REPORT ON ACTIVITIES FISCAL YEAR 2020

U.S. SECURITIES AND EXCHANGE COMMISSION

Office of the 

Investor

Advocate

REPORT ON ACTIVITIES: FISCAL YEAR 2020 | i

OFFICE OF THE INVESTOR ADVOCATE

REPORT ON ACTIVITIES

FISCAL YEAR 2020

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 27, 2019, the Office of the Investor Advocate (Office) filed a Report on Objectives for Fiscal 

Year 2020.3

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 2020 to improve the responsiveness of 

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

(SROs) to investor concerns; a summary of the most serious problems encountered by investors 

during the reporting period; identification of Commission or SRO action taken 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 2020 | iii

CONTENTS

MESSAGE FROM THE INVESTOR ADVOCATE .

RECOMMENDATIONS FOR ADMINISTRATIVE AND LEGISLATIVE ACTIONS. 

What Should Be Overturned or Reversed .

New Priorities That Should Be Pursued. 

Office of the Investor Advocate Operations and Responsibilities. 

REPORT ON ACTIVITIES RELATING TO THE FISCAL YEAR 2020 POLICY AGENDA . 

Corporate Disclosure and Investor Protection in Registered and Exempt Offerings. 

The Proxy Process and Other Proxy Issues   

Equity Market Structure. 

Fixed Income Market Reform. 

Accounting and Auditing. 

Non-Transparent Exchange-Traded Funds. 

Protecting Senior Investors. 

Broker Migration and Misconduct. 

PROBLEMATIC INVESTMENT PRODUCTS AND PRACTICES. 

The New-Issue Process for Investment-Grade Corporate Bonds.  

Leveraged and Inverse Exchange-Traded Funds  

OMBUDSMAN’S REPORT. 

Service by the Numbers. 

Service Behind the Numbers.  

Streamlined Communications with Retail Investors.  

Standards of Practice  .

Areas of Interest and Importance to Retail Investors.  

Outreach Activities.  

Outlook for Fiscal Year 2021  

REPORT ON INVESTOR TESTING. 

SUMMARY OF INVESTOR ADVISORY COMMITTEE RECOMMENDATIONS 

AND SEC RESPONSES  

ENDNOTES  .

REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 1

MESSAGE FROM THE

INVESTOR ADVOCATE

Fiscal Year 2020 was a challenging time 

for the Office of the Investor Advocate. 

Like the other offices and divisions of 

the Securities and Exchange Commission, the 

COVID-19 pandemic necessitated changes to 

our work environment, with team members 

working remotely through much of the fiscal 

year. The pandemic also affected our workload. 

For example, we organized and hosted two ad 

hoc virtual meetings of the Investor Advisory 

Committee (IAC) so that its members could 

provide timely, on-the-ground feedback to the 

Commission regarding the impacts of COVID-19 

on businesses and financial markets.

We commend the Commission for its response to 

the challenges of the pandemic. Staff and leadership 

of the Commission reacted quickly to changing 

dynamics, and they demonstrated remarkable 

commitment and flexibility. This alleviated many of 

the strains in the financial system that could have 

had devastating consequences for investors. 

On the other hand, the rulemaking agenda of 

the SEC was often disappointing for investor 

advocates this year. As described in this report, the 

Commission engaged in numerous rulemakings 

of a deregulatory nature. While these typically 

were characterized as efforts to “modernize” or 

“streamline” regulations, they often had the effect 

of diminishing investor protections. Meanwhile, 

several modernizations sought by investors were 

not addressed. For example, the Commission 

did not prioritize repairs to the antiquated 

infrastructure of the 

proxy voting system, 

bypassed opportunities 

to make disclosures 

machine-readable, and 

failed to establish a 

coherent framework 

for the disclosure of 

environmental, social, and 

governance (ESG) matters 

that could influence a 

company’s long-term 

performance.

