

for the CAT database,55 and in April 2021 began 

“Phase 2c” of collecting core equity reports to the 

database from large industry members.56

NOVEL EXCHANGE-TRADED FUNDS

As anticipated in our Report on Objectives for 

Fiscal Year 2021, we have continued to focus on 

developments in the exchange-traded fund (ETF) 

marketplace during the Reporting Period. Although 

we believe the Commission may not have given 

sufficient attention to investor protection concerns 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 9

surrounding novel and increasingly complex ETFs 

in recent years, we are encouraged by a number of 

ongoing developments in this area.

As discussed in our prior reports, in September 

2019 the Commission adopted a new rule and 

form amendments designed to modernize the 

regulation of ETFs by establishing a clear and 

consistent framework for the vast majority of ETFs 

operating at that time (ETF Rule).57 This Office 

welcomed the adoption of the ETF Rule, noting 

that it included important investor protection 

safeguards, such as requiring an ETF to provide full 

daily portfolio transparency on its website,58 as well 

as a condition expressly excluding leveraged and 

inverse ETFs from the rule’s scope.59

ETFs that do not provide full daily portfolio 

transparency (non-transparent ETFs) are not 

able to comply with the ETF Rule. Following 

the adoption of the ETF Rule, however, the 

Commission provided special relief to several 

non-transparent ETFs, which enabled them to enter 

the ETF marketplace.60 Additionally, in late 2020 

the Commission amended the ETF Rule to bring 

many leveraged and inverse ETFs within the rule’s 

scope.61 Both of these developments raised potential 

investor protection concerns, warranting our 

continued attention and engagement.

With respect to non-transparent ETFs, during 

the Reporting Period staff in the Commission’s 

Division of Examinations indicated that they intend 

to focus on non-transparent ETFs’ compliance with 

conditions attached to the special exemptive relief 

granted to these ETFs.62 We are encouraged to see 

that the Commission staff plans to scrutinize these 

ETFs’ compliance with the conditions that operate 

to exempt them from regulations applicable to 

other ETFs.

Similarly, with respect to leveraged and inverse 

ETFs, we are encouraged by the Commission’s 

renewed attention to the longstanding investor 

protection concerns associated with these products. 

As Chair Gensler noted in recent remarks: 

Some (exchange traded products [ETPs]) 

use strategies and structures that are more 

complex than typical stocks and bonds. 

For example, there are products such as 

“leveraged ETFs” and “inverse ETFs.” 

For more than a decade, SEC staff and 

a number of Commissioners have been 

warning the public that these products, 

often called “complex ETPs,” 63 can pose 

risks to individual investors. In 2009, 

the SEC’s Office of Investor Education 

and Advocacy highlighted the risks that 

[leveraged and inverse ETFs] can pose 

to investors who buy and hold them 

for longer than one day. In 2015, the 

Commission sought public comment on 

a broad range of issues relating to ETPs, 

including listing standards and brokerdealer sales practices. Even more recently, 

the Commission settled charges against 

financial professionals who recommended 

that retail customers buy and hold ETPs 

designed for very short-term trading 

strategies. [In October 2020], then-SEC 

Chairman Jay Clayton and several SEC 

Division directors expressed their concern 

that certain ETPs “may present investor 

protection issues—particularly for retail 

investors who may not fully appreciate the 

particular characteristics or risks of such 

investments.” These ETPs, however, can 

pose risks even to sophisticated investors, 

and can potentially create system-wide 

risks by operating in unanticipated ways 

when markets experience volatility or 

stress conditions.64
10 | OFFICE OF THE INVESTOR ADVOCATE

Despite its longstanding concerns, the Commission 

amended the ETF Rule on October 28, 2020 to 

include inverse and leveraged ETFs within its 

scope.65 In effect, this allows sponsors to form 

and operate leveraged and inverse ETFs pursuant 

to the ETF Rule, just like traditional “plainvanilla” ETFs. The Commission simultaneously 

adopted a rule relating to funds’ use of derivatives 

(Derivatives Rule), and while that rule prevents 

the creation of new ETFs with greater than 200 

percent or -200 percent leverage, many pre-existing 

leveraged and inverse ETFs (leveraged up to 300 

percent/-300 percent) were simply exempted from 

the Derivatives Rule’s leverage limitations because 

they “generally could not satisfy the limit on fund 

leverage risk in [the Derivatives Rule].”66

In our view, the Commission’s adoption of the 

Derivatives Rule (and simultaneous amendment of 

the ETF Rule) was a missed opportunity to address 

longstanding investor protection issues related 

to leveraged and inverse ETFs. When initially 

proposed, the Derivatives Rule would have included 

a requirement that broker-dealers and investment 

advisers “exercise due diligence on retail investors 

before approving retail investor accounts to invest 

in ‘leveraged/inverse investment vehicles,’” but this 

requirement was ultimately dropped from the final 

Derivatives Rule.67 The Derivatives Rule adopting 

release states that the Commission “believe[s] that 

it is important to continue to consider these funds 

in light of investor protection concerns,”68 but 

the release indicates that those concerns would be 

better addressed as part of a broader staff review of 

complex investment products.69

Toward the end of the Reporting Period, Chair 

Gensler instructed Commission staff to conduct a 

review along the lines of the review contemplated 

by the Derivatives Rule adopting release.70 On the 

same day, Commissioners Allison Herren Lee and 

Caroline A. Crenshaw issued a joint statement on 

complex ETPs indicating, among other things, that 

the Commission should renew its efforts to adopt 

tailored sales practice requirements for leveraged 

and inverse investment companies.71 While we 

believe the dangers of leveraged and inverse ETFs 

are well known and could be mitigated more 

quickly without subjecting them to a broad and 

potentially lengthy staff review, we are encouraged 

that a review of complex ETPs is underway. 

We hope that the review will result in a fresh 

acknowledgement of the longstanding investor 

protection concerns associated with inverse and 

leveraged ETFs and, to the extent these products 

remain exempt from the leverage limits applicable 

to all other ETFs, we believe the Commission 

should consider alternative safeguards such as 

tailored sales practice requirements to mitigate 

those concerns.

Another important development during the 

Reporting Period has been the rising investor 

demand for investments related to bitcoin and 

other digital assets. Near the end of the Reporting 

Period, the Commission permitted an application 

for an ETF that invests in bitcoin futures (in lieu 

of holding bitcoin directly) to become effective, 

and the newly launched ETF rapidly attracted a 

substantial amount of assets.72 The Commission 

also has received applications for ETFs that 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 11

would invest directly in cryptocurrencies73 and has 

even received applications for ETFs that would 

provide leveraged and/or inverse exposure to 

cryptocurrencies.74 Some of these applications are 

still under review, but we note that the ETF Rule’s 

adopting release reiterated that, in the Commission 

staff’s view, “ETFs and other funds that hold 

substantial amounts of cryptocurrencies and related 

products raise significant questions regarding how 

they would satisfy certain other requirements of 

the Investment Company Act and its rules.”75 As 

of the date of this report, the Commission has not 

approved any ETFs with an investment strategy 

focused on direct cryptocurrency investments, 

nor has it approved any leveraged or inverse 

cryptocurrency ETFs.

We believe that the allowance of the bitcoin 

futures ETF was an acceptable step toward 

giving investors access to cryptocurrency-related 

investments. However, we also believe the 

Commission’s cautious approach to additional 

novel cryptocurrency-related ETFs is warranted, 

given the concerns we have previously expressed 

regarding the custody of digital assets and the lack 

of a regulated exchange.76 Until those dangers 

are addressed, we do not believe the Commission 

can reasonably make a finding that such products 

satisfy the requirements of the Investment 

Company Act, and we recommend resolving these 

pre-existing concerns before permitting new novel 

ETFs to present new novel risks.77 We look forward 

to working with Commission staff as they assess 

these types of products in the future.

REGISTERED FUND DISCLOSURE

During the Reporting Period, we continued to 

focus on the effectiveness of disclosure provided 

to investors in SEC-registered funds. As we have 

noted in prior reports, such disclosure is at the 

heart of the Commission’s efforts to help ensure 

that investors are making thoughtful, well-informed 

decisions about their investments as they save for 

college expenses, look towards retirement, or plan 

for other goals. The Commission and its staff strive 

to provide registered fund investors with clear, 

concise disclosure regarding funds’ investment 

strategies, risks, costs, and other attributes.

With these considerations in mind, the Commission 

issued a significant proposal in August 2020 to 

update and tailor mutual fund and ETF disclosures 

to retail investors’ needs (Tailored Shareholder 

Reports Proposal).78 The proposal would, if 

adopted as proposed: require streamlined reports 

to shareholders that would include, among other 

things, fund expenses, performance, illustrations of 

holdings, and material fund changes; significantly 

revise the content of these items to better align 

disclosures with developments in the markets 

and investor expectations; encourage funds to 

use graphic or text features—such as tables, 

bullet lists, and question-and-answer formats—

to promote effective communication; and 

promote a layered and comprehensive disclosure 

framework by continuing to make available online 

certain information that is currently required in 

shareholder reports but may be less relevant to retail 

shareholders generally. The proposed framework 
12 | OFFICE OF THE INVESTOR ADVOCATE

would provide an alternative approach to keeping 

investors informed about their ongoing fund 

investments. Instead of receiving both prospectus 

updates and shareholder reports, which today can 

be lengthy and complex, existing investors would 

receive the streamlined shareholder report.79

The comment period for the proposal closed during 

the Reporting Period, on January 4, 2021, and we 

were encouraged by a number of comment letters 

urging the Commission and its staff to utilize 

investor testing to determine whether the disclosure 

framework in the proposal conveys information 

more effectively than the current disclosure 

framework. For example, the CFA Institute 

indicated that the Commission should “direct the 

staff to conduct its own investor testing on the 

proposed changes” and should, “going forward: 

1) integrate investor testing at an early stage into 

all future rulemakings on retail investor disclosures; 

2) conduct its own independent investor testing; 

and 3) deploy the objective research capabilities 

of the Office of the Investor Advocate in those 

efforts.”80 The Investment Company Institute, 

meanwhile, stated that the Commission should 

“perform investor testing of the [Tailored 

Shareholder Reports Proposal’s] proposed 

terminology changes to ensure that they do in 

fact improve understanding before proceeding.”81

The Consumer Federation of America urged the 

Commission “to engage in testing to evaluate 

the effectiveness of these [proposed] reports” 

and stated that “the results of that testing should 

be used to refine the Commission’s approach 

where appropriate.”82 Additionally, Broadridge 

Financial Solutions, Inc. conducted its own analysis 

of investor reactions to an example report and 

feedback flier that accompanied the Tailored 

Shareholder Reports Proposal,83 and Better 

Markets, Inc. stated “[t]he Commission would 

do well by investors if it fully embraces investor 

testing before approving the various aspects of 

this Proposal.”84

The Office of the Investor Advocate has long 

championed the use of investor testing to inform 

rulemaking initiatives, particularly those initiatives 

involving changes to disclosures provided to 

retail investors, and we join these commenters 

in urging the Commission to utilize such data to 

inform the Tailored Shareholder Reports Proposal. 

Meanwhile, we continue to conduct research of our 

own, employing surveys, focus groups, and other 

methods to gain insight into investor behavior and 

provide data regarding disclosure-related policy 

choices. We believe these efforts produced valuable 

information during the Reporting Period and 

will continue to do so, potentially helping inform 

initiatives such as the Tailored Shareholder 

Reports Proposal. We look forward to working 

with our colleagues to continuously improve and 

enhance the information provided to registered 

fund investors.

BROKER CONDUCT

Since the implementation of Regulation Best 

Interest (Reg BI) on June 30, 2020, we have 

monitored how the Commission and FINRA have 

used the new tools to address unethical or abusive 

conduct in the brokerage business. As our Office 

stated at the time, Reg BI appears to be a step 

in the right direction because it includes several 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 13

improvements over the suitability standard for 

broker-dealers.85 However, the utility of Reg BI will 

ultimately depend upon how it is enforced by the 

Commission and FINRA. 

Recent analysis by the North American Securities 

Administrators Association (NASAA) seems to 

suggest that while the initial implementation of Reg 

BI led to some improvements, most firms 

are operating in the same manner as they were 

under the prior suitability rule, especially when 

it comes to harmful compensation conflicts.86

Their Report concludes that “[c]learer regulatory 

guidance is needed to allow a course correction 

that would help Reg BI earn the ‘best interest’ 

label that it bears.”87

Market events have also raised questions about 

Reg BI’s effectiveness. As noted previously, 

during the winter of 2021, unanticipated trading 

volumes and significant pricing volatility in a 

small number of “meme stocks” highlighted a 

concerning development with regard to brokerdealer conduct—the so-called “gamification” 

of retail stock trading.88 While not a precise 

term, gamification refers generally to the use of 

technological tools to make trading easier and more 

exciting. Broker-dealers, as well as some investment 

advisers, now utilize a variety of digital engagement 

practices, or DEPs, to connect with a broader array 

of retail investors, particularly younger investors 

who grew up with similar design features in other 

online apps and games on their devices.

On the one hand, these developments appear to 

have some benefits for investors. Advances in 

technology can lower the barriers to entry for 

investors, particularly those of limited means, 

and these technological tools have given brokerdealers the opportunity to think more creatively 

about ways to educate and serve their customers. 

This demonstrates that it is possible for brokers 

to use DEPs in a positive manner and enhance 

investor protection in the spirit of Reg BI, and 

we look forward to encouraging this innovation 

going forward.

Our Office is, however, concerned that gamification 

has the potential to induce trading that is more 

frequent or higher-risk than an investor would 

choose in the absence of the DEPs. It is possible 

that these digital platforms could go well beyond 

merely adopting game-like features, and instead 

tailor products to individual retail investors using 

predictive data analytics, differential marketing, 

and behavioral prompts. To regulate this new 

generation of online brokers effectively, we need to 

fully understand the scope of DEPs in the industry 

and how they might influence investor behavior 

and decision-making. 

The Commission has begun this process by 

issuing a recent Request for Information and 

Comment on the use of DEPs.89 While we will 

continue to consider the comments submitted 

in response,90 our Office has already begun to 

advocate for the Commission to make clear that 

“recommendations,” which trigger the important 

investor protections of Reg BI, include instances 

where a broker-dealer utilizes DEPs to nudge 

investors in a way that reasonably could be viewed 

as encouraging trading.91 
14 | OFFICE OF THE INVESTOR ADVOCATE

More generally, we have monitored FINRA’s 

rulemaking efforts to protect retail investors 

and were pleased to see two proposals receive 

Commission approval in Fiscal Year 2021. First, 

in December 2020, the Commission approved 

a FINRA proposal to address risks presented by 

individual brokers with a significant history of 

misconduct.92 Under the new rules, FINRA hearing 

officers can now impose, during the appeal of a 

disciplinary matter, restrictions or conditions on the 

activities of a broker-dealer and require heightened 

supervisory procedures for associated persons. 

Second, in July 2021, the Commission approved 

new FINRA rules targeting firms with a 

disproportionate history of broker and other 

misconduct relative to their similarly-sized peers.93

New Rule 4111 (Restricted Firm Obligations) 

will impose, in certain instances, conditions or 

restrictions on member operations, including 

requirements for deposits of cash or qualified 

securities that could not be withdrawn without 

FINRA’s prior written consent, if a firm exceeds 

a certain threshold calculation of broker or other 

misconduct. We reviewed the comments received, 

analyzed the data behind the rule, and met with 

FINRA staff to express our support for the concept 

and the analysis. We look forward to FINRA 

implementing the new rule in the coming months.

We continue to review other initiatives by FINRA 

that remain outstanding. For example, in June 

2021, FINRA proposed amendments to its 

existing framework for protecting seniors and 

other specified adults from financial exploitation.94

It appears that FINRA’s proposal could benefit 

investors because it grants additional time for 

brokerage firms to resolve matters of suspected 

financial exploitation, and for Adult Protective 

Services agencies, state regulators and law 

enforcement to conduct thorough investigations. 

ACCOUNTING AND AUDITING

We look forward to engaging with the newlyappointed members to the Public Company 

Accounting Oversight Board (PCAOB), which 

was established by the Sarbanes-Oxley Act (SOX) 

to oversee the audits of public companies and 

SEC-registered brokers and dealers.95 Given the 

PCAOB’s pivotal role in protecting investors, we 

encourage the PCAOB to reinstitute a meaningful 

investor advisory group as one of its first orders 

of business. The PCAOB also has important work 

ahead implementing the just-approved rule to 

determine which foreign audit firms are and are not 

complying with the Holding Foreign Companies 

Accountable Act.96 In addition, the adoption and 

implementation of a new audit quality standard 

and reporting of inspections in a more thematic, 

impactful way remain outstanding.

In addition to PCAOB, we monitored developments at the Financial Accounting Standards Board 

(FASB) and auditing and accounting policies at the 

Commission. One area of unfinished business from 

the Dodd-Frank Act is a rulemaking regarding 

listing standards for companies to adopt policies 

clawing back erroneous compensation.97 Typically, 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 15

a company claws back compensation when 

the company files a restatement, or a material 

adjustment to the financial statements of prior 

periods, as opposed to revisions, which are adjustments to the prior period financial statements that 

are not material. It is management that determines 

whether or not a potential disclosure is material 

enough to warrant a restatement. 

On October 14, 2021, the Commission reopened 

the comment period to the 2015 proposed 

rulemaking requiring listing standards for 

erroneously awarded compensation.98 The request 

for comment specifically asked for feedback on the 

scope of proposed rulemaking as including not only 

restatements but also revisions, on the inclusion of 

deferred and non-GAAP measured compensation, 

and on enhanced disclosures of instances where 

a clawback was considered and/or initiated. We 

support the reopened rule proposal because, in our 

view, it gives companies the necessary discretion to 

recover compensation from wrongdoers but also 

informs investors of the exercise (or non-exercise) 

of that discretion.

Relatedly, we are concerned by the growing body of 

evidence that suggests some revisions are, in reality, 

restatements in disguise, and that in some cases 

management may be opportunistically adjusting 

its definition of materiality to avoid clawbacks or 

other negative consequences of a restatement.99

Materiality is subject to both quantitative and 

qualitative factors where investors have every 

reason to expect similar transactions be reported 

and disclosed accurately and consistently in 

accordance with accounting standards. Sometimes, 

however, it appears that adjustments may be 

motivated by considerations such as earnings 

targets, compensation metrics, or performance 

measures, rather than what an investor would 

consider to be material. Ultimately, the character 

of the adjustment, as material or not, should be 

decided upon by the company’s audit committee 

after consultation with the independent auditor.

Similarly, we are tracking the accumulation of 

“goodwill” on balance sheets—a staggering $3.5 

trillion as of 2020—in light of the recent flurry 

of deal activity taking place at elevated prices.100

The challenge appears to be in how to reduce the 

value of goodwill, whether through impairment, 

amortization, or some other method.101 We are also 

paying attention to the accounting treatment of 

digital assets. For instance, we are aware that the 

Canadian Public Accountability Board has found 

that seven of eight inspections identified significant 

deficiencies in the audits of issuers active in 

digital asset markets.102 We wonder whether these 

deficiencies extend to audits of issuers in digital 

asset markets in the United States.

Another area of concern is the rise of supply chain 

financing or reverse factoring and its potential 

distortion of the financial health of a company. 

The use of such payment schemes has accelerated 

to nearly $1.3 trillion in 2020.103
16 | OFFICE OF THE INVESTOR ADVOCATE

Figure 1: 2015–2020 Volume (USD billions)

0

100

200

300

400

500

600

700

800

Asia Africa Europe Americas

2015 2016 2017 2018 2019 2020

170

235

290

400

530

726

100

135 162

7

203

257

337

227

168

16 21

128

12

99

11

71 55

5

Source: World Supply Chain Finance Report 2021.

As noted in our Report on Activities for 2019,104

we encouraged requiring disclosure of the use, 

scope, and amounts related to supply chain 

financing given the liquidity, credit, and default 

risks. FASB appears poised to take action by the 

end of the year. 105 We await the release of their 

proposed rulemaking and support measures to 

provide investors with the information necessary to 

make better-informed investing decisions.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 17

PROBLEMATIC INVESTMENT 

PRODUCTS AND PRACTICES

Among other statutory duties, the Investor 

Advocate is required to identify problems 

that investors have with financial service 

providers and investment products. Exchange 

Act Section 4(g)(6)(B) mandates that the Investor 

Advocate, within the annual Report on Activities, 

shall provide a summary of the most serious 

problems encountered by investors during the 

preceding fiscal year. The statute also requires the 

Investor Advocate to make recommendations for 

such administrative and legislative actions as may 

be appropriate to resolve those problems.106

To determine the most serious problems related to 

financial service providers and investment products, 

staff of the Office of the Investor Advocate 

reviewed information from the following sources:

§	Investor Alerts, Tips, and Bulletins issued by 

the SEC, FINRA, and the North American 

Securities Administrators Association, Inc. 

(NASAA);

§	SEC enforcement actions and FINRA 

disciplinary actions;

§	NASAA’s Activity Report,107 2021 Enforcement 

Report,108 and Top Investor Threats;109 

§	The SEC Division of Examinations’ 2021 

Examination Priorities;110

§	SEC and SRO staff reports providing guidance 

and interpretations relating to investment 

products; and

§	Discussions with SRO staff, including a 

November 15, 2021 call with Mark Kim, 

Chief Executive Officer, and other leaders 

of the MSRB, highlighting municipal market 

practices that may have an adverse impact on 

retail investors. 

The table below lists certain potentially 

problematic products or practices during Fiscal 

Year 2021 as reported by these sources. Although 

not exhaustive, the lists reflect some of the 

concerns of these organizations. Details regarding 

these products and practices are available on the 

organizations’ websites.

SEC111 NASAA112 FINRA113 MSRB114

 Digital Assets and Crypto 

Investment Scams 

 Bitcoin Futures

 Fractional Share Investing 

 SPACs 

 Leveraged Investing 

Strategies

 Expense Ratios

 Social Media, Online 

Trading, and Investing

 ESG Investing

 Protecting Online 

Accounts

 Investing and Social Media

 Broker Imposter Scams 

(confirming broker 

registration)

 Fake Check Scams

 High-Yield CD Offers as 

Bait for High-Commission 

Investments

 Fraudulent Binary Options

 Evolving ESG 

Considerations

 Informational 

Disparities between 

Individual Investors and 

Institutional Investors

 Market Dependence on 

Mutual Fund Flows
18 | OFFICE OF THE INVESTOR ADVOCATE

Each of the products and practices listed above 

represents an area of concern for investors during 

the Reporting Period. Based on our review of 

the resources described above and consultations 

with knowledgeable professionals, we highlight 

the following three areas of concern: payment 

for order flow; meme stocks; and special purpose 

acquisition companies (SPACs). Previous reports 

have highlighted other issues, including reverse 

factoring,115 dual-class share structures,116 the 

LIBOR transition,117 initial coin offerings,118

binary options,119 public non-traded REITS,120

municipal market disclosure practices,121 belowminimum denomination positions in municipal 

securities,122 Simple Agreements for Future Equity 

in crowdfunding investments,123 the new-issue 

process for investment-grade corporate bonds, and 

leveraged and inverse ETPs.

PAYMENT FOR ORDER FLOW FROM 

RETAIL INVESTORS

Over the last few years, most retail brokers have 

stopped charging commissions for stock and option 

trades. These brokers now make money through 

alternative revenue streams, including a process 

called “payment for order flow.” In a payment for 

order flow arrangement, retail brokerage firms 

enter into agreements with wholesale market 

makers who purchase their customers’ order flow. 

Per these agreements, for a small fee paid to the 

broker, wholesalers can either trade against the 

customers’ orders directly or route them to other 

trading venues, like the exchanges, for execution. 

At first glance, this practice appears to be a positive 

development for retail investors. So-called “zero 

commission” trading lowers the barrier for new 

investors to begin saving for the long term. In 

addition, the wholesalers typically provide some 

level of price improvement, giving the customer 

a better price than if their order had executed on 

an exchange at the displayed National Best Bid 

or Offer (NBBO). In theory, investors now pay 

nothing for their trades and save a few cents 

on price.

However, as discussed more fully in the Staff 

Report on Equity and Options Market Structure 

Conditions in Early 2021, there are trade-offs 

involving payment for order flow and price 

improvement.124 First, higher volumes of trades 

generate more payments for order flow to the 

broker-dealer, which raises concerns about whether 

brokers have inherent conflicts of interest when 

they enter into these arrangements. This structure 

could incentivize brokers to encourage excessive 

trading by their customers, possibly through 

questionable digital engagement practices, or 

DEPs. Active trading, even with zero commissions, 

may not be in the retail customer’s long-term best 

interest.

Second, brokers may be motivated to contract with 

wholesalers offering higher payment for order flow, 

but less price improvement than other wholesalers 

may be offering. Absent fulsome disclosure, retail 

customers may not be aware of the true costs 

of choosing to trade with the firm. In addition, 

although the broker may obtain a slightly better 

price than the NBBO, the broker may not be 

providing its customers with best execution because 

it fails to seek the best reasonably available terms.

Finally, these arrangements potentially may impact 

the stock market as a whole. With nearly half of 

equity trading occurring in dark pools or through 

wholesale market maker internalization, the 

NBBO itself does not reflect a significant portion 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 19

of trading interest. Some have asked whether this 

bifurcation of the market has resulted in a wider 

NBBO bid-ask spread, disadvantaging even the 

retail orders that otherwise appear to be receiving 

“price improvement” relative to the NBBO. 

Concerns about payment for order flow have led 

some to suggest that it should be banned in U.S. 

markets. This, in turn, could lead more trading 

back onto the “lit” exchanges and theoretically 

result in price improvement across the board. 

However, as we have noted previously, the use of 

so-called “maker-taker” fee-and-rebate pricing for 

exchange transactions may create other conflicts of 

interest in broker-dealer order routing behavior to 

the various exchanges.125 Brokers may route retail 

orders to the exchange where they may receive the 

largest rebate, rather than to an exchange where 

their customers might receive best execution. It 

is not clear, absent a better understanding of the 

interplay between exchange fees and rebates and 

broker incentives, that simply moving more retail 

order flow to the exchanges would improve retail 

execution quality or market quality more generally.

In our view, these are highly complex and 

interconnected issues, and changes to the 

rules could have far-reaching and unintended 

consequences. Accordingly, we favor an approach 

that is data-driven in order to help ensure that 

reforms intended to benefit investors do not 

leave them worse off in the long run. We urge the 

Commission and Congress to proceed with caution 

in addressing any concerns related to payment for 

order flow. 

Along these lines, Commissioner Elad Roisman 

recently offered his own thoughts on steps the 

Commission could take to improve order execution 

quality disclosure and promote operational 

transparency for wholesalers.126 For example, he 

suggests enhancing the existing monthly execution 

quality reports issued by market centers pursuant 

to Reg NMS Rule 605 to include new elements and 

metrics to bring the rule up to date with twenty 

years of market developments and make the reports 

more useful to institutional investors. To assist 

retail investors in this area, he suggests developing 

a separate monthly order execution quality report 

for retail brokers so that retail investors can better 

compare brokers on an apples-to-apples basis. 

And considering the significant role of internalizing 

wholesalers, Commissioner Roisman suggests 

requiring they publicly disclose their operations 

in a manner similar to market centers that file 

Form ATS-N with the Commission. We hope 

the Commission will consider these thoughtful 

suggestions, as they could provide both institutional 

and retail investors with near-term benefits even 

as the Commission continues to consider larger 

issues related to payment for order flow and 

off-exchange trading.127

“MEME” STOCKS AND 

FUNDAMENTAL VALUATION

A number of corporate stocks, mostly consumerfocused with familiar public names, experienced 

a dramatic increase in their share price in January 

2021 as bullish sentiments of individual investors 

saturated social media. As these companies’ share 

prices skyrocketed to new highs, increased media 

attention followed, and their shares became 
20 | OFFICE OF THE INVESTOR ADVOCATE

known as “meme” stocks. Then, as the end of 

January approached, several retail broker-dealers 

temporarily prohibited certain activity in some of 

these stocks and options. 

In October 2021, Commission staff provided a 

detailed report on the areas of market structure 

and broker conduct that may have contributed 

to these dramatic events.128 The report noted that 

a confluence of factors appeared to link many of 

the “meme” stocks: (1) large price moves; 

(2) large volume changes; (3) large short interest; 

(4) frequent Reddit website mentions; and 

(5) significant coverage in the mainstream media. 

The report also noted that the social media 

discussion of these stocks appeared to make 

arguments using traditional financial analysis— 

with some commenters making the case that the 

stocks were undervalued based upon fundamental 

analysis such as their discounted future cash flows. 

Some have raised questions as to whether 

these stocks, which appear prone to wild and 

unpredictable swings from retail trading based 

upon rumors and internet message-board 

discussions, are actually trading at prices that have 

any regard for valuation models or the business’s 

underlying fundamental soundness.129 Researchers 

have started to see that when stocks gain ‘meme’ 

status (by crossing an internet message-board 

attention threshold), they begin to exhibit greater 

total risk, measured by volatility, and much greater 

correlation with other meme stocks.130

Others have made the point that, when stock prices 

become separated from fundamental valuation, it 

could feed public perception that markets can be 

manipulated and therefore cannot be trusted.131

It is possible that well-organized groups of retail 

traders who encourage each other to buy and hold 

on internet message boards could become a typical 

feature of the market. These developments beg the 

question as to whether there is a role for regulators 

to play if, and when, stocks appear to move based 

on factors seemingly unrelated to the underlying 

performance of the business; and if regulation is 

warranted, how should regulators address this 

phenomenon? 

The Federal Reserve, in its November 2021 

Financial Stability Report, analyzed the potential 

implications of meme stocks on the broader 

market.132 While finding that the recent changes in 

retail equity investor characteristics and behavior 

appeared to have limited implications for financial 

stability, the report suggested regulators continue 

to monitor developments in the following areas: 

(1) changes in the amount of leverage in young 

stock investors’ household balance sheets; 

(2) changes in the risk appetite of retail investors 

using social media; and (3) the recalibration of risk 

management practices of financial institutions in 

response to these two trends. We agree that further 

exploration of these issues is warranted. 

While we favor the right of individual investors 

to freely express their opinions about investing, 

the Commission and FINRA also must remain 

vigilant in monitoring for manipulative practices 

deployed through social media, such as undisclosed 

compensation for investing tips or payment for 

‘up-votes’ of social media posts. Absent this type of 

manipulation, we believe market forces ultimately 

may correct apparent bubbles and minimize 

future price dislocations. If these episodes of 

higher volatility become more frequent, however, 

regulators may need to consider additional steps to 

support the resilience of the financial system. 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 21

SPECIAL PURPOSE ACQUISITION 

COMPANIES (SPACS)

The resurgence of interest in SPAC transactions 

raises a number of concerns. As noted above, in 

2020 and 2021, record numbers of companies 

chose SPACs as their preferred capital-raising 

approach.133 A SPAC is a company with no 

operations that offers securities for cash and places 

substantially all the offering proceeds into a trust 

or escrow account for future use in the acquisition 

of a target company. The SPAC then attempts to 

complete a merger (the “de-SPAC” transaction), 

after which the combined company will continue 

operations as a public company.134

Recent academic research on SPACs has identified 

substantial dilution of the post-merger shares that 

stems from the sponsor’s promote fee, underwriting 

fees, and warrants. These costs are primarily borne 

by the SPAC shareholders.135 According to the 

academic literature, the median cost of a SPAC is 

50.4 percent of the amount raised in the offering, 

which is far higher than the total IPO costs of 

approximately 27 percent of cash raised.136

Unlike the traditional IPO process in which a 

private operating company sells its securities at 

prices arrived at through market-based discovery, 

when a SPAC elects to acquire a private company, 

the SPAC’s sponsors, directors, and officers decide 

how to value the company and how much the 

SPAC will pay for it. This process offers greater 

certainty regarding the valuation of the shares, but 

it creates conflicts of interest that outside investors 

may not appreciate without clear disclosure. 

In addition, institutional investors may supply 

additional financing in a concurrent private 

investment in public equity (PIPE). The financial 

interests of a SPAC IPO investor may conflict not 

only with the financial interests of an investor who 

purchases shares later in the secondary markets, 

but also with the financial interests of PIPE 

investors who receive discounted shares. 

In light of these issues, the Division of Corporation 

Finance in December 2020 issued guidance 

directing SPACs to disclose such conflicts (among 

other disclosures).137 In addition, the Office of 

Investor Education and Advocacy published 

an investor alert about investing in SPACs.138

While we support this much-needed guidance, 

we believe investors require more enhanced 

disclosures and analysis regarding the “promote” 

and other conflicts of interest, and recently the 

Investor Advisory Committee made similar 

recommendations to the Commission.139 We also 

agree with Commissioner Hester Peirce, who 

has observed that “SPACs are not all identical 

so disclosure needs to enable investors to 

understand each SPAC on its own terms,” and that 

standardized tabular disclosure of the economics 

of the transaction could be helpful to investors.140

We are pleased that Chair Gensler has asked staff 

to develop rulemaking recommendations to elicit 

enhanced disclosures about SPACs, including 

disclosure about the fees, costs, and conflicts that 

may exist.141

One benefit for companies undergoing a SPAC 

transaction is the speed at which they can 

become public companies. This haste, however, 

also increases the risk that investors may invest 

in companies with serious internal controls 

weaknesses. A private company may spend years 

preparing to go public through a traditional IPO, 

allowing time to ensure it has proper infrastructure 

and expertise to handle the additional regulatory 

responsibilities of a public company. By contrast, in 
22 | OFFICE OF THE INVESTOR ADVOCATE

a SPAC merger, a private company may make the 

transition to becoming public in just a few months. 

Cognizant of the risks that attend a SPAC merger, 

in March 2021 the SEC staff issued a public 

statement warning private companies considering 

SPAC transactions to first “evaluate the status of 

various functions, including people, processes, and 

technology, that will need to be in place to meet 

SEC filing, audit, tax, governance, and investor 

relations needs post-merger.”142

Concerns about accounting and control weaknesses 

appear to be valid. In April 2021, SEC staff issued 

another statement on accounting and reporting 

considerations for warrants issued by SPACs.143

Approximately 85 percent of SPACs have restated 

their financial statements, which may indicate that 

these companies were not prepared to handle 

the heightened regulatory responsibilities of 

public companies.144

Limitations on projections and other forwardlooking statements present a potential difference 

between protections afforded traditional IPO 

investors and those who invest in SPACs. The 

Private Securities Litigation Reform Act (PSLRA) 

provides established, publicly-traded reporting 

companies a safe harbor against private lawsuits 

arising from forward-looking statements. 

Companies undergoing a traditional IPO cannot 

avail themselves of that safe harbor, but many 

commentators argue that SPACs and their merger 

targets can do so. Some companies may even 

opt to go public through SPAC transactions in 

part because of the assumption the PSLRA limits 

investors’ ability to pursue legal claims on overly 

optimistic projections.145 Similarly, the fact that 

SPAC transactions do not involve underwriters, 

which must operate within their own regulatory 

obligations146 and reputational risk considerations, 

may lead some companies to believe that going 

public through a SPAC transaction will allow 

them to engage in more aggressive marketing. 

These differences in potential liability could 

result in a type of “regulatory arbitrage” because 

regulatory considerations rather than economic 

factors may drive the choice between a SPAC and a 

traditional IPO.147 To address this inconsistency in 

the marketplace, we believe that the Commission 

should consider harmonizing the rules for SPACs 

and traditional IPOs in order to create a more level 

regulatory playing field. 

Another concern arises from the significant 

incentives for a SPAC to consummate a merger 

with the target identified by the sponsor. 

Under the typical terms of a SPAC’s governing 

instruments, if the SPAC does not complete a 

business combination transaction within a specified 

timeframe, it must liquidate and distribute the 

net offering proceeds to its public shareholders. 

If this happens, the sponsors and their affiliates 

likely will incur a substantial loss.148 Moreover, 

the underwriter of the SPAC IPO may only earn 

its deferred compensation when the business 

combination transaction is completed, so it

would suffer a loss as well.149 Thus, sponsors,

affiliates, and the underwriters of the SPAC 

IPO all have financial incentives to complete 

a business combination transaction even if the

transaction may not be in the best interest of 

other shareholders. 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 23

With an increasing number of SPACs competing to 

acquire private operating businesses, we believe it 

is important to consider whether attractive target 

companies will become scarcer.150 In fact, SPAC 

mergers with foreign companies are on the rise, 

in part due to the competition to find suitable 

acquisitions in the United States151 We worry that 

the scarcity of high-quality merger targets, coupled 

with the overwhelming incentives to complete 

mergers, may result in a flood of low-quality 

companies in our public markets.

A potential way to stem this tide is to reconsider 

rules that have previously prevented de-SPAC 

mergers when a substantial portion of shareholders 

redeemed their shares rather than becoming 

shareholders in the merged company. These rules 

addressed a misalignment of interests that can 

occur due to the fact that, when a SPAC’s sponsors 

have identified a private operating company to 

merge with the SPAC, the shareholders typically 

have two important rights: (1) a vote on whether 

to approve the acquisition; and (2) the choice to 

redeem their shares from the SPAC and get their 

money back, or convert those shares into shares 

of the merged company. Ordinarily, we would 

expect that if a shareholder does not believe the 

SPAC should merge with the private operating 

company, then the shareholder would vote against 

the merger and redeem her shares. However, SPAC 

shareholders often have an incentive to vote in 

favor of the merger even though they may want to 

redeem their shares because, in addition to shares, 

they may have been given warrants that likely will 

become worthless unless the merger is approved. 

Research has found that while SPAC mergers are 

overwhelming approved (with a mean “yes” vote 

of 89 percent), redemption rates are also high (on 

average, 54 percent), resulting in a misalignment 

of economic and voting interests.152 This “empty 

voting” creates the impression that early or 

sophisticated investors in the SPAC are in favor of 

acquiring the target even as they withdraw their 

investment in the SPAC, which may result in later 

or retail investors misinterpreting this market 

signal.153 Some researchers propose that if more 

than 50 percent of the SPAC shares are redeemed, 

then the merger should not be consummated.154

Originally, when the New York Stock Exchange 

permitted SPACs to be listed in 2008, a SPAC 

could not consummate its business combination 

if shareholders owning in excess of 40 percent of 

the shares exercised their redemption rights.155

However, this threshold was eliminated in 2017 

over concerns about apparent “greenmail,” in 

which hedge funds or other institutional investors 

acquire enough ownership to demand preferential 

terms as a condition of approving the merger. 

We recommend that the Commission and the 

national exchanges consider a return to a rule 

that would prevent the listing of shares when a 

majority of shareholders choose to redeem. Such a 

requirement would align a shareholder’s investment 

and voting decisions and protect the markets from 

companies that perhaps are not ready to become 

public companies. In our view, to the extent that 

greenmail is a legitimate concern, it should be 

addressed through other means.

REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 25

RESEARCH AND 

INVESTOR TESTING

I

n 2017, we launched our investor testing 

initiative, Policy-Oriented Stakeholder and 

Investor Testing for Innovative and Effective 

Regulation—or POSITIER—to conduct academicquality research into investor demographics and 

to better understand how investors respond to 

markets and Commission policy. The program 

allows us to identify issues of importance to 

investors, such as financial literacy deficiencies, 

the inadequacy of mandated disclosures, or 

problematic investment products. It also gives us 

the means to collect objective data and examine 

the impacts upon investors of proposed regulatory 

changes, as mandated by our authorizing statute, 

which in turn helps us advocate more effectively for 

investors. For the SEC—an agency that possessed 

little data regarding the investor population despite 

its investor protection mission—POSITIER was 

devised to serve as a source of new and exhaustive 

empirical evidence to help the Commission fulfill 

its mission. 

POSITIER is unique in that it provides rapidly 

deployable, cost-effective, and high-quality 

data collection capacities with a high degree of 

flexibility. With a small but developing staff unit, 

we have used these tools to engage in a wide variety 

of innovative data collection projects, including 

studies on digital assets and cryptocurrency, 

wealth measurement, the effects of COVID-19 on 

households, mutual fund disclosures, round number 

bias in retail trading, and investor participation and 

outcomes, particularly with respect to meme stocks. 

During calendar year 2021, we have engaged in 

eleven testing efforts, including eight nationally 

representative probability-based surveys, one quota 

sample study, and two qualitative research studies. 

Since initial data collection began in June of 

2017, our cumulative data collection efforts have 

yielded over 30 million quantitative data elements. 

We have conducted nearly 40 survey research 

projects, including a nationally representative 

panel study conducted on a monthly basis from 

July 2020 through June 2021 that enabled us to 

track the evolution of household finances during 

the COVID-19 pandemic. We have received 

results from more than 70,000 completed surveys, 

almost all using high-quality, probability-based 

survey samples. In addition, we have conducted 11 

large-scale qualitative studies on an assortment of 

topics. In total, these involved over 250 participants 

in one-on-one interviews and focus group-style 

interactions. 

Perhaps unsurprisingly, much of our research 

has focused on fund company investments—

i.e., investments in mutual funds or ETFs. 

These investments remain a staple of household 

investment portfolios because they are widely 
26 | OFFICE OF THE INVESTOR ADVOCATE

prevalent in the retirement savings accounts that 

represent the most common pathway through 

which investors access financial markets.156 With 

the transition from defined benefit to defined 

contribution retirement plans that has occurred 

over the past several decades, households’ 

retirement security largely relies on the ability 

of investors to make investment decisions for 

themselves, or to find an appropriate professional 

with whom to make decisions (and this is a 

task that itself may be as daunting as the task of 

investing itself).157

Decisions regarding fund investments rely on the 

ability of an investor to comprehend the technical 

features of funds in the marketplace, and the 

consequences of poor decisions may be enormous 

to the investor over time. For example, an investor 

investing $100,000 over a 25-year horizon that 

choses a high cost index fund rather than an 

alternative low cost index fund from a broker’s 

menu would pay around $85,000 more in fees and 

may wind up with a nearly $180,000 lower balance 

after 25 years. For these reasons, during the past 

year, researchers in the Office of the Investor 

Advocate have worked with co-authors to produce 

two groundbreaking papers related to mutual 

fund investments. 

MUTUAL FUND KNOWLEDGE 

IN THE UNITED STATES 

(Scholl and Fontes, 2021)

A forthcoming paper by Brian Scholl of the 

Office of the Investor Advocate and Angela 

Fontes of NORC provides a new measure of 

investor knowledge of the technical features of 

mutual funds.158 The paper was motivated by 

our observation that in the funds domain, while 

regulatory protections are largely focused on 

disclosure of technical information to investors, 

the concepts underlying the disclosed information 

seem to be either unknown to investors or their 

implications are unclear. That is, in order to make a 

well-informed decision about investments in funds, 

one may need to take into account such issues 

as fees, risks, strategies, historical performance, 

and other characteristics of the investments under 

consideration. However, we do not know the extent 

to which investors comprehend these concepts. 

Lack of knowledge can leave investors in a 

vulnerable position. How, for example, can an 

investor make an intelligent decision about mutual 

fund load fees if the investor does not understand 

what loads are, how and when they are paid, and 

what alternatives to a load-based mutual fund may 

be offered by the marketplace? Or, how can an 

investor make an intelligent decision about fees if 

the investor is unaware how fees affect the accrual 

of investment returns over time?

To study this issue, we developed an elevenquestion survey battery to ascertain investor 

knowledge of the technical features of mutual 

funds. The battery has the advantage of being easily 

and quickly deployable on a survey instrument. As 

described in Scholl and Fontes (2021), the battery 

is highly correlated with financial well-being (as 

measured via the Consumer Financial Protection 

Bureau’s validated scale),159 whether or not an 

individual invests in financial markets (i.e., an 

individual’s stock market participation). It also 

is strongly predictive of a survey respondent’s 

ability to correctly answer a fee calculation 

question—a question, incidentally, that has been 

answered correctly by only about a fifth of our 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 27

survey respondents. Overall, the 11 questions were 

deemed to be valuable in the sense of measuring 

investors’ ability to understand and apply 

information in mutual fund disclosures for the 

purpose of making quality investment decisions. 

Our knowledge battery includes 11 questions 

in four categories: (1) investor knowledge of 

marketplace alternatives; (2) risk; (3) performance 

history; and (4) fees. The questions are as follows: 

Category Questions True or False

Marketplace Alternatives Category M1.	 Financial markets offer thousands of different mutual funds to

investors.

Risk Category M2.	 Mutual funds pay a guaranteed rate of return.

M3.	 It is possible to lose money in a stock mutual fund.

M4.	 It is possible to lose money in a bond mutual fund.

M5.	 If a mutual fund is registered with the Securities and Exchange

Commission (the SEC) or state securities regulators, you

cannot lose money.

Performance History Category M6.	 A good predictor of the future performance of a mutual fund is

its past performance.

Fee Category M7.	 A no-load mutual fund charges yearly expenses.

M8.	 A load fee is charged only when the fund is initially purchased.

M9.	 Fees and expenses for the mutual fund industry are capped at

a maximum level by regulatory authorities.

M10.	 Fund fees are required to be reported in the fund’s prospectus

document.

M11.	 The fees or expenses charged by the mutual fund company in

a given year can be approximated by multiplying the fund’s net

expense ratio by the investment gains for the year.