Remarkably, the Commission also selectively 

abandoned its deregulatory posture by erecting 

higher barriers for shareholders’ exercise of 

independent oversight over the management of 

public companies. Individual investors will now 

find it more difficult, if not impossible, to put 

forward a proposal for consideration by other 

shareholders. In addition, institutional investors 
2 | OFFICE OF THE INVESTOR ADVOCATE

such as pension funds will now be subject to 

potential interference by management regarding the 

advice those investors pay to receive from proxy 

advisory firms. While these rulemakings purport to 

be beneficial for investors, the record reflects that 

the vast majority of investors opposed them.

In this report, we make recommendations for 

the reversal of what are, in our view, the most 

troubling recent actions of the Commission: the 

shareholder proposal rule, the proxy advisory 

firm rules, a rulemaking to “harmonize” various 

Securities Act registration exemptions, and a 

rulemaking related to inverse and leveraged 

exchange traded funds. We also identify some 

near-term priorities that require legislative action 

or Commission rulemaking, including a framework 

for ESG disclosure standards, minimum listing 

standards for stock exchanges, and making 

disclosures machine-readable. In addition, we 

recommend legislative actions that would enhance 

the operational effectiveness of the Office of the 

Investor Advocate, including important steps to 

protect the integrity and independence of our 

research, and we encourage the implementation of 

grant programs to provide funding for efforts to 

protect investors. 

In addition to our advocacy on policy matters, this 

report provides an overview of the important work 

carried out by SEC Ombudsman Tracey McNeil 

and her team. It also provides a glimpse into the 

work of our research team and our vision to serve 

as a contributor to data-driven policymaking. With 

very limited resources, these teams continue to 

manage an ever-increasing workload with passion 

and commitment to investors. 

It has been an honor to lead an office of dedicated 

investor advocates for another year. I look forward 

to working with Congress and the leadership of 

the Commission in the coming days to promote an 

agenda that benefits investors who continue to save 

and invest for the future. 

Respectfully Submitted,

Rick A. Fleming

Investor Advocate 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 3

Exchange Act Section 4(g)(6)(B)6

 requires 

our Reports on Activities to contain 

“recommendations for such administrative 

and legislative actions as may be appropriate to 

resolve problems encountered by investors.” We 

respectfully present the following recommendations 

for your consideration, organized into three 

categories: (1) recent Commission rulemakings 

that, in our opinion, should be overturned under 

the Congressional Review Act7 or reversed by new 

leadership of the Commission; (2) new priorities 

that require legislative action or Commission 

rulemaking; and (3) legislative actions that would 

enhance the operations and responsibilities of the 

Office of the Investor Advocate. 

WHAT SHOULD BE OVERTURNED 

OR REVERSED

Amendments to Exchange Act Rule 14a-8 

Concerning Shareholder Proposals

On September 23, 2020, the Commission adopted 

amendments to Exchange Act Rule 14a-8 to 

make it easier for public companies to exclude 

shareholder proposals from corporate proxy 

statements.8 The Commission accomplished this 

by: (1) raising the ownership thresholds that an 

investor must meet to submit a proposal for a vote 

by fellow shareholders; (2) requiring additional 

documentation to be provided when a proposal 

is submitted on an investor’s behalf; (3) requiring 

investors to identify specific dates and times they 

can meet with management in person or via 

teleconference to engage on the proposal; and 

(4) providing that a person may submit no 

more than one proposal, directly or indirectly, 

for the same shareholders’ meeting. Moreover, 

amendments to the resubmission thresholds raised 

the levels of shareholder support a proposal must 

receive to be eligible for resubmission at the same 

company’s future shareholders’ meetings.