True False
28 | OFFICE OF THE INVESTOR ADVOCATE

Figure 2 below provides a summary of results 

from our initial fielding of the battery according 

to whether the respondents own mutual funds 

(owner) or they do not (non-owner). As can be 

quickly ascertained by the figure, respondents’ 

ability to correctly answer the questions varied 

considerably across the questions. Nearly 90 

percent of mutual fund owners in our sample were 

able to correctly answer Question M3, the risk 

question regarding the possibility of losing money 

in a stock mutual fund. At the same time, responses 

to the five fee-related questions (M7–M11) ranged 

from bad to worse. About 7 out of 10 owners 

knew that fund fees are required to be reported in 

the fund’s prospectus document (M10), while only 

about two-fifths of non-owners correctly answered 

this question. Yet, even for the presumably more 

experienced owner group, less than 3 out of 10 

respondents could accurately answer any of the 

other fee questions (M7, M8, M9, M11). In fact, 

less than 20 percent of owners correctly answered 

Question M11. Question M11 was designed to 

identify whether a respondent erroneously believes 

that fund fees are calculated based solely on a 

fund’s investment returns, or alternatively, if they 

have the correct belief that fees are calculated 

based on an investor’s total balance invested in 

the fund. For a one-year investment of $10,000 at 

a 10 percent return in a fund that has an expense 

ratio of one percent, the results on Question M11 

suggest that 82 percent of mutual fund owners 

would be off in their calculation of fees paid by a 

factor of 11; i.e., if the implications of these survey 

results are taken at face value, true fees on such an 

investment are 11 times higher than 82 percent of 

owners believe they are.160

While this index of financial knowledge requires 

more debate and development going forward, the 

results overall are worrisome. They raise questions 

about the level of preparation the investing public 

has to make important investment decisions 

affecting their financial lives. They also call into 

question whether the existing mutual fund disclosures are sufficient to inform investors about 

their investments. The results on fee questions in 

particular are concerning given the considerable 

attention paid to fees by consumer advocacy organizations, the IAC, and the Commission itself.161

Note that this battery of questions was developed 

as a measurement tool to understand investor 

knowledge of mutual funds in the population as a 

whole, but there is no evidence to suggest that they 

are exploitable as a financial education tool, or 

that they may be used by financial professionals to 

determine the suitability of particular investments 

for a particular individual. That is, while our 

research has indicated that this survey battery 

may be a proxy for decision-making quality in 

some instances, we have not tested the idea that 

targeted financial literacy interventions designed 

to “school-up” investors on these concepts 

would result in better decision quality. To put 

a finer point on it, while we encourage better 

education programs to help investors understand 

these concepts, a “train and test” approach to 

these questions may break down the observed 

relationship between knowledge scores and 

decision-making quality for the trained individuals. 

The battery should not be used as a test of 

product suitability without further investigation 

by the authors. 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 29

Figure 2: Percent of Mutual Fund Owners and Non-Owners Correctly Answering Knowledge Questions

MARKETPLACE ALTERNATIVE CATEGORY

56%

80%

RISK CATEGORY

41%

77%

70%

88%

41%

63%

51%

78%

PERFORMANCE HISTORY CATEGORY

24%

38%

FEE CATEGORY

16%

29%

11%

20%

13%

28%

41%

71%

7%

18%

0 20 40 60 80 100

M11

M10

M9

M8

M7

M6

M5

M4

M3

M2

M1

Percent Correct

Non-Owner Owner
30 | OFFICE OF THE INVESTOR ADVOCATE

MUTUAL FUND FEE JARGON 

(Chin, Scholl, and VanEpps 2021)

We took the results of Scholl and Fontes (2021) a 

step further in a paper by Alycia Chin, Brian Scholl, 

and Eric VanEpps. In this paper, we examined the 

effects of specific linguistic barriers to investor 

comprehension of mutual fund fees. We conducted 

two related studies on mutual fund jargon to first 

ascertain the preferences of study participants for 

alternative terminology, and second, to test whether 

the more preferred fund terminology resulted in an 

improved match between fee terms and underlying 

fee concepts. Figure 3 provides a summary 

description of the two studies. 

Our main results from the two studies suggest that 

significant improvements in participant recognition 

of underlying fee concepts can be achieved with 

a more intuitive set of fee terms vis-à-vis the 

more standard jargon terms used widely in the 

fund industry. Figure 4 provides a comparison of 

respondents’ success in matching existing jargon 

terms (labeled “old”) with the correct fee concept, 

versus the more intuitive terms we tested (labeled 

“new”). Overall, the results suggest that our 

new terms strongly increased match correctness, 

and generally reduced respondents’ confusion as 

measured by their propensity to answer “I don’t 

know” when presented with a particular fee term. 

For example, in contrast to the oft-referred 

“12b-1 fee,” Study 1 found that almost any other 

term we considered was more preferable for 

participants—even some meaningless terms we 

included as decoys! The results in Figure 4 suggest 

that when participants are provided with the term 

“12b-1 fee,” less than 10 percent could correctly 

connect that term with the underlying fee concept 

and nearly 80 percent simply responded that they 

could not reasonably guess. With our alternative 

term “fund’s marketing fee,” the fraction of 

respondents who identified the correct fee concept 

approximately quadrupled and the “I don’t 

know” responses were cut approximately in half, 

although we did also note an increase in the rate of 

incorrect responses. Responses for our alternative 

to the widely used “back-end load” were equally 

promising and somewhat less ambiguous in 

implications: correct responses more than doubled, 

“I don’t know” responses were cut in half, and 

incorrect responses declined slightly. 

Figure 3: Design Summary of Fee Jargon Research

Study 1 Goal: 

Identify terms/phrases 

that intuitively 

convey fees

§	 We chose 6 common fund fees and generated a definition for each

§	 We brainstormed 8 alternative terms/phases for conveying each fee

§	 Through a carefully designed task, we assess participants’ perceptions 

of each alternative

Study 2 Goal: 

Determine whether 

more intuitive 

terms improve 

comprehension

§	 We identified the most intuitive terms from Study 1, according to 

participants’ ratings

§	 We showed a new set of participants each original and new term, 

asking them to pick the definition of each (comprehension)

§	 Our analysis shows improvements in comprehension for each fee
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 31

Figure 4: Respondents Correctly Identifying Concepts of Old and New Terms

Percent Correct Percent Don’t Know

0 20 40 60 80 100

Custodial Fee

Transfer Fee (New)

Exchange Fee (Old)

Fee for Selling this Fund (New)

Back-End Load (Old)

Short-Term Fee (New)

Redemption Fee (Old)

Upfront Sales Charge (New)

Front-End Load (Old)

Fund's Marketing Fee (New)

12b-1 Fee (Old)

Percent Incorrect

1

2

3

4

5

6

While we do not claim to have identified the 

absolute best possible terminology connected 

to each of these commonly used terms, our 

results provide an important demonstration 

that alternative terms may help facilitate 

investor understanding of key issues in mutual 

fund investing. 

Looking Forward

As we continue to build out POSITIER’s capacity 

to help the SEC achieve better results that investors 

deserve, we look forward to introducing more 

research and testing into the policy development 

context of the agency. We are guided by the 

belief that dedicated research and analysis, such 

as investor reactions and actual responses to the 

information that the Commission seeks to regulate, 

should be central in the Commission’s approach 

to policymaking. We will continue our efforts, 

for example, to help the Commission think about 

the specific types of decisions that investors are 

intended to make with disclosure documents and 

how to improve the salience of disclosure through 

design features such as layering information. We 

welcome the opportunity to test whether those 

disclosures actually help investors make more 

informed decisions. 
32 | OFFICE OF THE INVESTOR ADVOCATE

In last year’s Report on Activities, we outlined 

an approach to investor testing that would, 

if implemented, lead to policymaking that is 

more informed by social science research and 

practice, and thus more attuned to the needs of 

investors. Not every policymaking activity by the 

Commission necessitates the use of investor testing, 

but for the policies that have a direct impact or 

interface with investors, we believe a serious 

evidentiary basis should be the starting point for 

policy development rather than an afterthought. 

And, even for rulemakings that do not require 

formal investor testing, we believe the Commission 

could benefit from engaging in the thoughtful 

process that one would need to go through with 

investor testing. That process includes identifying 

outcomes of interest and tracing a realistic pathway 

by which a set of proposed policy actions can 

achieve the desired outcomes using theory and 

evidence from the social sciences. To put this 

another way, we believe that all policies the SEC 

pursues would benefit from outcomes-centered 

critical thinking. Such a revamp of thinking would 

have advantages in both mechanism design and 

evaluation of the effectiveness of the projects. It 

also would make testing projects that the SEC 

decided to go forward with more efficient, because 

the basis for testing would be established 

at the outset. 

Looking forward, the POSITIER team will 

continue to conduct research and encourage 

institutional change that promotes a better 

environment for investors to succeed in capital 

markets. As we look ahead to the next year of 

effort, we are currently eager to pursue research 

related to the Commission’s proposed Summary 

Shareholder Report, fee disclosure, arbitration 

processes, participation in financial markets, and 

financial literacy topics. 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 33

OUTREACH AND INVESTOR 

ENGAGEMENT

I

dentifying innovative strategies for engaging 

with investors has long been an operational 

focus of the Office of the Investor Advocate. 

The goal, among other things, is to obtain real-life 

feedback from investors about their perspectives 

on investing, better understand their processes 

for making investment and shareholder voting 

decisions, and develop partnerships that we can 

leverage to comprehend investor-related issues 

more deeply. This engagement more fully informs 

the Investor Advocate about the impact various 

rules or regulations may have on the investing 

public and helps us identify emerging issues that 

may warrant further attention by policymakers. 

In Fiscal Year 2021, the Office conducted a series 

of engagement activities involving retail investors, 

institutional investors, and various advocacy 

organizations. In particular, we strove to enhance 

our engagement with investors who do not meet 

regularly with SEC officials or submit comment 

letters in response to regulatory initiatives. We 

sought to engage with diverse communities, 

including investors in the disability community, 

ethnic-based groups, veterans, and young adults. 

Fiscal Year 2021 was also a period of necessary 

innovation resulting from the pandemic, which 

has led to sustainable improvements regarding the 

manner in which the Office conducts its external 

engagement activities. During the year, the Office 

utilized a virtual engagement model that enabled 

investor engagement to continue and expand. 

This approach increased not only the quantity of 

engagements, but also facilitated engagement with 

groups and entities that previously would not have 

been able to travel to such meetings. Specifically, 

this pivot made possible a number of hybrid162

larger multi-party listening sessions, diverse 

geographic events, and assorted meetings 

and presentations.

For example, in January 2021 our Office began 

coordinating with universities, graduate schools, 

and law schools across the country to develop 

multi-date, multi-university listening sessions 

co-hosted by SEC Commissioners together with the 

Investor Advocate. The objective was to capture the 

“voices” of university-aged populations regarding 

their perspectives on investing and emerging market 

trends. A wide range of topics were presented, 
34 | OFFICE OF THE INVESTOR ADVOCATE

including the advisability of developing mandatory 

ESG metrics, the regulation of digital assets, and 

the so-called “gamification” of trading. Students 

prepared for their presentations as an academic 

development exercise—planning the subject matter, 

developing content, conducting research, drafting 

supporting materials, and preparing for public 

speaking. University faculty served as advisors 

to the students, providing guidance and help in 

coordinating relevant curriculum objectives. 

Another key event in our investor engagement 

efforts was a roundtable that included individuals 

whose livelihoods were affected by the pandemic, 

including service industry workers, hourly staff, 

and workers who spend their time in the field 

(construction, landscaping, etc.). The participants 

discussed their introduction to investing, the 

impact of COVID as it related to their financial 

futures, their interest in cryptocurrencies, and the 

idea of recreational investing and gamification. 

The perspectives of these types of ordinary retail 

investors are extremely valuable to us, and we 

intend to continue these types of engagements in 

the months and years to come.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 35

OMBUDSMAN’S REPORT

As set forth in Exchange Act Section 

4(g)(8), 15 U.S.C. § 78d(g)(8), the 

Ombudsman is required to: (i) act 

as a liaison between the Commission and any 

retail investor in resolving problems that retail 

investors may have with the Commission or 

with self-regulatory organizations; (ii) review 

and make recommendations regarding policies 

and procedures to encourage persons to present 

questions to the Investor Advocate regarding 

compliance with the securities laws; and (iii) 

establish safeguards to maintain the confidentiality 

of communications between investors and the 

Ombudsman.163

The Ombudsman is also required to “submit 

a semi-annual report to the Investor Advocate 

that describes the activities and evaluates the 

effectiveness of the Ombudsman during the 

preceding year” (Ombudsman’s Report).164 The 

Ombudsman’s Report must be included in the 

semi-annual reports submitted by the Investor 

Advocate to Congress. To maintain reporting 

continuity, the Ombudsman’s Report included 

in the Investor Advocate’s Report on Objectives 

due no later than June 30 of each year describes 

the Ombudsman’s activities during the first six 

months of the current fiscal year and provides the 

Ombudsman’s objectives for the following full 

fiscal year. The Ombudsman’s Report included in 

the Investor Advocate’s Report on Activities due no 

later than December 31 of each year describes the 

activities and discusses 

the effectiveness of the 

Ombudsman during the 

full preceding fiscal year. 

Accordingly, this 

Ombudsman’s Report 

describes the activities 

and discusses the 

effectiveness of the 

Ombudsman165 for the 

full fiscal year from 

October 1, 2020 through September 30, 2021 

(the Reporting Period), and provides a brief 

outlook for Fiscal Year 2022. 

SERVICE BY THE NUMBERS

The Ombudsman assists retail investors—

sometimes referred to as individual investors or 

Main Street investors—and other persons with 

concerns or complaints about the SEC or SROs 

the SEC oversees. The assistance the Ombudsman 

provides includes, but is not limited to:

§	listening to inquiries, concerns, complaints, and 

related issues;

§	helping investors explore available SEC options 

and resources;

§	clarifying certain SEC decisions, policies, and 

practices;

§	taking objective measures to informally resolve 

matters that fall outside of established SEC 

resolution channels and procedures; and
36 | OFFICE OF THE INVESTOR ADVOCATE

§ providing periodic updates to SEC leadership

so that they are aware of trends and significant

emerging issues that are brought to our

attention, and otherwise acting as an alternate

channel of communication between retail

investors and the SEC.

In practice, individuals often seek the Ombudsman’s 

assistance as an initial point of contact to resolve 

their inquiries or as a subsequent or ongoing point 

of contact when they are dissatisfied with the 

outcome, rate of progress, or resolution. At times, 

individuals request the Ombudsman’s assistance 

with things the Ombudsman does not do. For 

example, individuals may ask us to provide financial 

or legal advice, participate in a formal investigation, 

make binding decisions or legal determinations for 

the SEC, or overturn decisions of existing dispute 

resolution or appellate bodies.

The following graphic illustrates the standard 

lifecycle of what happens when investors or 

other interested persons contact the Ombudsman 

for assistance:

Figure 5: What Happens When You Contact the Ombudsman

START

END

We review 

your information, 

determine if you are a 

retail investor and if your 

matter concerns the SEC 

or a related SRO, and 

confirm that your 

matter is entered 

in OMMS. We review 

your matter in detail, 

including any related 

background information, 

laws, and policies.

The Ombudsman 

may contact you, 

SEC staff, and other key 

persons for more details 

on the matter. The 

Ombudsman will discuss 

your concerns about 

confidentiality, if any, 

at this point.

The Ombudsman and 

staff discuss your 

matter internally to 

determine the best 

options for resolution 

and to identify other 

resources that may

be helpful to you.

The Ombudsman 

and staff may contact 

you to gather more 

information and to 

reply to any interim 

correspondence. This 

may occur several times 

as we work to resolve 

your matter.

The Ombudsman 

resolves your matter 

or provides options for 

you to consider. You may 

be advised to contact 

another SEC division or 

office, or another entity, 

for further assistance or 

resolution options.

We update 

your matter record 

accordingly. This 

provides the Ombudsman 

with easy access to your 

matter information 

should you have 

additional questions 

or concerns.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 37

To respond to inquiries effectively and efficiently, 

the Ombudsman monitors the volume of inquiries 

and the staff resources devoted to addressing 

the particular concerns raised. The Ombudsman 

tracks all inquiries received by, or referred to, the 

Ombudsman, as well as all related correspondence 

and communications to and from Ombudsman 

staff. We track the status of the inquiry from its 

receipt to its ultimate resolution or referral, and 

we monitor the amount of staff engagement and 

resources that were utilized to respond to the 

inquiry. We maintain these types of records in order 

to identify and respond to problems raised, analyze 

inquiry volume and trends, and provide data-driven 

support for recommendations presented by the 

Ombudsman to the Investor Advocate for review 

and consideration.

Inquiry volume is counted in terms of matters 

and contacts. The initial contact—a new, 

discrete inquiry received by or referred to the 

Ombudsman—is the contact that creates a matter. 

When a matter is created, the Ombudsman reviews 

the facts, circumstances, and concerns, and assesses 

the staff engagement and resources that may be 

required to respond to, refer, or resolve the matter. 

Once a matter is created, it may generate 

subsequent contacts—related inquiries and 

communications to or from the Ombudsman staff 

deriving from the matter. These contacts often 

require further attention to answer additional 

investor questions, explain or clarify proposed 

resolution options, discuss issues with appropriate 

SEC or SRO staff, or respond to challenging or 

persistent communications from an investor. This 

system of counting matters and contacts helps the 

Ombudsman quickly assess volume and resource 

issues related to each matter. 

Data Across Primary Issue Categories

The Primary Issue Categories used below are 

broad, descriptive labels that reflect the submitter’s 

description or characterization of their matter, 

based upon the information the submitter 

provided.166 During the Reporting Period, retail 

investors, industry professionals, concerned 

citizens, and other interested persons contacted 

the Ombudsman on 2,401 matters covering 11 

primary issue categories: 

Figure 6: Matters by Primary Issue Category

October 1, 2020–September 30, 2021

0.4%

0.9%

0.7%

2.1%

Allegations of Securities Law Violations / Fraud (622)

Investment Products / Retirement Accounts (588)

SEC Questions / Complaints (449)

Non-SEC / Other Matters (345)

SEC Investigations / Litigation / Enforcement Actions (162)

Atypical Matters (104)

Securities Laws / Rules / Regulations / Procedures (51)

Company Disclosures and Information (33)

Securities Ownership (21)

FINRA Complaints / Questions / Procedures (17)

SRO Rules / Procedures (9)

23.5%

25.9%

18.7%

14.4%

1.4%

6.7%

24.5%

4.3%
38 | OFFICE OF THE INVESTOR ADVOCATE

In addition to the 2,401 matters received, we 

fielded 3,231 contacts covering 11 primary issue 

categories during the Reporting Period, for a total 

of 5,632 contacts. The chart that follows displays 

the distribution of the 5,632 total contacts by 

primary issue category:

Figure 7: Contacts by Primary Issue Category

October 1, 2020–September 31, 2021

Investment Products / Retirement Accounts (1,424)

Allegations of Securities Law Violations / Fraud (1,312)

SEC Questions / Complaints (922)

Non-SEC / Other Matters (845)

SEC Investigations / Litigation / Enforcement Actions (461)

Atypical Matters (370)

Securities Laws / Rules / Regulations / Procedures (105)

Company Disclosures and Information (64)

Securities Ownership (55)

FINRA Complaints / Questions / Procedures (52)

SRO Rules / Procedures (22)

0.4%

1.0%

0.9%

1.9%

23.5%

25.3%

16.4%

15.0%

1.1%

8.2%

23.3%

6.6%

How the Numbers Inform Our Efforts

The Ombudsman tracks matter and contact data to 

maintain a comprehensive view of issues raised by 

retail investors. As one example, the 2,401 matters 

received during the Reporting Period represent 

a 45.7 percent increase over the 1,647 matters 

received during Fiscal Year 2020. This increase was 

due in part to investor matters relating to meme 

stocks,167 online trading platforms, and the possible 

manipulation of stock prices by hedge funds, which 

began to climb in January 2021. And, as with 

many of the investor concerns described in this 

Ombudsman’s Report, we brought these concerns 

to the attention of SEC leadership.

This example highlights how data helps the 

Ombudsman act as an early warning system, 

when necessary, on the potential impact of specific 

investor concerns and trends on regulatory and 

policy considerations. When appropriate, the data 

may also inform and support our research, hiring 

needs, and outreach efforts. 

SERVICE BEHIND THE NUMBERS 

While the matter and contact numbers capture the 

volume and categories of inquiries the Ombudsman 

receives, the numbers do not capture the full value 

of the services the Ombudsman provides to the 

investing public. Assisting just one investor with 

one issue can make a significant difference to that 

investor, and at times, may inform our approach as 

we examine policies, regulations, and rulemakings.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 39

Among the most common problems and concerns 

brought to the Ombudsman are those from 

investors who are unfamiliar with the existing 

channels established to resolve the particular 

concerns they raise, unsure which resolution 

channel to use, or unable to get the specific 

outcome they want through the resolution 

channels available. Typically, investors who 

are unfamiliar with or unsure of the available 

resolution channels will thoughtfully consider the 

advantages and disadvantages of the resolution 

options the Ombudsman presents, and establish 

their expectations based upon the potential 

outcome each option offers. For these investors, the 

Ombudsman serves a valuable resource function, 

but the investor retains responsibility for choosing 

how to proceed based on the resources the 

Ombudsman presents. 

Investors who want a particular outcome or believe 

that the Ombudsman is permitted to do whatever 

they request can be more challenging to assist. 

For instance, the Ombudsman routinely receives 

requests from investors who want the Ombudsman 

to act as their personal representative in a legal 

matter, provide them with immediate access to 

monetary awards from a Fair Fund, or modify an 

existing SEC or SRO rule. At times, it is difficult to 

explain the nature of the Ombudsman’s impartial 

role, and even more difficult for retail investors to 

accept the limitations of that role. 

The vignettes that follow are simplified, composite 

descriptions of retail investor submissions received 

during this Reporting Period, with certain 

details generalized, modified, or removed to 

avoid the disclosure of nonpublic or confidential 

information. These vignettes are included to help 

the reader better understand the context of the 

investor experience when an investor contacts the 

Ombudsman, and to provide the reader with a 

sense of the variety of issues we receive from retail 

investors better than the number of matters and 

contacts alone.

Retail investors complained about the SEC’s perceived failure to stop large hedge funds from manipulating 

trading in shares of meme stocks to drive down the share prices. Many of these retail investors identified 

themselves as first-time investors drawn to the market by the availability and ease of use of investment 

apps. Their complaints often contained very similar language and typically coincided with significant drops 

in the prices of these shares. Some investors went so far as to view the SEC’s lack of apparent action as 

proof that the agency was colluding with hedge funds at the expense of retail investors, and provided links 

to various social media platforms to substantiate their complaints that the manipulation was accomplished 

through dark pools, synthetic shares, and naked short selling. Others urged the SEC to take immediate 

action against the hedge funds rather than simply allowing the manipulation to continue. In many instances, 

these submissions provided an opportunity for the Ombudsman to provide investors with information 

and resources from SEC.gov on topics including market volatility, social media, and online investing,168 and 

general information about the SEC investigation and enforcement action process. 
40 | OFFICE OF THE INVESTOR ADVOCATE

Numerous retail investors contacted the Ombudsman to express frustration with the SEC for what they 

viewed as a lack of clarity as to when a digital asset is considered a security and subject to SEC oversight, 

and when it is not.169 Many investors noted that investing in digital assets gave them access to a market 

where they could participate in a way not available to them in the traditional financial markets. Investors who 

owned digital assets subject to an enforcement action reported that they experienced significant losses as a 

result, and often questioned why the Commission brought enforcement actions against the offer and sale of 

some digital assets, while declining to do so against others. For investors who wished to submit rulemaking 

suggestions to the agency, the Ombudsman provided information about the SEC rulemaking process and 

guidance on how to submit comments and request rulemaking. 

The Ombudsman received complaints from investors encountering difficulties communicating with their 

brokers. Some investors were concerned that their accounts at certain online brokerages were frozen 

without explanation, making it impossible for them to make trades or withdraw funds. Others complained 

that their brokers did not respond to their concerns that hackers may have accessed their accounts. 

The overarching theme of these complaints was the breakdown in communication between brokers and 

investors. Because these investor complaints related to their personal investments and financial matters, the 

Ombudsman liaised with attorneys in the SEC Office of Investor Education and Advocacy (OIEA) as needed 

and referred these investors to OIEA for additional assistance.

Retail investors expressed concerns about an SEC request for information and comments that could result 

in regulatory changes affecting the use of digital engagement practices, or DEPs, on investment apps and 

other online platforms.170 They urged the Commission to consider that these apps allowed certain retail 

investors access to the market for the first time because they could move in and out of the market without 

paying fees and commissions. Some investors suggested that the SEC focus on the actions of hedge funds 

rather than punish retail investors by eliminating their access to the market. The Ombudsman thanked each 

investor for sharing their views, and encouraged them to stay informed of the Commission’s activities in this 

area through resources available on the agency’s website and social media channels.

The Ombudsman heard from several investors with concerns about Fair Funds. Some investors worried 

that they did not receive a distribution days after a Fair Fund was created, while others asked questions 

about Fair Funds created and distributed years before. Many retail investors did not understand the 

process used to collect disgorgement and monetary penalties from wrongdoers, establish a Fair Fund, and 

ultimately, distribute funds to harmed investors. The Ombudsman responded to these investors by providing 

information on the specific Fair Fund at issue, explaining the process, and providing links to resources for 

harmed investors available on SEC.gov. In some cases, the Ombudsman called retail investors to walk them 

through the Fair Fund process. 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 41

Our interactions with investors provide insight 

into the information they rely upon and believe to 

be important when making investment decisions, 

and their understanding about the role of the 

SEC. The tailored information and responses the 

Ombudsman provides to investors often require 

a high degree of securities law analysis and 

expertise, conflict resolution skills, diplomacy, and 

judgment. Even when the information or response 

communicated to an investor appears simple, the 

threshold questions and considerations required 

to understand the inquiry and to identify next 

steps, SEC staff resources, and potential policy 

implications necessitate having staff with a level of 

securities law knowledge typically gained through 

several years of prior experience. 

When our interactions with investors highlight their 

lack of information or gaps in their understanding, 

we attempt to deliver personalized, straightforward 

service by communicating the information 

necessary to help investors better understand 

the solutions the SEC can provide, by liaising 

with the appropriate persons and entities, and 

by empowering and equipping investors to make 

well-informed decisions. 

STREAMLINED COMMUNICATIONS 

WITH RETAIL INVESTORS

The Ombudsman Matter Management System 

(OMMS) is an electronic platform for receiving 

inquiries, as well as tracking and analyzing matter 

and contact information, while ensuring all 

necessary data management, confidentiality, and 

reporting requirements are met. The OMMS Form, 

a web-based, mobile friendly form permitting the 

submission of inquiries, complaints, and documents 

directly to the Ombudsman, guides the submitter 

through a series of questions specifically tailored 

to elicit information concerning matters within the 

scope of the Ombudsman’s function. In addition, 

the OMMS Form allows submitters to easily 

upload and submit related documents for staff 

review. For any persons who do not wish, or are 

unable, to use the OMMS Form, they may still 

contact the Ombudsman by email, telephone, fax, 

and mail.

When an OMMS Form is submitted, OMMS 

automatically creates a matter record. The 

Ombudsman also manually creates an OMMS 

matter record for each inquiry received by 

telephone, email, or other means outside of the 

OMMS Form. Once an OMMS matter record 

is created, the Ombudsman and staff can review 

the matter and related correspondence, update 

matter details, and communicate with the investor 

via the OMMS platform. OMMS also allows 

the Ombudsman and staff to review matters by 

submitter, primary issue category, fiscal year, and 

other groupings, and customize specific reports 

and analyze data when a deeper examination 

is required.

Of the 2,401 matters received during Fiscal Year 

2021, 1,329 matters (55.4 percent) were submitted 

via the OMMS Form. As a comparison, of the 

1,647 matters received during Fiscal Year 2020, 

715 matters (43.4 percent) were submitted via 

the OMMS Form. During Fiscal Year 2018, the 

first full fiscal year the OMMS Form was available 

to the public, of the 449 matters received, 164 

matters (36.5 percent) were submitted via the 

OMMS Form. 

The Ombudsman will continue to encourage 

persons to submit their inquiries via the OMMS 

Form and will closely monitor questions and 

suggestions relating to the OMMS Form. In 

addition, the Ombudsman will continue working 
42 | OFFICE OF THE INVESTOR ADVOCATE

closely with the technology contractor until the 

contract term ends in December 2021, the Office of 

Information Technology, and the Office of Public 

Affairs to improve the OMMS user experience 

and to make Ombudsman-related information and 

resources more easily accessible to the public.

OMBUDSMAN ROLE AND STANDARDS 

OF PRACTICE

The broad role and function of the Ombudsman, 

including helping retail investors identify existing 

SEC options and resources to help resolve their 

concerns, and assisting retail investors with informally addressing issues that may fall outside of the 

SEC’s existing inquiry and complaint processes, is 

somewhat similar to the broad roles and functions 

of ombudsmen at the other federal financial 

regulatory agencies. To exchange ideas, discuss 

best practices, and facilitate ongoing communication, the Ombudsman participates in scheduled 

quarterly meetings and interim meetings as needed 

with the ombudsmen at other federal financial 

regulatory agencies. When an investor contacts 

the Ombudsman with questions or concerns 

under the purview of another federal financial 

regulatory agency, the Ombudsman often facilitates 

communication with the appropriate ombudsman 

counterpart to direct the investor to staff at that 

agency best suited to address the matter.

Ombudsmen at the Federal Financial Regulatory Agencies

CONSUMER FINANCIAL PROTECTION BUREAU (CFPB)

CFPBOmbudsman@cfpb.gov | (855) 830-7880

www.consumerfinance.gov/cfpb-ombudsman/

The CFPB Ombudsman’s Office is an independent, impartial, and confidential 

resource that assists consumers, financial entities, consumer or trade groups, and 

others in informally resolving process issues arising from CFPB activities. Contact 

us on individual or systemic issues if existing CFPB processes did not address 

your concerns, or to keep your concerns confidential. We may assist, for example, 

by: facilitating discussions, brainstorming options, and providing feedback and 

recommendations to the CFPB.

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

ombudsman@fdic.gov | (877) 275-3342

www.fdic.gov/regulations/resources/ombudsman/index.html

The FDIC Office of the Ombudsman is a confidential, neutral, and independent 

source of information and assistance to anyone affected by the FDIC in its 

regulatory, resolution, receivership, or asset disposition activities. If you have a 

problem or complaint with the FDIC that is not involved in litigation, arbitration, 

or mediation, you may contact the Office of the Ombudsman for confidential 

assistance. Our office will work with other FDIC divisions and offices as a liaison to 

address your issue.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 43

FEDERAL RESERVE BOARD (FRB)

ombudsman@frb.gov | (800) 337-0429

www.federalreserve.gov/aboutthefed/ombudsman.htm

The Ombudsman’s Office facilitates the fair and timely resolution of complaints related 

to the Federal Reserve System’s regulatory activities. The Ombudsman serves as an 

independent, confidential resource for individuals and institutions that are affected by 

the Federal Reserve System’s regulatory and supervisory actions.

NATIONAL CREDIT UNION ADMINISTRATION (NCUA)

ombudsman@ncua.gov | (703) 518-1175

www.ncua.gov/about/open-government/ombudsman

The Ombudsman assists in resolving problems by helping the complainant define 

options and by recommending actions to the parties involved, but the Ombudsman 

cannot at any time decide on matters in dispute or advocate the position of the 

complainant, NCUA or other parties. The Ombudsman will make recommendations 

to appropriate agency officials for systemic changes to deal with recurring problems 

revealed through investigations. The Ombudsman reports to the NCUA Board and is 

independent from operational programs.

OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC)

OCCOmbudsman@occ.treas.gov | (202) 649-5530

www.occ.gov/about/who-we-are/organizations/office-of-enterprise-governance-andthe-ombudsman/index-office-of-enterprise-governance-and-the-ombudsman.html

The OCC Ombudsman, who reports directly to the Comptroller of the Currency and 

operates outside of bank supervision, ensures that bankers have access to the appeals 

process and that appeals are reviewed fairly according to existing standards. The OCC 

appeals process for national banks and federal savings associations (collectively, banks) 

provides an independent, fair, and binding means of resolving disputes arising during the 

supervisory process; helps ensure the most sound supervision decisions possible; and 

promotes open, continuous communication between banks and the OCC. 

U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)

ombudsman@sec.gov | (877) 732-2001

www.sec.gov/ombudsman

The SEC Ombudsman is a confidential, impartial, and independent resource who 

serves as a liaison to help retail investors—sometimes referred to as individual investors 

or Main Street investors—resolve problems they may have with the SEC or with the 

self-regulatory organizations the SEC oversees. The SEC Ombudsman also reviews 

and recommends policies and procedures to encourage persons to present questions 

and feedback about the securities laws, and establishes safeguards to maintain the 

confidentiality of communications between individuals and the SEC Ombudsman.
44 | OFFICE OF THE INVESTOR ADVOCATE

Any retail investor with an issue or concern related 

to the SEC or an SRO subject to SEC oversight 

may contact the Ombudsman. The Ombudsman 

is available to identify existing SEC options and 

resources to address issues or concerns, and to 

explore informal, objective steps to address issues 

or concerns that may fall outside of the agency’s 

formal inquiry and complaint processes. Similar 

to ombudsmen at other federal agencies, the 

Ombudsman follows three core standards 

of practice:

Confidentiality Impartiality Independence

The Ombudsman has 

established safeguards 

to protect confidentiality, 

including the use of OMMS, 

a separate email address, 

dedicated telephone and fax 

lines, and secure file storage. 

The Ombudsman generally 

treats matters as confidential, 

and takes reasonable steps to 

maintain the confidentiality 

of communications. The 

Ombudsman also attempts to 

address matters without sharing 

information outside of the 

Ombudsman staff, unless given 

permission to do so. However, 

the Ombudsman may need to 

contact other SEC divisions 

or offices, SROs, entities, 

and/or individuals and share 

information without permission 

under certain circumstances 

including, but not limited 

to: a threat of imminent risk 

or serious harm; assertions, 

complaints, or information 

relating to violations of the 

securities laws; allegations of 

government fraud, waste, or 

abuse; or if otherwise required 

by law. 

The Ombudsman does not 

represent or act as an advocate 

for any individual or entity, 

and does not take sides on 

any issues. The Ombudsman 

maintains a neutral position, 

considers the interests and 

concerns of all involved parties, 

and works to resolve questions 

and complaints by clarifying 

issues and procedures, 

facilitating discussions, 

and identifying options 

and resources.

By statute, the Ombudsman 

reports directly to the Investor 

Advocate, who reports 

directly to the Chair of the 

SEC. However, the Office of 

the Investor Advocate and the 

Ombudsman are designed to 

remain somewhat independent 

from the rest of the SEC. 

Through the Congressional 

reports filed every six months 

by the Investor Advocate, 

the Ombudsman reports 

directly to Congress without 

any prior review or comment 

by the Commission or other 

Commission staff.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 45

The Ombudsman’s Challenge

The mission statement of the SEC is to “protect 

investors, maintain fair, orderly, and efficient 

markets, and facilitate capital formation.”171 At 

the center of many complaints the Ombudsman 

receives is a misunderstanding about the SEC’s 

relationship and obligations to individual investors 

because of the “protect investors” language 

in the mission statement. In these situations, 

investors frequently assume the purpose for SEC 

investigations and enforcement actions is to 

address their specific allegations or protect their 

specific, individual interests. While the SEC’s 

enforcement actions may at times align with the 

personal interests of harmed investors, the SEC 

does not pursue investigations and enforcement 

actions solely to represent a specific investor’s 

particular legal interests or to recover money a 

particular investor may have lost. Rather, the SEC 

advocates for—or supports—the collective interests 

of all investors and the public by maintaining fair, 

orderly, and efficient capital markets through the 

enforcement of the federal securities laws. 

A primary question we encounter is, then, what can 

the Ombudsman do for investors who have been 

harmed by violations of the federal securities laws? 

In appropriate circumstances, the Ombudsman 

may be able to present options to investors or 

foster communications between the investor and 

SEC or SRO staff. However, the Ombudsman is 

not authorized to do many things that investors 

request, including:

§	deciding the facts in a dispute that the investor 

has with the Commission or an SRO, or in a 

dispute before an SRO, such as an arbitration 

or mediation;

§	intervening on behalf of, or representing the 

interest of, an investor in a formal dispute or 

investigation process;

§	providing advice on how the federal securities 

laws may impact their particular investments or 

legal options; or

§	changing formal outcomes, including decisions 

about whether to investigate an allegation of 

wrongdoing, settle an enforcement action, or 

create a Fair Fund.

With these limitations in mind, when investors 

contact the Ombudsman with these, and similar 

requests, the Ombudsman staff routinely explains 

to investors that they have the ability to pursue 

other options, protect their interests, and preserve 

their legal rights in ways that the Ombudsman 

cannot. For example, an investor can file an 

arbitration or mediation complaint with FINRA 

to address a broker dispute, or hire private 

legal counsel to advise the investor on the best 

ways to protect the investor’s rights or reach a 

particular outcome. Investors who do not have 

the means to hire legal counsel may want to 

request representation through no-cost legal clinics 

sponsored by various law schools. 

While the Ombudsman staff cannot represent the 

interests of investors in private disputes, we do 

serve these investors by providing information that 

will assist them in making better-informed choices 

for themselves. 

Assisting Investors through Advocacy

Even when we cannot help investors achieve the 

specific results they desire, the concerns we hear 

from investors help to shape the policy agenda of 

the Office of the Investor Advocate. We also stay 

current on policy issues affecting retail investors 
46 | OFFICE OF THE INVESTOR ADVOCATE

through our engagement with investor advocacy 

groups and law school investor advocacy clinics 

that provide legal counsel and representation to 

harmed investors. Through this engagement, we 

gain a deeper understanding of legal and structural 

difficulties retail investors may face as they invest in 

the market or interact with industry professionals 

and with SROs. These difficulties might arise, 

for example, from the misconduct of industry 

professionals, or from the unintended consequences 

of certain rules and policies imposed by the 

Commission or by SROs. 

As discussed in prior reports, the Ombudsman also 

looks for ways to improve SEC or SRO processes, 

rules, and regulations for the collective benefit of 

retail investors, and advocates for those types of 

reforms. Selected areas of interest and importance 

to retail investors are discussed below.

AREAS OF INTEREST AND 

IMPORTANCE TO RETAIL INVESTORS

Accredited Investors and the Private Markets

Historically, retail investors have had limited 

access to the private markets, primarily due to the 

increased risks associated with private offerings. 

Public companies listed and traded on the stock 

exchanges must register and file certain disclosures 

with the SEC. Companies in the private markets, 

however, are often exempt from the same rigorous 

disclosure obligations and do not offer the same 

investor protections that arise from registration 

with the SEC.172 As a result, to invest in private 

offerings, retail investors have historically been 

required to demonstrate a certain level of financial 

resiliency to withstand the heightened risks of 

private investments. 

In 1982, the SEC adopted wealth thresholds to 

grant certain retail investors access to the private 

markets. A retail investor with: (i) a net worth 

exceeding $1 million (excluding the value of the 

investor’s primary residence), (ii) income exceeding 

$200,000 in each of the two most recent years, 

or (iii) joint income with a spouse exceeding 

$300,000 in each of those years and a reasonable 

expectation of reaching the same income level 

in the current year, qualified as an “accredited 

investor.”173 These accredited investor wealth 

thresholds were “intended to encompass those 

persons whose financial sophistication and ability 

to sustain the risk of loss of investment or fend for 

themselves render the protections of the Securities 

Act’s registration process unnecessary.”174 Because 

of these wealth thresholds, however, most retail 

investors—and most Americans—do not qualify as 

accredited investors and are unable to invest in the 

private markets.175

Over the last decade, private markets have 

flourished. As of 2020, private market assets under 

management grew by $4 trillion, an increase of 

170 percent within the past 10 years.176 Moreover, 

private markets grew both in terms of the absolute 

amounts raised and amounts raised relative to the 

public markets, with private investments eclipsing 

investments in public companies.177 While many 

factors have arguably contributed to the surge, the 

SEC has, over time, tacitly or explicitly permitted 

a broader swath of investors to access the private 

markets. For instance, although the SEC removed 

the primary residence from the calculation of net 

worth, the SEC has not otherwise updated the 

$1 million net worth and $200,000 individual 

income thresholds since 1982, nor the $300,000 

joint income threshold since 1988. Consequently,
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 47

the SEC recently estimated that the number of 

U.S. households qualifying as accredited investors 

has grown from approximately 2 percent of the 

population of U.S. households in 1983 to 13 

percent in 2019 as a result of inflation alone.178

Moreover, on August 26, 2020, the SEC amended 

the accredited investor definition to enable 

additional investors to invest in private offerings 

based on defined measures of professional 

knowledge or experience, or by obtaining certain 

professional certifications, designations, and 

other credentials.179 The amendments therefore 

created new categories of investors deemed 

“accredited” by their demonstrated capability to 

evaluate an investment opportunity—regardless 

of their wealth.180

The accredited investor definition has been, and 

continues to be, a contested issue. During the 

rulemaking process, the SEC received over 200 

comment letters in response to the proposed 

amendments to the accredited investor definition.181

Many commenters supported expanding the 

accredited investor definition, while others did 

not.182 Still other commenters suggested eliminating 

the definition altogether so that anyone could 

invest in private offerings.183

On June 11, 2021, the SEC announced its 

Annual Regulatory Agenda,184 which included 

“ensuring appropriate access to and enhancing the 

information available” to investors about exempt 

private offerings.185 As of the end of this Reporting 

Period, such considerations were in the pre-rule 

stage and included a possible recommendation 

that the Commission seek public comment on how 

the rules related to private offerings may more 

effectively promote investor protection—including 

possible updates to the wealth thresholds in the 

accredited investor definition.186

Given the impact that modifying the wealth or 

other thresholds might have on currently accredited 

retail investors, or retail investors that seek to 

become accredited, we strongly encourage retail 

investors to share their views with the Ombudsman 

so that we can better understand retail investors’ 

perceived or actual experiences regarding the 

risks and rewards associated with private market 

investments. We also encourage retail investors 

to monitor developments regarding the SEC’s 

possible request for public comment and, if given 

the opportunity, to submit comments for the 

Commission’s consideration. 

FINRA Special Notice Requesting Comment 

on Education for Newer Investors

During the Reporting Period, a number of first-time 

retail investors contacted the Ombudsman 

to express their concerns about perceived 

manipulation of markets by large hedge funds. 

Most of these investors utilized mobile investment 

apps offered by online broker-dealers, and many of 

their complaints cited to information they obtained 

from various social media platforms.

On June 30, 2021, FINRA published a Special 

Notice (Notice) seeking comments to assist FINRA 

and the FINRA Investor Education Foundation 

(FINRA Foundation) in developing new investor 

education initiatives.187 In particular, the Notice 

sought suggestions for reaching newer investors 

who have entered the market in extraordinary 

numbers, often through self-directed accounts at 

online brokers.188 The Notice described the results 

of a survey designed to determine the attributes 

of new account openers, defined as people who 

opened a non-retirement investment account for the 

first time in 2020.189 The survey showed that more 

than half of new investors are younger than 45, and 

have more limited income and account balances 
48 | OFFICE OF THE INVESTOR ADVOCATE

than investors who owned investment accounts 

prior to 2020.190 It also found that new investors 

were more likely to seek investment information 

from friends, family and co-workers than from 

investment professionals or personal research.191

Because of this dramatic shift in market 

participants and rapid development of advanced 

technology, FINRA recognized that its current 

investor education program needed to adapt to 

these changing circumstances. The Notice requested 

comments from a wide swath of stakeholders, 

including firms, investors, academics, and various 

investor organizations. As of November 1, 2021, 

FINRA had received 45 comments from every 

category of stakeholder, the majority of whom 

agreed with FINRA’s premise that its investor 

education program needs to adapt to this 

new reality.192

Several commenters emphasized the impact of 

social media on this group of newer investors. 