We opposed this rulemaking because the new 

ownership thresholds significantly diminish the 

ability of shareholders with smaller investments 

to submit proposals. The comment file is replete 

with evidence demonstrating that shareholders 

with smaller investments have played an important 

role in the shareholder-proposal process, including 

by submitting proposals that have garnered broad 

shareholder support.9

Beyond our disagreement with these policy choices 

of the Commission, we believe the economic 

analysis in this rulemaking was fundamentally 

flawed. For example, the Commission sought 

to raise the ownership thresholds to account for 

inflation since the thresholds were last adjusted 

in 1998, even though the number of shareholder 

proposals had trended downward over the years 

despite the effects of inflation.10 The Commission 

also ascribed little value to shareholder proposals 

RECOMMENDATIONS 

FOR ADMINISTRATIVE AND 

LEGISLATIVE ACTIONS
4 | OFFICE OF THE INVESTOR ADVOCATE

that failed to receive a majority vote at a 

shareholder meeting, even though commenters 

provided numerous examples of shareholder 

proposals that led to constructive governance 

reforms before receiving a formal majority vote.11

Most troubling, in our view, is the Commission’s 

avoidance of the most important and obvious 

question in the economic analysis of a rulemaking 

that changed eligibility thresholds: specifically, 

how many shareholders that were eligible under 

the prior rules would become ineligible under the 

amended rules. Astonishingly, instead of answering 

this question, the Commission limited its analysis 

to the effect of the amendments on the “pool of 

shareholders that has demonstrated an interest 

in submitting shareholder proposals generally,” 

which included only those individuals and entities 

that actually submitted shareholder proposals in 

2018.12 This approach ignored the objections of 

commenters who asserted that the Commission 

should take into account all shareholders who 

lose eligibility to submit a shareholder proposal, 

because a right has value even if not exercised.13

Meanwhile, the Commission went in the opposite 

direction for purposes of counting the number 

of companies that would benefit from having 

fewer proposals submitted to them. For this 

purpose, the Commission counted all companies 

that could potentially have received a proposal 

in 2018, as opposed to just the ones that actually 

received a proposal.14

The Commission has long possessed data to 

estimate the full number of investors who would 

lose eligibility to submit shareholder proposals. 

According to a staff analysis of the data performed 

early on in the rulemaking process, economists 

within the Division of Economic and Risk Analysis 

(DERA) estimated that somewhere between half to 

three-quarters of the retail investor accounts that 

were eligible under the then-existing thresholds 

would lose eligibility to submit shareholder 

proposals under the revised thresholds.15 However, 

the staff analysis was withheld from public view 

until August 14, 2020, a mere 40 days before the 

Commission voted to adopt the amendments, when 

the analysis was placed in the public comment 

file. This was six months after the deadline for 

public comments had expired, so commenters had 

little reason to re-examine the public comment 

file for additional data being relied upon by the 

Commission. Notably, the SEC—an agency that 

prides itself on its commitment to transparency—

issued no press release, no official statement, nor so 

much as a tweet to draw the public’s attention to 

this new information.

For our part, the Office of the Investor Advocate 

sought access to the staff analysis on October 

31, 2019. Our Office is charged with analyzing 

the potential impact on investors of rulemaking 

proposals and making recommendations to the 

Commission regarding those proposals. Exchange 

Act Section 4(g)(5) directs the Commission to 

ensure that the Investor Advocate has “full access” 

to the documents of the Commission as necessary 

to carry out the functions of the Office. Pursuant 

to this authority, we repeatedly requested copies 

of DERA’s written analysis to no avail, until the 

Commission quietly submitted the analysis into the 

public comment file more than nine months later. 

In sum, we believe this particular rulemaking was 

adopted in contravention of the Commission’s 

internal policies for full and objective economic 

analysis, Exchange Act Section 4(g)(5), and, at 

the very least, the spirit of the Administrative 

Procedure Act. In our view, investors should not 

have to bear the expense of litigation to overturn 

such a flawed rulemaking.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 5

Amendments to the Exchange Act Rules 

Concerning Proxy Advisory Firms

On July 22, 2020, the Commission amended the 

proxy rules in a way that requires proxy advisory 

firms, which are third-party vendors hired by 

institutional investors for advice and assistance 

in voting, to act as a conduit for company 

management to rebut the advice given.16 The 

rulemaking had three principal components. First, 

the Commission specified in the definition of 

“solicitation” that proxy voting advice constitutes 

a solicitation, which means that proxy advisory 

firms must meet exemptions from the information 

and filing requirements of the proxy rules in 

order to continue conducting business. Second, 

the Commission required proxy advisory firms, 

as a condition of the exemptions, to (i) provide 

enhanced disclosures regarding conflicts of interest; 