For instance, the Public Investors Arbitration 

Bar Association (PIABA) observed that “younger 

people have grown up in the digital age and obtain 

the vast majority of their information through 

social media,” and suggested that FINRA keep 

up with the social media platforms being used 

by these younger investors.193 PIABA noted that 

FINRA does not have a notable presence on social 

media platforms that younger investors rely on for 

information.194 PIABA cited a 2021 study finding 

that the most popular social media platforms 

used by adults between the ages of 18 and 29 are 

Instagram (71 percent), Snapchat (65 percent), and 

TikTok (48 percent).195 By contrast, the platforms 

used by FINRA to inform investors, Twitter and 

Facebook, are used by 70 percent and 42 percent 

of adults in this age group, respectively.196 PIABA 

encouraged FINRA to expand its social media 

campaign to include the platforms most popular 

with younger investors.197

This sentiment was echoed by the St. John’s 

University School of Law Securities Arbitration 

Clinic, which offered a unique perspective because 

not only do the law students assist investors who 

use retail trading platforms, many of the law 

students use retail investment apps themselves.198

The clinic noted that FINRA competes for the 

attention of new investors with so many other 

sources of information, primarily through social 

media, and should tailor its social media outreach 

accordingly.199 One suggestion was that FINRA 

avoid lengthy Twitter posts that investors are 

unlikely to read in their entirety,200 and instead 

use a “layered dissemination of information” 

to provide just enough information to get the 

investors’ attention, with links or embedded videos 

to communicate additional information.201

Commenters also noted the dearth of basic investor 

education in both high school and college, and 

recommended that FINRA advocate for financial 

literacy in schools. Both the Securities Industry 

and Financial Markets Association Foundation 

and the Financial Services Institute emphasized the 

importance of early education, and recommended 

that FINRA advocate for legislation requiring 

schools to add financial and investor education 

classes to their core curricula.202

Protections for Senior Investors: Proposed 

Amendments to FINRA Rule 2165

On June 9, 2021, FINRA submitted to the SEC 

various proposed amendments to Rule 2165 –

Financial Exploitation of Specified Adults.203 Rule 

2165 defines specified adults as all individuals who 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 49

are 65 years of age or older or who have physical 

or mental disabilities that impair their ability to 

advocate for their own financial interests.204 The 

proposed changes would amend Rule 2165 in 

three ways:

§	a member firm would be permitted to place 

a temporary hold on a securities transaction 

(in addition to disbursements of funds and 

securities) where there is a reasonable belief of 

financial exploitation of a specified adult;205

§	the time period for extending a temporary hold 

on a disbursement of funds, securities, or a 

transaction in securities, would be extended for 

an additional 30-business days if the member 

firm has reported the matter to a state regulator, 

agency or a court of competent jurisdiction.206

This would increase the potential maximum 

duration of the temporary hold from 25 days to 

55 business days;207 and 

§	a member firm would be required to retain 

records of the reason for any extension of 

a temporary hold including any related 

communications with, or by, a state regulator, 

agency or court of competent jurisdiction.208

Through these proposed amendments to Rule 

2165, FINRA would create the first uniform 

national standard for placing holds on securities 

transactions related to suspected financial 

exploitation.209

Prior to filing the proposed rule amendments, 

FINRA invited comments on the proposed changes 

during a Retrospective Review of Rule 2165.210

FINRA received additional comments in response 

to the proposed rule changes filed with the SEC.211

Regarding the length of time for temporary holds, 

commenters in favor of the extension to 55 days 

noted that investigations and court proceedings can 

be time intensive.212 Those opposed felt that the 

current 25-day model is sufficient.213 Commenters 

supportive of extending Rule 2165 to include 

holds on securities transactions noted that 34 

states already have laws allowing for such holds 

to be placed, and 20 of those 34 states (containing 

approximately half of the U.S. population) have 

enacted laws permitting investment advisers and 

broker-dealers to place temporary holds on both 

disbursements and transactions.214

FINRA also received suggestions and concerns 

apart from those addressing the proposed changes 

directly. Subjects raised included the possibility 

of a national standard of mandated reporting 

as well as a question on whether evidence of 

actual exploitation should be required prior 

to a hold being placed.215 In contrast, other 

commenters expressed concerns that member 

firms may not be well-positioned to determine 

if a customer is suffering from cognitive decline 

or diminished capacity in the absence of suspected 

financial exploitation.216

On August 23, 2021, FINRA responded to the 

comments,217 asserting that the proposed rule 

amendments tried to strike a reasonable balance 

between giving member firms adequate time to 

investigate, contact relevant parties, and seek input 

from state regulators, agencies or courts, against 

the seriousness of granting firms the discretion to 

use an open-ended hold period.218 FINRA also 

addressed concerns that member firms were not 

positioned to determine whether a customer is 

suffering from cognitive decline or diminished 

capacity by noting that it did not propose to 

extend Rule 2165 to such situations.219 FINRA 

maintained that a member firm using its discretion 

to place a temporary hold allows for the judicious 

use of temporary holds to protect customers from 

financial exploitation.220
50 | OFFICE OF THE INVESTOR ADVOCATE

On September 28, 2021, the SEC instituted 

proceedings to determine whether to approve or 

disapprove the proposed amendments to Rule 

2165.221 The current deadline for the Commission 

to make its determination is December 25, 2021. 

Given the direct and potentially significant impact 

this rulemaking has on senior retail investors, the 

Ombudsman will continue to monitor the status of 

these proposed rule amendments.

Discovery Abuse and Retail Investor 

Arbitration Outcomes

As noted in the Report on Objectives for Fiscal 

Year 2022, it may be beneficial to study and 

identify potential correlations between discovery 

abuse and the cost, duration and disposition of 

FINRA customer arbitration cases and the potential 

implications of discovery abuse on arbitral 

outcomes for retail investors.222 This data may help 

evaluate whether and to what extent arbitration 

is, in fact, faster, cheaper, and less complex than 

litigation, and whether the arbitration process 

is a beneficial alternative to litigation for retail 

investors.223 The data may also shed light on what, 

if any, practical changes to the discovery process 

and arbitration forum should be considered to 

ensure that retail investors have adequate access to 

the evidence and information they need to support 

their claims and obtain fairer outcomes.224

During the Reporting Period, Ombudsman staff 

began working with economists from the Office of 

the Investor Advocate to plan and design the study 

into arbitral discovery abuse. Ombudsman staff 

plan to continue refining the design of this study in 

Fiscal Year 2022 and should provide an update in 

the next report.

OUTREACH AND ENGAGEMENT 

EFFORTS

Law School Clinic Outreach Program 

The importance and impact of law school investor 

advocacy clinics have increased considerably since 

1997, when then-SEC Chairman Arthur Levitt, Jr. 

announced the creation of two pilot law school 

investor advocacy clinics to help retail investors 

with small claim amounts obtain quality legal 

representation.225 Today, there are 12 law school 

investor advocacy clinics across the United States 

that provide legal counseling and representation 

to retail investors involved in securities industry 

disputes, comment on rule proposals, and engage 

with many more investors through communitybased presentations and informational materials.226

As discussed in prior Ombudsman’s Reports, the 

Law School Clinic Outreach Program (LSCOP) 

was launched in 2016 to complement the Office’s 

statutory mandate and core functions.227 One goal 

of the LSCOP was, and remains, the exchange 

of information and ideas between the law school 

investor advocacy clinics and SEC staff. In their 

unique roles as counsel to retail investors with 

small claims or limited incomes, clinics are uniquely 

positioned to examine issues that confront retail 

investors from a perspective unavailable to 

SEC staff. The LSCOP allows the Office of the 

Investor Advocate to interact directly with the 

clinics, engage in meaningful policy discussions, 

and gain a better understanding of their views on 

suggested regulatory changes and policy initiatives. 

Our engagement with the law school clinics also 

provides an excellent opportunity to inform law 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 51

students interested in securities law and investor 

protection issues about internships, externships, 

and career opportunities at the SEC. Moreover, our 

outreach program aligns with the SEC’s diversity 

and inclusion efforts, creates an additional path to 

attract a diverse pool of potential applicants, and 

demonstrates the SEC’s commitment to a diverse 

and inclusive workforce at all levels of the agency. 

LSCOP began with our on-site visits to the law 

school clinics in 2016, expanded to include clinic 

directors and law students attending IAC meetings 

at SEC headquarters in 2017 and 2018, and 

resulted in the first SEC Investor Advocacy Clinic 

Summit hosted by the Investor Advocate and the 

Ombudsman at SEC headquarters in 2019.228

LSCOP continues to provide opportunities for 

meaningful involvement between the law school 

clinics, the Commission, and SEC staff, such as the 

2021 SEC Investor Advocacy Clinic Summit.

2021 SEC Investor Advocacy Clinic Summit 

As described in greater detail in the Report on 

Objectives for FY 2022,229 on March 25, 2021, 

the Investor Advocate and Ombudsman hosted the 

second SEC Investor Advocacy Clinic Summit (the 

Summit). Given the COVID-19 pandemic and the 

resulting work from home status of the agency, the 

Summit, unlike the 2019 SEC Investor Advocacy 

Clinic Summit230 at SEC headquarters, was held as 

a virtual event.231 The 12 active law school investor 

advocacy clinics from across the country were 

invited to share their perspectives and engage with 

SEC staff on the some of the most pressing issues 

currently facing retail investors. 

Summit Overview 

The Summit included opening remarks from 

then-Acting SEC Chair Lee, as well as remarks 

and question and answer sessions with SEC 

Commissioners Peirce, Roisman, and Crenshaw. 

The Summit also featured two panel discussions 

that highlighted recent challenges facing retail 

investors. During the first panel, “The Risks of 

Online Trading for Retail Investors,” panelists 

addressed the rise of online brokerage platforms, 

the specific risks they pose to retail investors, as 

well as the manner in which social media amplifies 

those risks. During the second panel, “Virtual 

Arbitration Hearings: Costs, Risks and Benefits 

to Retail Investors,”232 panelists explored the 

difficulties and advantages of representing clients 

in virtual FINRA arbitrations, as well as a recent 

study233 that suggests virtual hearings might 

disproportionately result in negative outcomes for 

retail investors. 

A highlight of the Summit was a two-part 

panel entitled “Lessons Learned from Harmed 

Investors,” during which clinic directors and law 

students discussed notable experiences representing 

retail investors in FINRA arbitration hearings.234

The panel presentations were timely and thought 

provoking, and covered key lessons learned 

throughout the arbitration hearing process. The 

law students demonstrated an impressive command 

of the securities laws as they identified takeaways 

and topics for regulatory consideration. 
52 | OFFICE OF THE INVESTOR ADVOCATE

Summit Feedback and Impact

The virtual format resulted in an increase in overall 

attendance and participation. All 12 investor 

advocacy clinics were present, and close to 200 

law students, clinic directors, SEC staff, and 

commissioners attended and participated in the 

Summit throughout the day. Following the Summit, 

clinic directors and their students expressed 

overwhelming enthusiasm for the exceptional 

opportunity to engage and exchange ideas with the 

Commission, SEC staff, and each other.235

Given the success of the prior SEC Investor 

Advocacy Clinic Summits, the Investor Advocate 

and the Ombudsman look forward to hosting 

future summits—whether as in-person, virtual, 

or hybrid events—as a signature feature of the 

Law School Clinic Outreach Program. During the 

Reporting Period, the Office of the Ombudsman 

began exploring options for a possible third SEC 

Investor Advocacy Clinic Summit in 2022. 

Additional Outreach Activities

In addition to the Summit, the Ombudsman 

continued to seek out opportunities to increase 

awareness and elevate the visibility of the 

services the SEC provides to retail investors. 

These opportunities included participation in the 

following ombudsman and securities industry 

events, professional conferences, and outreach 

activities during the Reporting Period.

§	American Bar Association Section of Dispute 

Resolution—Ombudsmen Subcommittee 

monthly meetings 

§	American Bar Association Section of Dispute 

Resolution—2020 ABA Ombuds Day webinar 

speaker

§	Coalition of Federal Ombudsmen, 2020 Annual 

Conference Co-Chair

§	Coalition of Federal Ombudsmen monthly 

meetings

§	Federal Financial Ombudsmen Working Group 

quarterly meetings

§	Fordham University School of Law Securities 

Litigation and Arbitration Clinic seminar 

speaker

§	International Ombudsman Association Annual 

Conference

§	Northeast Ombudsmen Working Group 

quarterly meetings

§	Practising Law Institute, The SEC Speaks in 

2020, program faculty and speaker

§	Securities Arbitration Clinic Directors Annual 

Roundtable

Internal Agency Engagement 

The Office of the Ombudsman increased its internal 

engagement efforts with agency stakeholders 

during the Reporting Period. In targeted meetings 

and presentations, we provided an overview of 

the Ombudsman’s statutory responsibilities along 

with a high-level discussion on how we assist 

retail investors. In addition, we flagged pertinent 

and trending issues, shared our perspectives, and 

explored ways that the Ombudsman could assist 

the work of other divisions and offices within the 

Commission. Through these internal engagement 

efforts, divisions and offices obtained a better 

understanding of the resources and services that 

we offer, and the Ombudsman fortified existing 

relationships and opened new communication lines 

with division and office leaders. 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 53

The Ombudsman also engaged with SEC divisions 

and offices on agency programs and outreach 

projects. As one example, the SEC Chief Operating 

Officer invited the Ombudsman to speak at a 

brown bag lunch program with his front office 

staff. That presentation was well received and led 

to invitations to speak to a cohort of the SEC Staff 

Mentoring Program, and to present a professional 

development session to the SEC MBA student 

internship program. Each of these programs 

provided an invaluable opportunity to share 

information about the Office of the Ombudsman 

with a wider audience, and to demonstrate how the 

office facilitates communication, identifies issues, 

and works with other SEC divisions and offices to 

address retail investor concerns. 

As another example, the Office of the Ombudsman 

is collaborating with the Division of Enforcement’s 

Retail Strategy Task Force to develop an outreach 

program to inform senior retail investors and 

their caretakers about fraudulent financial and 

investment schemes. Preliminary plans are to 

conduct outreach in New York and Florida, and, 

if feasible, to replicate and expand the program to 

include broader outreach to senior retail investors 

and their caretakers nationwide.

In addition to these efforts, the Ombudsman 

continues to maintain open communications with 

SEC senior staff to address areas of importance 

to retail investors, and to offer insights on policy 

and regulatory initiatives. Going forward, the 

Ombudsman intends to initiate and participate 

in engagement efforts throughout the SEC on a 

regular basis to share perspectives and to inform 

policy and regulatory considerations to improve 

the retail investor experience. 

OUTLOOK FOR FISCAL YEAR 2022

The peak staff level reached during the Reporting 

Period—the Ombudsman, one senior special 

counsel, one senior counsel, one senior law clerk 

contractor, and one senior paralegal contractor—

was instrumental in expanding our ability to 

tackle targeted research and policy issues, and 

to determine whether more detailed research is 

warranted. Moreover, the increased staff facilitated 

opportunities to expand our internal engagement 

efforts across the agency. In the past, these internal 

engagement efforts occurred on an occasional 

basis. For example, several offices requested 

demonstrations of the Ombudsman Matter 

Management System as they worked to create or 

refine similar systems of their own. At other times, 

particular investor matters necessitated increased 

collaboration with other divisions and offices, and 

as a result, created subsequent opportunities to 

strengthen relationships and increase awareness of 

the Ombudsman function. 

During the Reporting Period, the increase in staff 

allowed us to launch an internal engagement 

strategy, test its feasibility with several targeted 

meetings, and further tailor the strategy to meet 

the needs of the office. Based on the success of 

these internal engagement efforts, during Fiscal 

Year 2022, the Office of the Ombudsman plans to 

expand its internal engagement efforts to include 

division and office stakeholders as appropriate, 
54 | OFFICE OF THE INVESTOR ADVOCATE

and to include additional SEC regional offices. The 

Office of the Ombudsman also plans to expand 

its external engagement efforts by participating 

in more ombudsmen-related conferences and 

trainings, which will increase our opportunities to 

both learn from other practitioners and to share 

our best practices and successes.

A number of investor matters also created 

opportunities to engage with the FINRA 

Ombudsman during the Reporting Period. I am 

pleased to work with the FINRA Ombudsman on 

investor matters, and I look forward to a scheduled 

meeting with the new FINRA Ombudsman in a 

few weeks. In addition to a high-level discussion 

about handling investor concerns, I anticipate 

this meeting will cover additional engagement 

opportunities to help investors better understand 

our roles and the resources we provide.

At times, the number of matters and contacts we 

receive are viewed as indicative of the value of our 

work. While the numbers are impressive, especially 

given the small size of the office, the quality of the 

information we provide as we liaise with retail 

investors is also a meaningful measure of the value 

of our work. From an investor’s perspective, out 

of all of the matters we receive, their matter is the 

most important. How we address their matter may 

impact their view of the office and the agency, and 

potentially, their willingness to participate in the 

capital markets. We will continue to keep these 

factors in mind as we liaise with investors to help 

resolve their concerns, and we will continue to 

make quality a hallmark of our interactions. I look 

forward to providing updates on our activities and 

progress in these areas in my next report.

Tracey L. McNeil

Ombudsman
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 55

SUMMARY OF 

INVESTOR ADVISORY COMMITTEE 

RECOMMENDATIONS AND

SEC RESPONSES

Congress established the Investor Advisory 

Committee (IAC) to advise and consult 

with the Commission on regulatory 

priorities, initiatives to protect investor interests, 

initiatives to promote investor confidence and the 

integrity of the securities marketplace, and other 

issues.236 The IAC is composed of the Investor 

Advocate, a representative of state securities 

commissions, a representative of the interests of 

senior citizens, and not fewer than 10 or more 

than 20 members appointed by the Commission to 

represent the interests of various types of individual 

and institutional investors.237

Exchange Act Section 39 authorizes the IAC 

to submit findings and recommendations for 

review and consideration by the Commission.238

The statute also requires the SEC “promptly” to 

issue a public statement assessing each finding or 

recommendation of the IAC and disclosing the 

action, if any, the Commission intends to take 

with respect to the finding or recommendation.239

While the Commission must respond to the IAC’s 

recommendations, it is under no obligation to agree 

with or act upon the recommendations.240

In each of its reports to Congress, including 

this one, the Office of the Investor Advocate 

summarizes the IAC recommendations and 

the SEC’s responses to them.241 We continue to 

report on recommendations until we believe the 

Commission’s response is final. For summaries 

of Commission activities related to previous 

IAC recommendations, please see our earlier 

reports to Congress. The Commission may be 

pursuing initiatives that are responsive to IAC 

recommendations but have not yet been made 

public. Commission staff—including the staff 

of this Office—are prohibited from disclosing 

nonpublic information.242 Therefore, any such 

initiatives are not reflected in this Report.
56 | OFFICE OF THE INVESTOR ADVOCATE

Topic Date IAC Recommendation SEC Response

Individual Retirement 

Accounts

Dec. 2, 2021 Propose added investor 

protections to self-directed 

individual retirement accounts.

Pending.

Special Purpose 

Acquisition 

Companies 

(SPACs)243

Sept. 9, 2021 Enhance disclosure requirements 

regarding the SPAC sponsor, 

potential conflicts of interest, 

mechanics of the SPAC and 

de-SPAC transactions, the 

target search process, and any 

additional funding. Publish an 

analysis of SPAC participants, their 

compensation, and their incentives. 

Pending.

Rule 10b5-1 Plans244 Sept. 9, 2021 Require a “cooling off” period and 

prohibit overlapping Rule 10b5-1 

plans. Require enhanced plan 

reporting and disclosures. 

Pending.

Minority and 

Underserved 

Inclusion245

March 11, 2021 Support regulations, legislation, 

programs and other steps that 

increase acquisition of financial 

assets and services by minority 

communities. Continue and build 

upon SEC programs that are 

directed toward increasing financial 

literacy and supporting minority 

investment. 

Pending.

Credit Rating 

Agencies246

March 11, 2021 Identify in Office of Credit Rating 

(OCR) reports specific nationally 

recognized statistical rating 

organizations whose conduct was 

deemed to be materially deficient. 

Remodel OCR’s annual examination 

reports to conform to the approach 

utilized in the Public Company 

Accounting Oversight Board’s 

annual public inspection reports.

Pending.

Accounting and 

Financial Disclosure247

May 21, 2020 Reconsider a 2020 rulemaking

proposal to amend Regulation S-K 

that would permit issuers to omit 

fourth quarter results in annual 

reports and that would eliminate 

the tabular presentation of 

contractual obligation information. 

Closely monitor issuers’ use of 

non-GAAP metrics and accounting 

developments relating to reverse 

factoring.

On June 23, 2020, the SEC’s 

Division of Corporation Finance 

staff published disclosure guidance 

addressing supplier finance programs 

in the context of pandemic-related 

disruptions.248 On October 21, 

2020, the FASB decided to add a 

project to its technical agenda to 

address the disclosure of supplier 

finance programs involving trade 

payables.249 On November 19, 

2020, the Commission adopted the 

amendments to Regulation S-K, 

largely as proposed.250
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 57

Topic Date IAC Recommendation SEC Response

ESG Disclosure251 May 21, 2020 Commence an effort to update 

issuer reporting requirements 

to include material, decisionuseful disclosure concerning 

environmental, social, and 

governance matters. Consider 

the utility of both principlesbased and prescriptive reporting 

requirements.

Pending.

Disclosure 

Effectiveness252

May 21, 2020 Enhance the effectiveness of new 

and existing disclosure relied on 

primarily by retail investors by, 

among other things, adopting 

an iterative process that includes 

disclosure research, design, and 

testing.

On August 5, 2020, the Commission 

proposed comprehensive 

modifications to the mutual fund and 

exchange-traded fund disclosure 

framework.253 The Office of the 

Investor Advocate is conducting 

investor research that may be 

relevant to this proposal.

SEC Guidance and 

Rule Proposals on 

Proxy Advisors 

and Shareholder 

Proposals254

Jan. 24, 2020 Revisit priorities in improving the 

proxy system, revise and republish 

the 2019 proxy voting rulemaking 

proposals, and reconsider the 2019 

proxy voting guidance.

On July 22, 2020, the Commission 

adopted the amendments to the 

proxy rules without republishing 

them for further comment.255

On September 23, 2020, the 

Commission adopted the 

amendments to Exchange Act Rule 

14a-8 without republishing them for 

further comment.256

On November 17, 2021, the 

Commission proposed amendments 

to the rules governing proxy 

advice in light of feedback from 

market participants and certain 

developments in the market for proxy 

voting advice.257

Exchange Rebate Tier 

Disclosure258

Jan. 24, 2020 Require the national securities 

exchanges to provide the 

Commission with regular 

disclosures regarding rebate tiers 

offered to their members, and 

take steps to require monthly 

public disclosure of these rebate 

practices.

Pending.
58 | OFFICE OF THE INVESTOR ADVOCATE

Topic Date IAC Recommendation SEC Response

Proxy Plumbing259 Sept. 5, 2019 Require end-to-end vote 

confirmations to end users of the 

proxy system, require all involved 

to cooperate in reconciling 

vote-related information, conduct 

studies on investor views on 

anonymity and share lending, and 

finalize the 2016 universal proxy 

rulemaking proposal.

On November 17, 2021, the 

Commission adopted final rules 

relating to the use of universal 

proxy cards in contested director 

elections.260

Structural Changes 

to the US Capital 

Markets Regarding 

Investment Research 

in a Post-MiFID II 

World261

July 25, 2019 Prioritize certain concepts and 

guiding principles, including 

the following: (1) consumers of 

research, regardless of location, 

should be allowed to choose 

whether to purchase research 

“bundled” or “unbundled” from 

trading costs; and (2) there should 

be greater transparency regarding 

research costs and how those costs 

are borne. 

On November 12, 2019, the 

Commission extended temporary 

no-action relief from compliance with 

registration under the Advisers Act 

for brokers that receive payments for 

research in hard dollars or through 

research payment accounts from 

managers subject to MiFID II through 

July 3, 2023.262

Human Capital 

Management 

Disclosure263

Mar. 28, 2019 Revise issuer disclosure 

requirements to elicit more 

insightful disclosure concerning 

how human capital within a firm is 

managed and incentivized.

On August 26, 2020, the Commission 

adopted rule amendments to 

modernize the description of 

business, legal proceedings, and 

risk factor disclosures that issuers 

are required to make pursuant to 

Regulation S-K. The amendments 

include the addition of human capital 

resources as a disclosure topic.264

Financial Support 

for Law School 

Clinics that Support 

Investors265

Mar. 8, 2018 Explore ways to improve external 

funding sources to the law school 

investor advocacy clinics. Work 

with FINRA, NASAA, and other 

potential partners, and request 

legislation from Congress to 

consider permanent funding.

Pending. 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 59

Topic Date IAC Recommendation SEC Response

Dual Class and 

Other Entrenching 

Governance 

Structures in Public 

Companies266

Mar. 8, 2018 Direct Division of Corporation 

Finance staff to scrutinize 

disclosure documents filed by 

issuers with dual class and other 

entrenching governance structures, 

comment on such documents so as 

to enhance the salience and detail 

of risk disclosure, and develop 

guidance to address a range of 

issues that such structures raise.

Pending.

Accredited Investor 

Definition267 

Oct. 9, 2014 Evaluate whether the current 

definition achieves the goal of 

identifying a class of individuals 

who are able to make an 

informed investment decision and 

protect their interests without 

the protections of registration 

and disclosure. Consider other 

definitional approaches.

On August 26, 2020, the Commission 

adopted amendments to the 

definition of accredited investor.268

Among other changes, the 

amendments allow individuals to 

qualify as accredited investors if 

they possess certain professional 

credentials or affiliations, even if they 

do not meet the income or net worth 

thresholds. The Commission chose 

not to modify the definition’s income 

or net worth thresholds.

Impartiality in 

the Disclosure of 

Preliminary Voting 

Results269

Oct. 9, 2014 Ensure impartiality in the disclosure 

of preliminary voting results.

Pending. 

Universal Proxy 

Ballots270

July 25, 2013 Allow universal ballots in 

connection with short-slate 

director nominations.

On October 26, 2016, the 

Commission proposed amendments 

to the proxy rules to require parties in 

a contested election to use universal 

proxy cards that would include 

the names of all board of director 

nominees.271

On November 17, 2021, the 

Commission adopted final rules 

relating to the use of universal 

proxy cards in contested director 

elections.272
60 | OFFICE OF THE INVESTOR ADVOCATE

ENDNOTES

1 Exchange Act § 4(g)(6), 15 U.S.C. § 78d(g)(6).

2 Exchange Act § 4(g)(6)(A)(i), 15 U.S.C. § 78d(g)(6)(A)

(i).

3 See SEC, Office Of The Investor Advocate, Report

on Objectives, Fiscal Year 2021 (June 29, 2020) 

[hereinafter Report on Objectives, Fiscal Year 2021], 

https://www.sec.gov/files/sec-office-investor-advocatereport-on-objectives-fy2021.pdf. 

4 Exchange Act § 4(g)(6)(B)(i), 15 U.S.C. § 78d(g)(6)

(B)(i).

5 Id. Exchange Act Section 4(g)(6)(B) requires the Report 

on Activities to include an “inventory” of the most 

serious problems encountered by investors during the 

Reporting Period. The inventory must identify any 

action taken by the Commission or an SRO to resolve 

each problem, the length of time that each item has 

remained on our inventory and, for items on which no 

action has been taken, the reasons for inaction and an 

identification of any official who is responsible for such 

action. 

6 Report on Objectives, Fiscal Year 2021, supra note 3. 

7 The Office of the Investor Advocate was established 

pursuant to Section 915 of the Dodd-Frank Wall 

Street Reform and Consumer Protection Act of 2010 

(Dodd-Frank Act). On February 24, 2014, SEC Chair 

Mary Jo White appointed Rick A. Fleming as the 

Commission’s first Investor Advocate.

8 See Management’s Discussion and Analysis, Selected 

Financial Data, and Supplementary Financial 

Information, Securities Act Rel. No. 10890, 86 Fed. 

Reg. 2,080 (Jan. 11, 2021), https://www.sec.gov/rules/

final/2020/33-10890.pdf. 

9 See SEC, Recommendation of the Investor Advisory 

Committee Regarding Recommendation of the Investor 

as Owner Subcommittee on Accounting and Financial 

Reporting Disclosure (May 5, 2020), https://www.

sec.gov/spotlight/investor-advisory-committee-2012/

accounting-and-financial-disclosure.pdf. 

10 See Modernization of Rules and Forms for 

Compensatory Securities Offerings and Sales, Securities 

Act Rel. No. 10891, 85 Fed. Reg. 80,232 (Dec. 11, 

2020), https://www.sec.gov/rules/proposed/2020/33-

10891.pdf.

11 See id. 

12 See id.

13 See Temporary Rules to Include Certain “Platform 

Workers” in Compensatory Offerings under Rule 701 

and Form S-8, Securities Act Rel. No. 10892, 85 Fed. 

Reg. 79,936 (Dec. 11, 2020), https://www.sec.gov/

rules/proposed/2020/33-10892.pdf. 

14 See Gary Gensler, Chair, SEC, Public Remarks at 

Eighth Annual Conference on Financial Regulation 

Day 1 (May 13, 2021), https://www.sec.gov/video/

webcast-archive-player.shtml?document_id=financialmarket-regulation-051321-1. 

15 SEC, Recommendation of the Investor Advisory 

Committee Relating to ESG Disclosure (May 21, 

2020), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/esg-disclosure.pdf. 

16 See SEC, Asset Management Advisory Committee 

Recommendations for ESG (July 7, 2021), https://www.

sec.gov/files/spotlight/amac/recommendations-esg.pdf. 

17 See John Coates, Acting Dir., SEC Div. of Corp. Fin., 

ESG Disclosure—Keeping Pace with Developments 

Affecting Investors, Public Companies and the 

Capital Markets (Mar. 11, 2021), https://www.sec.

gov/news/public-statement/coates-esg-disclosurekeeping-pace-031121. 

18 See Alison Omens, Aleksandra Radeva, and Kavya 

Vaghul, JUST Capital, The Current State of Human 

Capital Disclosure, Harvard Law School Forum 

on Corporate Governance (Oct. 31, 2021), https://

corpgov.law.harvard.edu/2021/10/31/the-current-stateof-human-capital-disclosure/. 

19 Press Release, SEC, SEC Announces Enforcement Task 

Force Focused on Climate and ESG Issues (Mar. 4, 

2021), https://www.sec.gov/news/press-release/2021-42. 

20 Press Release, SEC, SEC Division of Examinations 

Announces 2021 Examination Priorities: Enhanced 

Focus on Climate-Related Risks (Mar. 3, 2021), https:// 

www.sec.gov/news/press-release/2021-39. 

21 SEC, Sample Comment Letter to Companies Regarding 

Climate Change Disclosure (Sept. 22, 2021), https://

www.sec.gov/corpfin/sample-letter-climate-changedisclosures. 

22 Commission Guidance Regarding Disclosure Related 

to Climate Change, Securities Act Rel. No. 33-9106, 75 

Fed. Reg. 6290 (Feb. 8, 2010) (“2010 Climate Change 

Guidance”), https://www.sec.gov/rules/interp/2010/33-

9106.pdf.

23 17 C.F.R. § 240.10b-5. 

24 17 C.F.R. § 240.10b5-1.

25 See Gary Gensler, Chairman, SEC, Prepared Remarks 

at CFO Network Summit (June 7, 2021), https://www.

sec.gov/news/speech/gensler-cfo-network-2021-06-07. 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 61

26 SEC, Recommendation of the Investor Advisory 

Committee Regarding Recommendation of the 

Investor-as-Owner Subcommittee on Rule 10b5-1 Plans 

(Sept. 9, 2021), https://www.sec.gov/spotlight/investoradvisory-committee-2012/draft-recommendation-ofthe-iao-subcommittee-on-10b5-1-plans-082621.pdf. 

27 Pub. L. No. 116-222, 134 Stat. 1063 (Dec. 18, 2020).

28 Holding Foreign Companies Accountable Act 

Disclosure, Exchange Act Rel. No. 91364, 86 Fed. 

Reg. 17,528 (Apr. 5, 2021), https://www.sec.gov/rules/

interim/2021/34-91364.pdf.

29 SEC, Office Of The Investor Advocate, Report

on Objectives, Fiscal Year 2022 (June 28, 2021) 

[hereinafter Report on Objectives, Fiscal Year 2022], 

at 7, https://www.sec.gov/files/sec-office-investoradvocate-report-on-objectives-fy2022.pdf. 

30 Over the course of 2020, 248 SPACs were formed, 

a 420% increase over 2019’s 59. In 2021, at least 

489 SPACs have been launched. See SPAC Statistics, 

SPACInsider, https://spacinsider.com/stats/ (last visited 

October 24, 2021). 

31 SEC, Div. of Corp. Fin., Disclosure Guidance: Topic 

No. 11, Special Purpose Acquisition Companies (Dec. 

22, 2020), https://www.sec.gov/corpfin/disclosurespecial-purpose-acquisition-companies.

32 See Gary Gensler, Chair, SEC, Prepared Remarks 

Before the Small Business Capital Formation Advisory 

Committee (Sept. 27, 2021), https://www.sec.gov/

news/public-statement/gensler-sbcfac-2021-09-27; 

Gary Gensler, Chair, SEC, Prepared Remarks 

Before the Investor Advisory Committee (Sept. 9, 

2021), https://www.sec.gov/news/public-statement/

gensler-iac-2021-09-09.

33 SEC, Recommendation of the Investor Advisory 

Committee Regarding Recommendation of the 

Investor-as-Owner Subcommittee on Special Purpose 

Acquisition Companies (Sept. 9, 2021), https://www.

sec.gov/spotlight/investor-advisory-committee-2012/

draft-recommendation-of-the-iap-and-iaosubcommittees-on-spacs-082621.pdf. 

34 See Recommendations of the Investor Advisory 

Committee Regarding SEC Rulemaking to 

Explore Universal Proxy Ballots (adopted 

July 25, 2013), https://www.sec.gov/spotlight/

investor-advisory-committee-2012/universal-proxyrecommendation-072613.pdf.

35 See Universal Proxy, Exchange Act Rel. No. 79164, 81 

Fed. Reg. 79,122 (Nov. 10, 2016), https://www.sec.gov/

rules/proposed/2016/34-79164.pdf.

36 See Recommendation of the Investor Advisory 

Committee: Proxy Plumbing (Sept. 5, 2019), 

https://www.sec.gov/spotlight/investor-advisorycommittee-2012/iac-recommendation-proxy-plumbing.

pdf. 

37 See Reopening of Comment Period for Universal 

Proxy, Exchange Act Rel. No. 91603, 86 Fed. Reg. 

24,364 (May 6, 2021), https://www.sec.gov/rules/

proposed/2021/34-91603.pdf. 

38 See Universal Proxy, Exchange Act Rel. No. 

93596 (Nov. 17, 2021), https://www.sec.gov/rules/

final/2021/34-93596.pdf. 

39 See id.

40 See Amendments to Exemptions from the Proxy Rules 

for Proxy Voting Advice, Exchange Act Rel. No. 

87457, 84 Fed. Reg. 66518 (Dec. 4, 2019), https://

www.sec.gov/rules/proposed/2019/34-87457.pdf.

41 See Recommendation of the SEC Investor Advisory 

Committee Relating to SEC Guidance and Rule 

Proposals on Proxy Advisors and Shareholder 

Proposals (Jan. 24, 2020), https://www.sec.gov/

spotlight/investor-advisory-committee-2012/

sec-guidance-and-rule-proposals-on-proxy-advisorsand-shareholder-proposals.pdf. 

42 See Exemptions from the Proxy Rules for Proxy Voting 

Advice, Exchange Act Rel. No. 89372, 85 Fed. Reg. 

55,082 (Sept. 3, 2020), https://www.sec.gov/rules/

final/2020/34-89372.pdf. 

43 See Gary Gensler, Chair, SEC, Statement on the 

Application of the Proxy Rules to Proxy Voting 

Advice (June 1, 2021), https://www.sec.gov/news/

public-statement/gensler-proxy-2021-06-01; 

Commission Interpretation and Guidance Regarding 

the Applicability of the Proxy Rules to Proxy Voting 

Advice, Exchange Act Rel. No. 86721, 84 Fed. Reg. 

47,416 (Sept. 10, 2019) (“2019 Interpretation and 

Guidance”), https://www.sec.gov/rules/interp/2019/34-

86721.pdf.

44 See Div. of Corp. Fin., SEC, Statement on Compliance 

with the Commission’s 2019 Interpretation and 

Guidance Regarding the Applicability of the Proxy 

Rules to Proxy Voting Advice and Amended Rules 

14a-1(l), 14a-2(b), 14a-9 (June 1, 2021), https://

www.sec.gov/news/public-statement/corp-fin-proxyrules-2021-06-01. This statement mentions that 

Institutional Shareholder Services, Inc. has filed a 

lawsuit challenging the 2020 Rule Amendments. See 

Institutional Shareholder Services, Inc. v. SEC, No. 

1:19-cv-3275-APM (D.D.C.). That case is currently 

being held in abeyance until the earlier of December 

31, 2021 or the promulgation of final rule amendments 

addressing proxy voting advice. In addition, on 

October 13, 2021, the National Association of 

Manufacturers and Natural Gas Services Group, Inc. 

filed a lawsuit arising out of a statement issued by the 

Div. of Corp.Fin. on June 1, 2021 regarding the 2020 

Final Rules. See National Association of Manufacturers 

et al. v. SEC, No. 7:21-cv-183 (W.D. Tex.). 
62 | OFFICE OF THE INVESTOR ADVOCATE

45 See Proxy Voting Advice, Exchange Act Rel. No. 

93595 (Nov. 17, 2021), https://www.sec.gov/rules/

proposed/2021/34-93595.pdf. 

46 See id.

47 Digital engagement practices, or DEPs, are utilized by 

broker dealers and investment advisers as a means of 

interacting with retail investors on digital platforms. 

These include “social networking tools; games, streaks 

and other contests with prizes; points, badges, and 

leaderboards; notifications; celebrations for trading; 

visual cues; ideas presented at order placement and 

other curated lists or features; subscriptions and 

membership tiers; and chatbots.” See Request for 

Information and Comments on Broker-Dealer and 

Investment Adviser Digital Engagement Practices, 

Related Tools and Methods, and Regulatory 

Considerations and Potential Approaches; Information 

and Comments on Investment Adviser Use of 

Technology To Develop and Provide Investment 

Advice, Securities Exchange Act Release No. 92766 

(August 27, 2021), 86 Fed Reg. 49,067 (Sept. 1, 2021), 

available at https://www.federalregister.gov/d/2021-

18901.

48 See SEC, Staff Report on Equity and Options Market 

Structure Conditions in Early 2021 (Oct. 14, 2021), 

https://www.sec.gov/files/staff-report-equity-optionsmarket-struction-conditions-early-2021.pdf. 

49 Cboe BYX Exchange, Inc.; Notice of Filing of 

Amendments No. 3 and No. 4, and Order Granting 

Accelerated Approval of a Proposed Rule Change, 

as Modified by Amendments No. 3 and No. 4, to 

Introduce Periodic Auctions for the Trading of U.S. 

Equity Securities, Exchange Act Release No. 91423, 

86 Fed. Reg. 17,230 (April 1, 2021), https://www.

federalregister.gov/d/2021-06676. 

50 Joint Industry Plan, Order Approving, as Modified, a 

National Market System Plan Regarding Consolidated 

Equity Market Data, Exchange Act Release No. 92586, 

86 Fed. Reg. 44,142 (published August 11, 2021), 

https://www.federalregister.gov/d/2021-17113. 

51 See Market Data Infrastructure, Exchange Act 

Release No. 90610, 86 Fed. Reg. 18,596 (published 

April 9, 2021), https://www.federalregister.gov/

documents/2021/04/09/2020-28370/market-datainfrastructure. 

52 In addition to reviewing Commission rulemakings, 

the Office of the Investor Advocate is responsible for 

analyzing the potential impact on investors of proposed 

rules of self-regulatory organizations (SROs). See

Exchange Act § 4(g)(4), 15 U.S.C. § 78d(g)(4).

53 Investors Exchange LLC; Notice of Filing of 

Amendment No. 1 and Order Granting Accelerated 

Approval of a Proposed Rule Change, as Modified 

by Amendment No. 1, To Revise the Definitions of 

Retail Orders and Retail Liquidity Provider Orders 

and Disseminate a Retail Liquidity Identifier Under 

the IEX Retail Price Improvement Program, Exchange 

Act Release No. 92398, 86 Fed. Reg. 38,166 (July 19, 

2021), https://www.govinfo.gov/content/pkg/FR-2021-

07-19/pdf/2021-15199.pdf.

54 See Joint Industry Plan, Order Approving the National 

Market System Plan Governing the Consolidated 

Audit Trail, Exchange Act Release No. 79318 (Nov. 

15, 2016), https://www.sec.gov/rules/sro/nms/2016/34-

79318.pdf.

55 See Proposed Amendments to the National Market 

System Plan Governing the Consolidated Audit Trail 

To Enhance Data Security, Exchange Act Release No. 

89632 (Aug. 21, 2020), 85 Fed. Reg. 65,990 (Oct. 16, 

2020), https://www.federalregister.gov/d/2020-18801. 

56 See Timeline, Consolidated Audit Trail, available at 

https://www.catnmsplan.com/timeline/phase. 

57 See Exchange-Traded Funds, Securities Act Release No. 

10695, Investment Company Act Release No. 33646, 

84 Fed. Reg. 57162 (Oct. 24, 2019), https://www.

federalregister.gov/documents/2019/10/24/2019-21250/

exchange-traded-funds.

58 See id. at section II.C.4. 

59 See id. at section II.A.3.

60 See Investment Company Act Release No. 33477 

(May 20, 2019); Investment Company Act Release 

No. 33710 (Dec. 10, 2019); Investment Company 

Act Release No. 33711 (Dec. 10, 2019); Investment 

Company Act Release No. 33712 (Dec. 10, 2019); 

Investment Company Act Release No. 33713 (Dec. 10, 

2019).

61 See Use of Derivatives by Registered Investment 

Companies and Business Development Companies, 

Investment Company Act Release No. 34084, https://

www.sec.gov/rules/final/2020/ic-34084.pdf, at section 

II.F.6.

62 See SEC, Division of Examinations, 2021 Examination 

Priorities (March 3, 2021), https://www.sec.gov/

files/2021-exam-priorities.pdf, at 29.

63 The term “ETP” in these remarks refers to exchangetraded products, including but not limited to exchangetraded funds. The categories of ETPs that should be 

permitted to label themselves as ETFs is a matter of 

debate, with some arguing that leveraged and inverse 

ETPs (and certain other ETPs) should be considered 

“exchange traded instruments” instead of ETFs. See

Comment Letter of BlackRock, Inc. on Proposed Rule 

6c-11 (Sept. 26, 2018), https://www.blackrock.com/

corporate/literature/publication/sec-proposed-ruleexchange-traded-funds-092618.pdf, at 25.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 63

64 Gary Gensler, Chair, SEC, Statement on Complex 

Exchange-Traded Products (Oct. 4, 2021), https://

www.sec.gov/news/public-statement/gensler-statementcomplex-exchange-traded-products-100421 (internal 

citations omitted). Prior to the 2020 remarks from 

then-Chairman Clayton referenced by Chair Gensler, 

Chairman Clayton was even more direct about the 

dangers of leveraged and inverse ETFs, stating “I 

believe it would be premature to include leveraged 

and inverse ETFs within the scope of the [ETF Rule] 

before the Commission has addressed the investor 

protection concerns that have been raised regarding 

these products.” Jay Clayton, Chairman, SEC, Taking 

Significant Steps to Modernize Our Regulatory 

Framework (Sept. 26, 2019), https://www.sec.gov/

news/public-statement/clayton-2019-09-26-threerulemakings.

65 See Derivatives Rule, supra note 61 at section II.F.6.

66 See Derivatives Rule, supra note 61 at section II.F.5.

67 See Derivatives Rule, supra note 61 at sections II.F.1-2.

68 See Derivatives Rule, supra note 61 at section II.F.5.

69 See Derivatives Rule, supra note 61 at sections II.F.4 

and II.F.5 (“While we believe that it is important to 

continue to consider these funds in light of investor 

protection concerns, and the staff review that we 

discuss above will assess these funds in addition to 

other complex investment products, we believe that 

these concerns would most appropriately be addressed 

holistically as a result of any Commission action that 

may result from the staff review.”).

70 Gary Gensler, Chair, SEC, Statement on Complex 

Exchange-Traded Products (Oct. 4, 2021), https://

www.sec.gov/news/public-statement/genslerstatement-complex-exchange-traded-products-100421

(“This week, I directed staff of the Securities and 

Exchange Commission to study the potential risks 

of complex financial products that are listed and 

traded on exchanges. I also asked them to present 

recommendations for the Commission’s consideration 

on potential rulemaking proposals to address those 

risks, as part of a broader look at exchange-traded 

products.”).

71 Allison Herren Lee and Caroline A. Crenshaw, 

Commissioners, SEC, Statement on Complex 

Exchange-Traded Products (Oct. 4, 2021), https://

www.sec.gov/news/public-statement/lee-crenshawstatement-complex-exchange-traded-products-100421. 

72 See Katherine Greifeld, Bloomberg, ProShares Bitcoin 

ETF Tops $1 Billion Assets in Just 2 Days (Oct. 20, 

2021), https://www.bloombergquint.com/markets/

proshares-bitcoin-etf-tops-1-billion-in-assets-in-justtwo-days. 

73 See Lizzy Gurdus, CNBC, Spot bitcoin ETF unlikely to 

arrive until at least mid-2022, Valkyrie Funds CIO says

(Oct. 28, 2021), https://www.cnbc.com/2021/10/28/

spot-bitcoin-etf-unlikely-until-at-least-mid-2022-

valkyrie-funds-cio.html (“More than a dozen firms 

have filed for ETFs tracking bitcoin itself”).

74 See Michael Wursthorn, SEC Won’t Approve 

Leveraged Bitcoin Fund (Oct. 27, 2021), https://www.

wsj.com/articles/sec-wont-approve-leveraged-bitcoinfund-source-says-11635370934 (“Valkyrie Investments 

. . . proposed to launch a fund that sought to amplify 

the daily returns of a portfolio of bitcoin derivatives, 

including futures contracts and options, by using 1.25 

times leverage . . . Direxion filed plans for an ETF that 

aimed to allow investors to effectively bet against the 

bitcoin futures contracts used by the [ProShares Bitcoin 

Strategy ETF]”).

75 See ETF Rule, supra note 57 at footnote 57 (citing 

Letter from Dalia Blass, Director of Investment 

Management, to Paul Schott Stevens, President and 

CEO, Investment Company Institute and Timothy W. 

Cameron, Asset Management Group—Head, Securities 

Industry and Financial Markets Association [Jan. 

18, 2018], http://www.sec.gov/divisions/investment/

noaction/2018/cryptocurrency-011818.htm).

76 See Report on Objectives, Fiscal Year 2022, supra note 

29 at 13-16.

77 See, e.g., Fredrick Vold, cryptonews.com, First Bitcoin 

ETF in Immediate Danger of Hitting Cap on Contracts 

Held, https://cryptonews.com/news/first-bitcoin-etf-inimmediate-danger-of-hitting-cap-on-contracts-held.htm

(“[The ProShares Bitcoin Strategy ETF] is reportedly 

already in danger of breaching a limit on the number 

of futures contracts it is allowed to hold under current 

Chicago Mercantile Exchange (CME) rules. . . . 