(ii) establish a mechanism by which a company 

that is the subject of advice may view the advice 

at or prior to the time when the proxy advisory 

firm disseminates the advice to its client; and 

(iii) establish a mechanism by which a client can 

reasonably be expected to become aware of a 

company’s additional soliciting material responding 

to the advice, before voting or before it is too late 

to change votes. Finally, the Commission amended 

the proxy rules’ antifraud provision to provide that 

a proxy advisory firm’s failure to disclose material 

information about its methodology, sources of 

information, or conflicts of interest, depending 

upon the particular facts and circumstances, could 

be considered misleading within the meaning of 

the rule. The Commission also supplemented prior 

guidance concerning how investment advisers 

should exercise voting authority on behalf of clients 

in light of the proxy voting advice rulemaking.17

In our view, there are several troublesome aspects 

of this rulemaking. For example, the Commission’s 

justification for the feedback mechanism initially 

was predicated on the corporate registrant 

community’s purported allegations of widespread 

factual errors in proxy advisory firms’ work.18

The Commission retreated from this rationale in 

the adopting release, seeking instead to reframe 

findings in terms of system design—the ability to 

share and respond to information, and the ability 

of participants to engage with one another.19

But implicit in this framing, still, was the finding 

that the existing system lacked “reliability and 

completeness,” which rested on acceptance at face 

value of the claims of select market participants 

that proxy voting advice historically had not 

been transparent, accurate, and complete.20 The 

Commission did not evaluate the substance of 

these claims or distinguish biased opinion from 

fact, and these claims remain unsupported by 

empirical evidence. 

Corporate governance is at times inherently 

contentious because shareholders may seek reforms 

that are opposed by management. Although 

dialogue and information sharing amongst 

participants are an important part of corporate 

governance, those with competing views may never 

see eye-to-eye. We believe investors should be free 

to seek the services of a third party to provide 

independent, objective advice about voting their 

shares, and investors should not be forced to pay 

for feedback mechanisms that subject them to 

further lobbying by corporate management. This 

is especially important in light of the compressed 

timeframe for proxy voting during the busy annual 

meeting season. We worry that the newly mandated 

feedback mechanism enables undue interference 

in the voting process and will likely result in the 

suppression of dissenting views.21
6 | OFFICE OF THE INVESTOR ADVOCATE

As with the Rule 14a-8 rulemaking described 

above, we believe the proxy advisor rulemaking 

suffers from an inadequate economic analysis. 

Earlier this year, the Investor Advisory Committee 

found that both rulemaking proposals were 

inconsistent with published staff guidance on 

economic analyses in SEC rulemakings and 

recommended that the Commission revise and 

republish them for further comment.22 The 

Commission chose not to do so. In the adopting 

release for the proxy advisor rulemaking, the 

Commission stated that it “expects the rule to 

generate benefits compared to the baseline for 

clients of proxy voting advice businesses and 

investors, and, albeit to a lesser extent, for proxy 

voting advice businesses and registrants.”23

This assertion, however, was at odds with the 

overwhelming opposition from the first three 

groups, as reflected in the comment file. 

Ironically, the rulemaking subjects the provision 

of voting advice to greater regulatory scrutiny 

than the provision of investment advice. Therein 

lies a paradox. Investment professionals have 

significant discretion when it comes to making 

recommendations to buy or sell securities, 

particularly when the client is an institutional 

investor. There is no requirement of “completeness” 

with respect to the information that investment 

advisers must give to clients when making such a 

recommendation. Nor is there any requirement 

that investment advisers give the company 

issuing a security an opportunity to review the 

recommendation. We fail to see the justification 

for such disparate treatment of voting advice.

For these reasons, we recommend that Congress 

or new leadership of the Commission review this 

rulemaking and reverse course.