[C]hoosing to get around the maximum limits by 

buying longer-dated contracts will mean the ETF has to 

get its bitcoin exposure at prices that are increasingly 

higher than spot. This could result in high costs when 

contracts are rolled over at expiry that will eventually 

be paid by the ETFs investors in the form of lower 

returns.”).

78 See Tailored Shareholder Reports, Treatment of 

Annual Prospectus Updates for Existing Investors, 

and Improved Fee and Risk Disclosure for Mutual 

Funds and Exchange-Traded Funds; Fee Information 

in Investment Company Advertisements, Securities 

Act Release No. 10814, Exchange Act Release No. 

89478, Investment Company Act Release No. 33963, 

85 Fed. Reg. 70716 (Nov. 5, 2020) [hereinafter 

Tailored Shareholder Reports Proposal], https://www.

federalregister.gov/documents/2020/11/05/2020-17449/

tailored-shareholder-reports-treatment-of-annualprospectus-updates-for-existing-investors-and.

79 See id.
64 | OFFICE OF THE INVESTOR ADVOCATE

80 See CFA Institute Comment Letter on the Tailored 

Shareholder Reports Proposal, https://www.sec.gov/

comments/s7-09-20/s70920-8197202-227325.pdf at 3.

81 See ICI Comment Letter on the Tailored Shareholder 

Reports Proposal, https://www.sec.gov/comments/

s7-09-20/s70920-8186011-227164.pdf at 39.

82 See Consumer Federation of America Comment Letter 

on the Tailored Shareholder Reports Proposal, https://

www.sec.gov/comments/s7-09-20/s70920-8204376-

227513.pdf at 2.

83 See Broadridge Comment Letter on the Tailored 

Shareholder Reports Proposal, https://www.sec.gov/

comments/s7-09-20/s70920-8204380-227517.pdf.

84 See Better Markets Comment Letter on the Tailored 

Shareholder Reports Proposal, https://www.sec.gov/

comments/s7-09-20/s70920-8204323-227467.pdf at 1.

85 See Statement Regarding the SEC’s Rulemaking 

Package for Investment Advisers and Broker-Dealers, 

Rick A. Fleming, Investor Advocate (June 5, 2019), 

available at https://www.sec.gov/news/public-statement/

statement-regarding-sec-rulemaking-packageinvestment-advisers-broker-dealers. 

86 See NASAA, Report and Findings of NASAA’s 

Regulation Best Interest Implementation Committee, 

National Examination Initiative Phase II(A) 

(November 2021), https://www.nasaa.org/wp-content/

uploads/2021/11/NASAA-Reg-BI-Phase-II-A-ReportNovember-2021_FINAL.pdf. 

87 See id. at 4.

88 See, e.g., SEC, Staff Report on Equity and Options 

Market Structure Conditions in Early 2021 (Oct. 14, 

2021), supra note 48. 

89 See supra note 47. 

90 See Comments on File No. S7-10-21, available at 

https://www.sec.gov/comments/s7-10-21/s71021.htm. 

91 See Speech, Rick Fleming, Investor Advocate, Investor 

Protection in the Age of Gamification: Game Over for 

Regulation Best Interest?, Remarks at SEC Speaks, 

Washington D.C. (Oct. 13, 2021), https://www.sec.gov/

news/speech/fleming-sec-speaks-101321. 

92 FINRA, Order Approving a Proposed Rule Change, as 

Modified by Amendment No. 1, to Address Brokers 

with a Significant History of Misconduct, Exchange 

Act Release No. 90635, 85 Fed. Reg. 81,540 (Dec. 16, 

2020), https://www.federalregister.gov/d/2020-27626. 

93 FINRA, Notice of Filing of a Proposed Rule Change To 

Amend Rule 2165 (Financial Exploitation of Specified 

Adults), Exchange Act Rel. No. 92225, 86 Fed. Reg. 

34,084 (June 28, 2021), https://www.federalregister.

gov/d/2021-13653.

94 FINRA, Order Approving a Proposed Rule Change, as 

Modified by Amendment No. 1, to Address Brokers 

with a Significant History of Misconduct, Exchange 

Act Release No. 90635, 85 Fed. Reg. 81,540 (Dec. 16, 

2020), https://www.federalregister.gov/d/2020-27626. 

95 See SEC Appoints New Chairperson and Board 

Members to the Public Company Accounting Oversight 

Board, Nov. 8, 2021, https://www.sec.gov/news/pressrelease/2021-228. 

96 PCAOB Adopts Rule to Create Framework for 

HFCAA Determinations, Sep. 22, 2021, https://

pcaobus.org/news-events/news-releases/news-releasedetail/pcaob-adopts-rule-to-create-framework-forhfcaa-determinations. 

97 See SEC Reopens Comment Period for Listing 

Standards for Recovery of Erroneously Awarded 

Compensation, Oct. 14, 2021, https://www.sec.gov/

news/press-release/2021-210. 

98 See id.

99 See Thompson, Rachel, Reporting Misstatements 

as Revisions: An Evaluation of Managers’ Use of 

Materiality Discretion, Sep. 17, 2021, https://ssrn.

com/abstract=3450828; see also Acito, Andrew 

and Burks, Jeffrey J. and Johnson, W. Bruce, The 

Materiality of Accounting Errors: Evidence From 

SEC Comment Letters, Jun. 1, 2018, Contemporary 

Accounting Research, Forthcoming, https://ssrn.com/

abstract=3220458.

100 See What’s New in Goodwill, Sep. 24, 2021, https://

www.youtube.com/watch?v=1xJb6tDKHvg. 

101 The Challenge of Accounting for Goodwill—Impact of 

a Possible Return to Amortization, Nov. 2019, https://

www.cpajournal.com/2019/11/27/the-challenge-ofaccounting-for-goodwill/. 

102 Auditing in the Crypto-Asset Sector, Nov. 2019, 

https://www.cpab-ccrc.ca/docs/default-source/

inspections-reports/2019-crypto-inspections-insights-en.

pdf?sfvrsn=9aa5c0d2_20. 

103 World Supply Chain Finance Report 2021, https://

bcrpub.com/world-supply-chain-finance-report-2021

at v. 
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 65

104 SEC, Office Of The Investor Advocate, Report on

Activities, Fiscal Year 2019, [hereinafter Report on

Activities, Fiscal Year 2019], at 19 https://www.sec.

gov/advocate/reportspubs/annual-reports/sec-investoradvocate-report-on-activities-2019.pdf.

105 FASB Tentative Board Decisions, June 30, 2021, https://

www.fasb.org/cs/ContentServer?c=FASBContent_C&ci

d=1176176862817&d=&pagename=FASB%2FFASBC

ontent_C%2FActionAlertPage. 

106 Exchange Act § 4(g)(6)(B)(ii)(V), 15 U.S.C. § 78d(g)(6)

(B)(ii)(V).

107 NASAA, NASAA 2017-2018 Activity Report, Working 

Together to Protect Investors, https://www.nasaa.org/

wp-content/uploads/2019/06/NASAA-2017-2018-

Activity-Report.pdf. 

108 NASAA, NASAA Enforcement Report: 2021 Report 

Based on 2020 Data (Sept. 2021), https://www.nasaa.

org/wp-content/uploads/2021/09/2021-EnforcementReport-Based-on-2020-Data-FINAL.pdf. 

109 NASAA, Top Investor Threats, https://www.nasaa.org/

investor-education/fraud-center/top-investor-threats/

(last visited Nov. 9, 2021).

110 SEC, Division of Examinations, Examination Priorities 

for 2021 (Mar. 3, 2021), https://www.sec.gov/

files/2021-exam-priorities.pdf. 

111 This list of problematic products identified by the SEC 

is based on staff analysis of the alerts and bulletins 

issued by the SEC’s Office of Investor Education and 

Advocacy and the SEC’s Division of Examinations 

during Fiscal Year 2021. See SEC, Office of Investor 

Education and Advocacy, Investor Alerts and Bulletins, 

https://www.sec.gov/investor/alerts (last visited Nov. 9, 

2021); see also SEC, Division of Examinations, Risk 

Alerts, https://www.sec.gov/exams (last visited Nov. 9, 

2021).

112 See NASAA, Investor Advisories, https://www.nasaa.

org/category/investor-education/investor-advisories/

(last visited Nov. 9, 2021). 

113 This list of problematic products is based on the alerts 

and bulletins issued by FINRA for investors during FY 

2021. See FINRA, Investor Alerts, https://www.finra.

org/investors/alerts (last visited Nov. 9, 2021).

114 Letter of Mark Kim, Chief Executive Officer, Municipal 

Securities Rulemaking Board, dated Nov. 8, 2021.

115 Report on Activities, Fiscal Year 2019, supra note 

104, at 19 – 20.

116 Id. at 20 – 21.

117 Id. at 21 – 22.

118 SEC, Office Of The Investor Advocate, Report

On Activities, Fiscal Year 2018 (Dec. 20, 2018) 

[hereinafter Report On Activities, Fiscal Year 2018], 

at 17 https://www.sec.gov/advocate/reportspubs/

annual-reports/sec-investor-advocate-report-onactivities-2018.pdf. 

119 SEC, Office of the Investor Advocate, Report on

Activities, Fiscal Year 2014 (Dec. 23, 2014), at 10, 

https://www.sec.gov/advocate/reportspubs/sec-investoradvocate-report-on-activities-2014.pdf.

120 Id. at 8 – 9. 

121 SEC, Office of the Investor Advocate, Report on

Activities, Fiscal Year 2015 (Dec. 23, 2015), at 16 – 

17, https://www.sec.gov/advocate/reportspubs/annualreports/sec-investor-advocate-report-on-activities-2015.

pdf. 

122 SEC, Office of the Investor Advocate, Report on

Activities, Fiscal Year 2017 (Dec. 20, 2017) at 13 – 

14, https://www.sec.gov/advocate/reportspubs/annualreports/sec-investor-advocate-report-on-activities-2017.

pdf. 

123 SEC, Office of the Investor Advocate, Report on

Activities, Fiscal Year 2016 (Dec. 21, 2016), at 20 – 

21, https://www.sec.gov/advocate/reportspubs/annualreports/sec-investor-advocate-report-on-activities-2016.

pdf. 

124 See, e.g., supra note 48. 

125 See Speech, Enhancing Equity Market Competition, 

Commissioner Elad L. Roisman (Oct. 15, 2021), 

https://www.sec.gov/news/speech/roisman-enhancingequity-market-competition-2021-10. 

126 See, e.g.. supra note 118 at 7-8 (Dec. 20, 2018); https://

www.sec.gov/advocate/reportspubs/annual-reports/

sec-investor-advocate-report-on-activities-2018.pdf.

127 See, e.g., Speech, Testimony Before the House 

Committee on Financial Services, Chair Gary Gensler, 

Washington D.C. (May 6, 2021), https://www.sec.

gov/news/testimony/gensler-testimony-20210505, 

and Speech, Prepared Remarks at the Meeting of SEC 

Investor Advisory Committee, Chair Gary Gensler 

(June 10, 2021), https://www.sec.gov/news/publicstatement/gensler-iac-2021-06-10. 

128 See, e.g., supra note 48.

129 See, e.g., Blog, Meme Stocks and Systematic Risk, 

Derek Horstmeyer and Valerie Mayer, CFA Institute 

(August 9, 2021), https://blogs.cfainstitute.org/

investor/2021/08/09/meme-stocks-and-systematic-risk/.

130 See id.
66 | OFFICE OF THE INVESTOR ADVOCATE

131 See, e.g., Newsletter, The End of Stock Market 

Fundamentals?, Andrew Ross Sorkin et al, New York 

Times Dealbook (June 3, 2021), https://www.nytimes.

com/2021/06/03/business/dealbook/amc-meme-stocks.

html. 

132 See Federal Reserve, Financial Stability Report (Nov. 8, 

2021), pages 18 – 22, https://www.federalreserve.gov/

publications/files/financial-stability-report-20211108.

pdf. 

133 Over the course of 2020, 248 SPACs were formed, 

a 420% increase over 2019’s 59. In 2021, at least 

489 SPACs have been launched. See SPAC Statistics, 

SPACInsider, https://spacinsider.com/stats/ (last visited 

October 24, 2021). 

134 SEC, Div. of Corp. Fin., Disclosure Guidance: Topic 

No. 11, Special Purpose Acquisition Companies (Dec. 

22, 2020), https://www.sec.gov/corpfin/disclosurespecial-purpose-acquisition-companies.

135 Michael Klausner et al., A Sober Look at SPACs, 

European Corporate Governance Institute (ECGI) 

Finance Working Paper No. 746/2021 (revised 

Apr. 2, 2021), https://papers.ssrn.com/sol3/papers.

cfm?abstract_id=3720919. See also Gary Gensler, 

Chair, SEC, Prepared Remarks Before the Small 

Business Capital Formation Advisory Committee (Sept. 

27, 2021), https://www.sec.gov/news/public-statement/

gensler-sbcfac-2021-09-27; Gary Gensler, Chair, 

SEC, Prepared Remarks Before the Investor Advisory 

Committee (Sept. 9, 2021), https://www.sec.gov/news/

public-statement/gensler-iac-2021-09-09.

136 See Michael Klausner et al., A Sober Look at SPACs, 

European Corporate Governance Institute (ECGI) 

Finance Working Paper No. 746/2021 (revised 

Apr. 2, 2021), https://papers.ssrn.com/sol3/papers.

cfm?abstract_id=3720919.

137 See supra note 134.

138 See SEC, Off. of Inv. Educ. & Advoc., What You Need 

to Know About SPACs – Updated Investor Bulleting 

(May 25, 2021), https://www.sec.gov/oiea/investoralerts-and-bulletins/what-you-need-know-about-spacsinvestor-bulletin. 

139 SEC, Recommendation of the Investor Advisory 

Committee Regarding Special Purpose Acquisition 

Companies (Sept. 9, 2021), https://www.sec.gov/

spotlight/investor-advisory-committee-2012/draftrecommendation-of-the-iap-and-iao-subcommittees-onspacs-082621.pdf. 

140 See Hester Peirce, Comm’r, SEC, Inside Chicken: 

Remarks before Fordham Journal of Corporate and 

Financial Law Conference: “Here to Stay: Wrestling 

with the Future of the Quickly Maturing SPAC 

Market,” (Oct. 22, 2021), https://www.sec.gov/news/

speech/peirce-remarks-fordham-journal-102221. 

141 See Gary Gensler, Chair, SEC, Prepared Remarks 

Before the Small Business Capital Formation Advisory 

Committee (Sept. 27, 2021), https://www.sec.gov/

news/public-statement/gensler-sbcfac-2021-09-27; 

Gary Gensler, Chair, SEC, Prepared Remarks 

Before the Investor Advisory Committee (Sept. 9, 

2021), https://www.sec.gov/news/public-statement/

gensler-iac-2021-09-09. 

142 Paul Munter, Acting Dir., SEC Off. of the Chief Acct., 

Financial Reporting and Auditing Considerations 

of Companies Merging with SPACs (Mar. 31, 

2021), https://www.sec.gov/news/public-statement/

munter-spac-20200331.

143 John Coates, Acting Dir., SEC Div. of Corp. Fin., 

and Paul Munter, Acting Dir., SEC Off. of the Chief 

Acct., Staff Statement on Accounting and Reporting 

Considerations for Warrants Issued by Special Purpose 

Acquisition Companies (“SPACs”) (Apr. 12, 2021), 

https://www.sec.gov/news/public-statement/accountingreporting-warrants-issued-spacs.

144 Robert Freedman, Almost 90% of SPACs have had to 

restate financials, CFO Dive (Aug. 2, 2021), https://

www.cfodive.com/news/almost-90-percent-spacsrestate-financials/604267/. 

145 The Division of Corporation Finance’s former Acting 

Director, John Coates, highlighted this issue in an April 

2021 public statement. See John Coates, Acting Dir., 

SEC Div. of Corp. Fin., Public Statement: SPACs, IPOs, 

and Liability Risk Under the Securities Laws (Apr. 8, 

2021), https://www.sec.gov/news/public-statement/

spacs-ipos-liability-risk-under-securities-laws. 

146 See, e.g., Securities Act § 11, 15 U.S.C. § 77k; Securities 

Act § 12(a)(2), 15 U.S.C. § 77l(a). Pursuant to the 

Commission’s December 22, 2020 rule regarding the 

New York Stock Exchange’s listing requirements, direct 

listings also do not require use of a firm-commitment 

underwriter. In a December 23, 2020 public statement, 

Commissioners Lee and Crenshaw discussed possible 

investor-protection risks arising from the absence of 

an underwriter. See Allison Herren Lee & Caroline A. 

Crenshaw, Comm’rs, SEC, Statement on Primary Direct 

Listings (Dec. 23, 2020), https://www.sec.gov/news/

public-statement/lee-crenshaw-listings-2020-12-23.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 67

147 See SPACs: Insider IPOs, Usha Rodrigues, University 

of Georgia School of Law, and Michael Stegemoller, 

Baylor University (2021), https://papers.ssrn.com/sol3/

papers.cfm?abstract_id=3906196.

148 See supra note 134. 

149 See id.

150 See SEC, Off. of Inv. Educ. & Advoc., What You Need 

to Know About SPACs—Updated Investor Bulleting 

(May 25, 2021), https://www.sec.gov/oiea/investoralerts-and-bulletins/what-you-need-know-about-spacsinvestor-bulletin. 

151 See Desperate for deals, America’s SPACs target more 

foreign companies, Pitchbook (July 8, 2021), https://

pitchbook.com/news/articles/US-spacs-search-overseasblank-check-deals. 

152 See supra note 147. 

153 See id.

154 See id.

155 See Order Approving Proposed Rule Change to 

Adopt New Initial and Continued Listing Standards 

to List Securities of Special Purpose Acquisition 

Companies, Exchange Act Rel. No. 57785, 73 Fed. 

Reg. 15,246 (Mar. 21, 2008), https://www.sec.gov/

rules/sro/nyse/2008/34-57785.pdf. In 2017, the NYSE 

eliminated the 40% redemption threshold, noting 

“greenmail” concerns that certain activist investors 

had sometimes employed a strategy of acquiring an 

interest in a SPAC and then using their ability to vote 

against a proposed business combination to obtain 

additional consideration. See Order Granting Approval 

of a Proposed Rule Change Amending Initial and 

Continued Listing Standards for Special Purpose 

Acquisition Companies, Exchange Act Rel. No. 80199, 

82 Fed. Reg. 13,905 (Mar. 15, 2017), https://www.sec.

gov/rules/sro/nyse/2017/34-80199.pdf. 

156 See Scholl, Brian, Angela A. Hung, Alycia Chin, Drew 

M. Anderson, Michelle Bongard, Katherine Carman, 

N. Clancy et al. “The Retail Market for Investment 

Advice.” Securities and Exchange Commission 

(2018), https://www.sec.gov/files/retail-market-forinvestmentadvice.pdf. 

157 Id.

158 Scholl, Brian and Angela Fontes, “Mutual Fund 

Knowledge Assessment for Policy and Decision 

Problems” (2021).

159 Consumer Financial Protection Bureau. “CFPB 

Financial Well-Being Scale: Scale Development 

Technical Report,” (May 2017), https://files.

consumerfinance.gov/f/documents/201705_cfpb_

financial-well-being-scale-technical-report.pdf. 

160 This error factor is provided for illustrative purposes 

only. It is entirely possible that some respondents that 

get this question wrong may actually be making much 

larger errors in their fee calculations than implied here. 

161 See, e.g., “Recommendation of the Investor Advisory 

Committee Regarding Mutual Fund Cost Disclosure,” 

(April 14, 2016), https://www.sec.gov/spotlight/

investor-advisory-committee-2012/recommendationmf-fee-disclosure-041916.pdf; SEC Office of Investor 

Education and Advocacy, Investor Bulletin, “How 

Fees and Expenses Affect Your Investment Portfolio, 

https://www.sec.gov/investor/alerts/ib_fees_expenses.

pdf; Roper, Barbara and Brobeck, Stephen, “Investors’ 

Mutual Fund Purchase Practices: An Analysis of Survey 

Results,” Consumer Federation of America, June 

2006, http://consumerfed.org/_archives/elements/www.

consumerfed.org/file/finance/mutual_fund_survey_

report.pdf). 

162 A hybrid event is one in which some parties appear 

in person, while others appear by utilizing an on-line 

video connection. 

163 Exchange Act § 4(g)(8)(B), 15 U.S.C. § 78d(g)(8)(B).

164 Exchange Act § 4(g)(8)(D), 15 U.S.C. § 78d(g)(8)(D).

165 As used in this report, the term “Ombudsman” 

may refer to the Ombudsman, the Office of the 

Ombudsman staff and contractors, or the Office of the 

Investor Advocate staff and contractors who, from time 

to time, directly support the ombudsman function.

166 The Primary Issue Category labels are similar to the 

category labels used by other divisions and offices 

in public reports, where the category labels reflect 

the submitter’s characterization or description of the 

issue. See, e.g., SEC, Off. of the Whistleblower, 

Whistleblower Program 2020 Annual Report to

Congress, at 28 and related n. 80 (Nov. 16, 2020), 

https://www.sec.gov/files/2020_OWB_Annual_Report.

pdf (“This breakdown reflects the categories selected 

by whistleblowers and, thus, the data represents the 

whistleblower’s own characterization of the violation 

type.”) The exceptions in this Ombudsman’s Report 

are the “Non-SEC/Other Matters” category label used 

for matters not under the jurisdiction of the SEC, and 

the “Atypical Matters” category label used for matters 

where the submitter’s characterization or description of 

the issue makes it difficult to determine the nature of 

the matter.

167 For a more detailed discussion on meme stocks can be 

found under section “Meme” Stocks and Fundamental 

Valuation starting on page 19 of this Report on 

Activities.
68 | OFFICE OF THE INVESTOR ADVOCATE

168 See, e.g., “Thinking About Investing in the Latest 

Hot Stock?,” SEC, Off. of Inv. Ed. and Advocacy

(January 30, 2021), available at: https://www.sec.gov/

oiea/investor-alerts-and-bulletins/risks-short-termtrading-based-social-media-investor-alert (last visited 

11/26/2021).

169 Retail investors often use the terms “crypto” and 

“cryptocurrency” in their submissions. However, in this 

report, we use the term “digital assets” to more broadly 

refer to cryptocurrencies, coins, and tokens such as 

those offered in so-called initial coin offerings (ICOs). 

See SEC, Off. Of Inv. Ed. and Advocacy, Investor

Alert, “Digital Assets and ‘Crypto’ Investment Scams” 

(Sept. 1, 2021), https://www.investor.gov/introductioninvesting/general-resources/news-alerts/alerts-bulletins/

investor-alerts/digital-asset.

170 See supra note 47. 

171 SEC, What We Do, https://www.sec.gov/about/

what-we-do (last visited Nov. 26, 2021).

172 See Accredited Investor Definition, Exchange Act Rel. 

Nos. 33–10824; 34–89669 (Aug. 26, 2021), 85 Fed. 