Amendments to the Securities Act 

Registration Exemptions

On November 2, 2020, the Commission adopted 

amendments to several Securities Act registration 

exemptions.24 The amendments included: 

§	Addressing, in one broadly applicable new 

rule, the ability of issuers to move from one 

exemption to another, as well as to a registered 

offering; 

§	Raising offering limits for Regulation A, 

Regulation Crowdfunding, and Regulation 

D Rule 504 offerings, and raising individual 

investment limits; 

§	Relaxing restrictions on general solicitation; and 

§	Adjusting certain disclosure and eligibility 

requirements and bad actor disqualification 

provisions in order to reduce differences 

between exemptions. 

In general, we are concerned with the continued 

shift of capital-raising from public markets to 

private markets.25 A central underpinning of the 

Securities Act of 1933 is the idea that a company 

must register its shares with the Commission and 

provide robust disclosures if it wishes to sell its 

securities to the general public. This concept has 

contributed to the development of a marketplace 

in which small investors occupy a more equal 

footing vis-á-vis large investors in terms of access 

to information that is important for making 

investment decisions. However, over the past 

several decades, this central tenet of securities 

regulation has eroded as Congress and the 

Commission created ever-expanding exemptions 

that allow companies to raise increasing amounts 

of capital with less and less public disclosure. As a 

practical matter, a company can now raise as much 

money as it wants from as many people as it wants 

for as long as it wants, without ever having to go 

through the registration process.26
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 7

We view the “harmonization” rulemaking, as 

described above, as a further step toward making 

registration entirely voluntary. We are particularly 

concerned about the aspect of the rulemaking 

that nearly eviscerates the integration doctrine,27

which has traditionally deemed offerings close 

in time to be a single offering for purposes of 

eligibility for the offering exemptions. Previously, 

most offerings had to be separated by at least six 

months, but that period has been truncated in 

the new rule to 30 days. As a practical matter, if 

an issuer uses a combination or series of exempt 

offerings, it will now be very difficult for investors 

(or enforcement staff) to determine whether an 

offering was conducted in compliance with a 

particular exemption.28

We also believe the Commission failed to provide 

a balanced analysis of the potential ramifications 

for investors who are being given greater access 

to private offerings. To its credit, the Commission 

acknowledged the heightened potential for fraud 

when offerings are unregistered. However, the 

Commission relied heavily upon an assumption 

that access to a wider range of offerings—including 

private offerings—will make investors better off.29

In our view, the Commission devoted inadequate 

consideration to countervailing concerns, 

particularly with respect to individual investors of 

limited means. For example, such an investor may 

have less access to information about the company 

than other market participants, the investment 

may be illiquid and difficult to resell at the desired 

time or price, and the investor may have difficulty 

diversifying a portfolio in a way that optimizes 

the investor’s chance of success in the higher-risk 

exempt markets.

While we generally agree that the registration 

exemptions are disjointed and ought to be 

harmonized in some respects, we believe this effort 

should reflect a more nuanced understanding of 

investors who may be offered the opportunity 

to participate in exempt offerings, as well as 

the companies that tend to utilize the offering 

exemptions. Toward that end, we agree with 

commenters who argue that the Commission 

lacks important data that it should collect 

before broadening the exemptions further.30

For instance, the Commission should require 

issuers and securities intermediaries to provide 

greater information about their use of transaction 

exemptions by amending Form D and conditioning 

the availability of the Regulation D safe harbor 

on compliance with the Form D notice filing 

requirement. With the information collected 

and insight gained, the Commission could make 

recommendations to Congress on the thresholds 

for mandatory registration under the Exchange 

Act and whether those thresholds ought to be 

revisited in light of the shift in capital-raising to 

exempt markets.