Reg. 64234 at 64234 (Oct. 16, 2020) (“Accredited 

Investor Final Rules”). Private offerings are sometimes 

referred to as “exempt offerings,” as they are exempt 

from the registration requirements of Section 5 of the 

Securities Act of 1933. See 17 C.F.R. § 230.500(a).

173 See Revision of Certain Exemptions from Registration 

for Transactions Involving Limited Offers and Sales, 

Exchange Act Rel. No. 33-6389, 47 Fed. Reg. 11262 

(Mar. 16, 1982), as amended at 53 Fed. Reg. 7868 

(Mar. 10, 1988), and as amended at 54 Fed. Reg. 

11372 (Mar. 20, 1989).

174 See Regulation D Revisions; Exemption for Certain 

Employee Benefit Plans, Exchange Act Rel. No. 

33-6683 (Jan. 16, 1987), 52 Fed. Reg. 3015 at 3017 

(Jan. 30, 1987).

175 Commissioner Hester M. Peirce, Prosperity’s Door, 

Speech at The FINRA Certified Regulatory and 

Compliance Professional Program, Georgetown 

University (June 21, 2021) (“Prosperity’s Door”) 

(“Essentially, then, most Americans cannot participate 

in the private markets. . . . Individuals who do not 

meet the accredited investor standard are increasingly 

deprived of the opportunity to participate in these 

potentially significant early gains.”), https://www.sec.

gov/news/speech/peirce-prosperity-door-072121.

176 See McKinsey & Co., A new decade for private 

markets, McKinsey Global Private Markets Review 

2020 (Feb. 2020), at 2, https://www.mckinsey.com/~/

media/mckinsey/industries/private%20equity%20

and%20principal%20investors/our%20insights/

mckinseys%20private%20markets%20annual%20

review/mckinsey-global-private-markets-review2020-v4.ashx (last visited Nov. 24, 2021).

177 For instance, in 2019, public offerings accounted for 

$1.2 trillion (30.8 percent) of new capital, compared to 

an estimated $2.7 trillion (69.2 percent) raised through 

private offerings. See generally Facilitating Capital 

Formation and Expanding Investment Opportunities 

by Improving Access to Capital in Private Markets, 

Exchange Act Rel. No. 33-10884 (Nov. 2, 2020); 

85 Fed. Reg. 17956 at 17957 (Mar. 31, 2020). See 

also Scott Bauguess, Rachita Gullapalli and Vladimir 

Ivanov, SEC, Div. of Econ. and Risk Analysis, Capital

Raising in the U.S.: An Analysis of the Market for

Unregistered Securities Offerings, 2009-2017 (Aug. 

2018), https://www.sec.gov/files/DERA%20white%20

paper_Regulation%20D_082018.pdf.

178 Accredited Investor Final Rules, 85 Fed. Reg. at 64272-

64273.

179 See id. at 64277 – 64278.

180 See generally id. at 64235.

181 See Accredited Investor Final Rules, 85 Fed. Reg. at 

64236. Comments on the proposed changes to the 

accredited investor definition are available at https://

www.sec.gov/comments/s7-25-19/s72519.htm (last 

visited Nov. 29, 2021).

182 Id. See also id. at n. 14 – 15. 

183 Id. See also id. at n. 16. 

184 Press Release, SEC, SEC Announces Annual Regulatory 

Agenda (June 11, 2021), https://www.sec.gov/news/

press-release/2021-99.

185 SEC Prerule Stage, Exempt Offerings, RIN 

3235-AM85, https://www.reginfo.gov/public/do/

eAgendaViewRule?pubId=202104&RIN=3235-AM85

186 Id.

187 FINRA Special Notice, FINRA Requests Comment on 

Effective Methods to Educate Newer Investors (June 

30, 2021), https://www.finra.org/rules-guidance/notices/

special-notice-063021#notice.

188 Id.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 69

189 Id. at n. 4, citing FINRA Investor Education 

Foundation and NORC at the University of Chicago, 

Investing 2020: New Accounts and the People 

Who Opened Them (Feb. 2021), https://www.

finrafoundation.org/sites/finrafoundation/files/

investing-2020-new-accounts-and-the-people-whoopened-them_1_0.pdf.

190 Id.

191 Id.

192 See supra note 187 for the comment letters.

193 See Letter from David P. Meyer, President, Public 

Investors Advocate Bar Association to Jennifer 

Piorko Mitchell, Office of the Corporate Secretary, 

FINRA (Aug. 31, 2021), https://www.finra.org/sites/

default/files/NoticeComment/David%20Meyer_

PIABA_8.30.2021%20-%20FINRA%20Special%20

Notice%20-%206.30.21%20%28August%2031%20

2021%29.pdf.

194 Id.

195 Id. at n. 3, citing Social Media Use in 2021, Pew 

Research Center (April 7, 2021), https://www.

pewresearch.org/internet/2021/04/07/social-mediause-in-2021/.

196 Id.

197 See supra note 193.

198 See Letter from Matthew Kipness, Intern, and Christine 

Lazaro, Esq. Director of the Securities Arbitration 

Clinic and Professor of Clinical Legal Education, 

St. John’s University School of Law Securities 

Arbitration Clinic to Jennifer Piorko Mitchell, 

Office of the Corporate Secretary, FINRA (Aug. 

30, 2021), https://www.finra.org/sites/default/files/

NoticeComment/Matthew%20Kipnis%20%26%20

Christine%20Lazaro_St.%20Johns_8.30.2021%20

-%20Comment%20Letter%20-%20FINRA%20

Special%20Notice.pdf.

199 Id.

200 Id.

201 Id.

202 See Letter from Melanie Mortimer, President, SIFMA 

Foundation to Jennifer Piorko Mitchell, Office of the 

Corporate Secretary, FINRA (Aug. 30, 2021), https://

www.finra.org/sites/default/files/NoticeComment/

Melanie%20Mortimer_SIFMA_8.30.2021%20

-%20SIFMA%20Foundation%20Comment%20

on%20FINRA%20Special%20Notice%20on%20

Investor%20Education.pdf. See also Letter from 

Robin Traxler, Senior Vice President Policy and Deputy 

General Counsel, Financial Services Institute to Jennifer 

Piorko Mitchell, Office of the Corporate Secretary, 

FINRA (Aug. 30, 2021), (https://www.finra.org/sites/

default/files/NoticeComment/Robin%20Traxler_

FSI_8.30.2021%20-%20FSI%20Comment%20on%20

FINRA%20Special%20Notice%20on%20Investor%20

Education.pdf). 

203 See Exchange Act Rel. No. 92225; File No. SR– 

FINRA–2021–016, (Jun. 22, 2021), 86 Fed. Reg. 34084 

(Jun. 28, 2021) (Proposed Amendments to Rule 2165) 

https://www.sec.gov/rules/sro/finra/2021/34-92225.pdf

(last visited Nov. 26, 2021).

204 See FINRA Rule 2165(a)(1) https://www.finra.org/rulesguidance/rulebooks/finra-rules/2165.

205 Proposed Amendments to Rule 2165, 86 Fed. Reg. at 

34084.

206 Id.

207 See Exchange Act Rel. No. 34–93103; File No. SR–

FINRA– 2021–01686 (Sept. 22, 2021); Fed. Reg. 53696, 

53697 (Sept. 28, 2021), https://www.federalregister.gov/

documents/2021/09/28/2021-20970/self-regulatoryorganizations-financial-industry-regulatory-authority-incorder-instituting#citation-1-p53696.

208 Proposed Amendments to Rule 2165, 86 Fed. Reg. at 

34087.

209 Id. at 34086.

210 See FINRA Regulatory Notice 19-27 (Aug. 9, 2019), 

https://www.finra.org/sites/default/files/2019-09/

Regulatory-Notice-19-27.pdf. See also FINRA 

Regulatory Notice 20-34 (Oct. 5, 2020), Regulatory 

Notice 20-34 (finra.org).

211 Comments on the proposed amendments to FINRA 

Rule 2165 are available at https://www.sec.gov/

comments/sr-finra-2021-016/srfinra2021016.htm

(last visited Nov. 29, 2021).
70 | OFFICE OF THE INVESTOR ADVOCATE

212 See, e.g., Letter from William Benson, National Policy 

Adviser, and Kendra Kuehn, National Policy Adviser, 

National Adult Protective Services Association to 

Vanessa Countryman, Secretary, SEC (July 29, 2021), 

https://www.sec.gov/comments/sr-finra-2021-016/

srfinra2021016-9101913-246872.pdf).

213 Letter from Christopher Gerold, President, 

NASAA, to Jennifer Piorko Mitchell, Office of 

the Corporate Secretary, FINRA, at 2 (Oct. 8, 

2019), https://www.finra.org/sites/default/files/

NoticeComment/12.8.2020%20-%20NASAA%20

Comment%20Letter%20Re%20Reg.%20Notice%20

20-34%20%5BLisa%20Hopkins%5D.pdf. See also 86 

Fed. Reg. at 34087. 

214 See, e.g., Letter from Lisa Bleier and Marin E. Gibson, 

SIFMA, to Securities Exchange Commission, at 1 (July 

28, 2021), https://www.sec.gov/comments/sr-finra2021-016/srfinra2021016-9106725-246951.pdf).

215 See e.g., Letter from Christine Lazaro, Director of the 

Securities Arbitration Clinic and Professor of Clinical 

Legal Education, St. John’s University to Ms. Vanessa 

Countryman, Office of the Secretary, U.S. Securities 

and Exchange Commission, at 2 (Jul. 19, 2021), 

https://www.sec.gov/comments/sr-finra-2021-016/

srfinra2021016-9072406-246548.pdf; and Letter from 

Ron Long, Head of Aging Client Services, Wells Fargo, 

to Secretary, Securities and Exchange Commission, at 2 

(Jul. 15, 2021), https://www.sec.gov/comments/sr-finra2021-016/srfinra2021016-9065925-246467.pdf.

216 See Letter from Jeanette Wingler, Associate General 

Counsel, FINRA, to Vanessa Countryman, Secretary, 

U.S. Securities and Exchange Commission, at 5 (Aug. 

21, 2021) (“FINRA Response Letter”), https://www.

sec.gov/comments/sr-finra-2021-016/srfinra2021016-

9160159-247786.pdf.

217 See generally id.

218 Id. at 3.

219 Id. at 5.

220 Id. at 4.

221 Exchange Act Rel. No. 34–93103; File No. SR–

FINRA– 2021–016 (Sept. 22, 2021), 86 Fed. Reg. 

53696 (Sept. 28, 2021) https://www.sec.gov/rules/sro/

finra/2021/34-93103.pdf.

222 See Report on Objectives, Fiscal Year 2022, supra note 

29, at 30 – 31.

223 Id.

224 Id.

225 Press Release, SEC, SEC Announces Pilot Securities 

Arbitration Clinic to Help Small Investors—Levitt 

Responds to Concerns Voiced at Town Meetings (Nov. 

12, 1997), https://www.sec.gov/news/digest/1997/

dig111297.pdf. 

226 Twelve law school investor advocacy clinics were in 

active operation at the close of this Reporting Period: 

six in New York (Benjamin N. Cardozo School of Law, 

Cornell Law School, Fordham University School of 

Law, New York Law School, Pace University School of 

Law, and St. John’s University School of Law); and one 

each in the District of Columbia (Howard University 

School of Law), Florida (University of Miami School 

of Law), Illinois (Northwestern University School 

of Law), Nevada (University of Nevada Las Vegas 

School of Law), New Jersey (Seton Hall University 

School of Law), and Pennsylvania (University of 

Pittsburgh School of Law). For more information on 

the significance of law school investor advocacy clinics 

to retail investors, see Report on Activities, Fiscal Year

2019, supra note 104 at 33-34.

227 For an overview of the Law School Clinic Outreach 

Program (LSCOP), see Report on Objectives, Fiscal

Year 2021, supra note 3, at 33.

228 For a timeline highlighting the Ombudsman’s formal 

outreach and engagement efforts from the start of the 

LSCOP in October 2016 through June 2019, and a 

discussion of the postponed 2020 Investor Advocacy 

Clinic Summit, see id. at 34-36.

229 See Report on Objectives, Fiscal Year 2022, supra note 

29, at 35 – 37.

230 See Report on Activities, Fiscal Year 2019, supra note 

104, at 34.

231 See Report on Objectives, Fiscal Year 2022, supra note 

29, at 35.

232 Due to the COVID-19 pandemic, FINRA temporarily 

moved to virtual arbitration proceedings. See Report

on Activities, Fiscal Year 2019, supra note 104, at 

46. In-person hearings resumed at all FINRA Dispute 

Resolution hearing locations on August 2, 2021. 

See FINRA, Coronavirus Impact on Arbitration 

& Mediation Hearing, https://www.finra.org/rulesguidance/key-topics/covid-19/hearings/impact-onarbitration-mediation (last visited Nov. 26, 2021).

233 See Craig McCann & Chuan Qin, The Impact of 

ZOOM on FINRA Arbitration Hearings, SLCG (Jan. 

22, 2021), https://www.slcg.com/pdf/sampleresults/

Impact%20of%20Zoom%20on%20FINRA%20

Claimants%20Final.pdf.
REPORT ON ACTIVITIES: FISCAL YEAR 2021 | 71

234 Presenting law school clinics included the University 

of Nevada Las Vegas, University of Miami, Pace 

University, Northwestern University, Fordham 

University, New York Law School, and Cardozo School 

of Law. While other law school clinics wanted to make 

presentations, some were unable to do so, given their 

clinic structure (semester versus full academic year) and 

limited opportunities to represent retail investors during 

the pandemic.

235 For a fuller description of Summit feedback, see Report

on Objectives, Fiscal Year 2022, supra note 29, at 36.

236 Exchange Act § 39(a), 15 U.S.C. § 78pp(a). 

237 Id.

238 Exchange Act § 39(a)(2)(B), 15 U.S.C. § 78pp(a)(2)(B). 

239 Exchange Act § 39(g), 15 U.S.C. § 78pp(g). 

240 Exchange Act § 39(h), 15 U.S.C. § 78pp(h). 

241 According to Exchange Act Section 4(g)(6)(B)(ii), 15 

U.S.C. § 78d(g)(6)(B)(ii), a Report on Activities must 

include several enumerated items, and it may include 

“any other information, as determined appropriate by 

the Investor Advocate.”

242 17 C.F.R. §§ 200.735-3(b)(2)(i), 230122 (2014); 

Exchange Act § 24(b), 15 U.S.C. § 78x; 5 U.S.C. 

§ 552a(i)(1); SECR18-2, Section 8.5 (Nonpublic 

Information) (July 31, 2005). 

243 SEC, Recommendation of the Investor Advisory 

Committee Regarding Recommendation of the 

Investor-as-Owner Subcommittee on Special Purpose 

Acquisition Companies (Sept. 9, 2021), https://www.

sec.gov/spotlight/investor-advisory-committee-2012/

draft-recommendation-of-the-iap-and-iaosubcommittees-on-spacs-082621.pdf.

244 SEC, Recommendation of the Investor Advisory 

Committee Regarding Recommendation of the 

Investor-as-Owner Subcommittee on Rule 10b5-1 Plans 

(Sept. 9, 2021), https://www.sec.gov/spotlight/investoradvisory-committee-2012/draft-recommendation-ofthe-iao-subcommittee-on-10b5-1-plans-082621.pdf. 

245 SEC, Recommendation of the Investor Advisory 

Committee Regarding Minority and Underserved 

Inclusion in Investment and Financial Services (Mar. 

11, 2021), https://www.sec.gov/spotlight/investoradvisory-committee-2012/20210311-minority-andunderserved-inclusion-recommendation.pdf. 

246 SEC, Recommendation of the Investor Advisory 

Committee Regarding Recommendation of the Market 

Structure Subcommittee on Credit Rating Agencies 

(Mar. 11, 2021), https://www.sec.gov/spotlight/investoradvisory-committee-2012/20210311-credit-ratingagencies-recommendation.pdf. 

247 SEC, Recommendation of the Investor Advisory 

Committee Regarding Recommendation of the Investor 

as Owner Subcommittee on Accounting and Financial 

Reporting Disclosure (May 5, 2020), https://www.

sec.gov/spotlight/investor-advisory-committee-2012/

accounting-and-financial-disclosure.pdf. 

248 See Coronavirus (COVID-19)—Disclosure 

Considerations Regarding Operations, Liquidity, and 

Capital Resources, CF Disclosure Guidance Topic No. 

9A (June 23, 2020), https://www.sec.gov/corpfin/covid19-disclosure-considerations. 

249 See Julie Steinberg, FASB to Explore Greater 

Disclosure of Supply-Chain Financing, Wall St. 

J. (Oct. 22, 2020), https://www.wsj.com/articles/

fasb-to-explore-greater-disclosure-of-supply-chainfinancing-11603361147. 

250 See Management’s Discussion and Analysis, Selected 

Financial Data, and Supplementary Financial 

Information, Securities Act Rel. No. 10890 

(approved Nov. 19, 2020), https://www.sec.gov/rules/

final/2020/33-10890.pdf.

251 SEC, Recommendation of the Investor Advisory 

Committee Regarding Recommendation of the Investor 

as Owner Subcommittee on ESG Disclosure (May 14, 

2020), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/esg-disclosure.pdf. 

252 SEC, Recommendation of the Investor Advisory 

Committee Regarding Recommendation on Disclosure 

Effectiveness (May 21, 2020), https://www.sec.gov/

spotlight/investor-advisory-committee-2012/disclosureeffectiveness.pdf. 

253 See Tailored Shareholder Reports, Treatment of 

Annual Prospectus Updates for Existing Investors, 

and Improved Fee and Risk Disclosure for Mutual 

Funds and Exchange-Traded Funds; Fee Information 

in Investment Company Advertisements, Investment 

Company Act Release No. 33963, 85 Fed. Reg. 70,716 

(proposed Aug. 5, 2020).

254 SEC, Recommendation of the Investor Advisory 

Committee Regarding SEC Guidance and Rule 

Proposals on Proxy Advisors and Shareholder 

Proposals (Jan. 24, 2020), https://www.sec.gov/

spotlight/investor-advisory-committee-2012/

sec-guidance-and-rule-proposals-on-proxy-advisorsand-shareholder-proposals.pdf. 

255 See Exemptions from the Proxy Rules for Proxy Voting 

Advice, Exchange Act Rel. No. 89372, 85 Fed. Reg. 

55,082 (Sept. 3, 2020) (adopting release); see also

Amendments to Exemptions from the Proxy Rules for 

Proxy Voting Advice, Exchange Act Rel. No. 87457, 

84 Fed. Reg. 66,518 (Dec. 4, 2019) (proposing release).
72 | OFFICE OF THE INVESTOR ADVOCATE

256 See Procedural Requirements and Resubmission 

Thresholds Under Exchange Act Rule 14a-8, Exchange 

Act Rel. No. 89964, 85 Fed. Reg. 70,240 (Nov. 4, 

2020). 

257 See Proxy Voting Advice, Exchange Act Rel. No. 

93595 (Nov. 17, 2021), https://www.sec.gov/rules/

proposed/2021/34-93595.pdf.

258 SEC, Recommendation of the Investor Advisory 

Committee Regarding Exchange Rebate Tier Disclosure 

(Jan. 24, 2020), https://www.sec.gov/spotlight/

investor-advisory-committee-2012/exchange-rebate-tierdisclosure.pdf. 

259 SEC, Recommendation of the Investor Advisory 

Committee: Proxy Plumbing (Sept. 5, 2019), 

https://www.sec.gov/spotlight/investor-advisorycommittee-2012/iac-recommendation-proxy-plumbing.

pdf. 

260 See Universal Proxy, Exchange Act Rel. No. 

93596 (Nov. 17, 2021), https://www.sec.gov/rules/

final/2021/34-93596.pdf.

261 SEC, Recommendation of the Investor Advisory 

Committee: Structural Changes to the US Capital 

Markets Re Investment Research in a Post-MiFID II 

World (July 25, 2019), https://www.sec.gov/spotlight/

investor-advisory-committee-2012/investment-researchpost-mfid-ii-world.pdf.

262 See SEC, Press Release, SEC Announces Extension 

of Temporary Measure to Facilitate Cross-Border 

Implementation of the European Union’s MiFID II’s 

Research Provisions, (Nov. 4, 2019), at https://www.

sec.gov/news/press-release/2019-229.

263 SEC, Recommendation of the Investor Advisory 

Committee Regarding Human Capital Management 

Disclosure (Mar. 28, 2019), https://www.sec.gov/

spotlight/investor-advisory-committee-2012/humancapital-disclosure-recommendation.pdf. 

264 See Modernization of Regulation S-K Items 101, 103, 

and 105, Securities Exchange Act Rel. No. 89670, 85 

Fed. Reg. 63,726 (Oct. 8, 2020).

265 SEC, Recommendation of the Investor Advisory 

Committee: Financial Support for Law School Clinics 

that Support Investors (Mar. 8, 2018), https://www.

sec.gov/spotlight/investor-advisory-committee-2012/

law-clinics-recommendation.pdf.

266 SEC, Recommendation of the Investor Advisory 

Committee: Dual Class and Other Entrenching 

Governance Structures in Public Companies (Mar. 8, 

2018), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/recommendation-on-dual-class-shares.

pdf.

267 SEC, Recommendation of the Investor Advisory 

Committee: Accredited Investor Definition (Oct. 9, 

2014), https://www.sec.gov/spotlight/investor-advisorycommittee-2012/investment-advisor-accrediteddefinition.pdf. 

268 See Accredited Investor Definition, Securities Act 

Rel. No. 10824, 85 Fed. Reg. 64,234 (Oct. 9, 2020) 

(adopting release). See also Amending the “Accredited 

Investor” Definition, Securities Act Rel. No. 10734, 85 

Fed. Reg. 2,574 (Jan. 15, 2020) (proposing release).

269 SEC, Recommendations of the Investor Advisory 

Committee: Impartiality in the Disclosure of 

Preliminary Voting Results (Oct. 9, 2014), https://www.

sec.gov/spotlight/investor-advisory-committee-2012/

impartiality-disclosure-prelim-voting-results.pdf. 

270 SEC, Recommendations of the Investor Advisory 

Committee Regarding SEC Rulemaking to Explore 

Universal Proxy Ballots (July 25, 2013), https://www.

sec.gov/spotlight/investor-advisory-committee-2012/

universal-proxy-recommendation-072613.pdf. 

271 See Universal Proxy, Exchange Act Release No. 79164, 

Investment Company Act Release No. 32339, 81 Fed. 

Reg. 79,122 (Nov. 10, 2016).

272 See Universal Proxy, Exchange Act Rel. No. 

93596 (Nov. 17, 2021), https://www.sec.gov/rules/

final/2021/34-93596.pdf.

OFFICE OF THE INVESTOR ADVOCATE

U.S. Securities and Exchange Commission

100 F Street NE

Washington, DC 20549

202.551.3302