Amendments to Investment Company Act 

Rules Concerning the Use of Derivatives

A divided Commission adopted a long-awaited 

Derivatives Rule on October 28, 2020, with 

Commissioners Allison Lee and Caroline Crenshaw 

voicing forceful dissents.31 The rule ostensibly is 

designed to “provide a modernized, comprehensive 

approach to the regulation of [most registered 

funds’] derivatives use that addresses investor 

protection concerns,”32 but critical investor 

protection provisions contained in the proposed 

version of the rule were stripped away prior 

to adoption.

The proposed version of the Derivatives Rule, 

which advanced after a unanimous (5-0) 

Commission vote in 2019, generally would have 

required mutual funds (other than money market 

funds), exchange-traded funds (ETFs), registered 
8 | OFFICE OF THE INVESTOR ADVOCATE

closed-end funds, and business development 

companies (collectively, funds) engaging in 

derivatives transactions to comply with an outer 

limit on fund leverage based on value at risk 

(VaR).33 The Proposed Derivatives Rule fixed that 

outer limit at 150% of the VaR of a designated 

unleveraged reference index reflecting the markets 

or asset classes in which the fund invests.34 The 

150% figure was based on a consideration of 

the extent to which a fund could borrow cash in 

compliance with existing securities law.35 Moreover, 

to help prevent a fund’s adviser from manipulating 

a reference index’s components, the Proposed 

Derivatives Rule required that the index not be 

administered by, nor be created at the request of, a 

fund or its investment adviser.36

Notably, while exempting leveraged and/or 

inverse investment vehicles from the 150% VaR 

test, the Proposed Derivatives Rule would have 

required broker-dealers and investment advisers 

to exercise due diligence before approving retail 

investor accounts to invest in such products.37

Leveraged/inverse investment vehicles are complex 

financial products that typically seek to provide 

investment returns corresponding to 200% or 

300% of the performance of a market index (or 

to provide investment returns that have an inverse 

relationship to the performance of a market 

index) over a single-day investment horizon.38

The Commission has long acknowledged the 

unique investor protection concerns that leveraged/

inverse investment vehicles present.39 Numerous 

enforcement cases at the Commission and 

FINRA have shown that investment professionals 

themselves often lack a basic understanding of 

these complex products,40 and media outlets have 

documented the confusion and harm these products 

cause.41We further describe these concerns in the 

section below entitled “Problematic Investment 

Products and Practices.”

In a reversal from the Proposed Derivatives 

Rule, the final Derivatives Rule adopted by the 

Commission increases the VaR test threshold 

applicable to most funds from 150% to 200%.42

The final Derivatives Rule also continues to 

exempt funds that currently utilize 300% leverage 

(or 300% inverse leverage) from any VaR test 

threshold at all.43 In her dissent, Commissioner Lee 

argued that “[r]isk limits designed to place sensible 

boundaries around speculative investing have 

now been converted to outer bounds calibrated 

specifically to ensure that they will have no impact 

on funds’ existing practices.”44 Moreover, instead 

of a designated reference index, the adopted 

Derivatives Rule now permits a fund to compare its 

risk to its own securities portfolio for purposes of 

the VaR test.45 Thus, as observed by Commissioner 

Lee, “a fund can simply change its own derivative 

risk limits by making changes in its non-derivatives 

portfolio.”46 Finally, unlike the Proposed 

Derivatives Rule, the final Derivatives Rule does 

not require broker-dealers and investment advisers 

to exercise due diligence before approving retail 

investor accounts to invest in leveraged/inverse 

investment vehicles.47

We recognize the hard work the Commission 

and its staff dedicated to the Derivatives Rule, 

and we believe that many aspects of the rule help 

modernize the regulation of funds’ use of derivatives. Nonetheless, we are deeply concerned that 

investor protection measures were significantly 

weakened—and in certain instances, entirely 

removed—from the rule as it progressed from 

proposal to adoption. We respectfully recommend 

rescinding the Derivatives Rule, which the 

Commission adopted along strict partisan lines. 

We also recommend that the unanimously-approved 

Proposed Derivatives Rule be reconsidered as 

a framework that modernizes the regulation of 

derivatives while providing sensible protections 

for Main Street investors.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 9

NEW PRIORITIES THAT SHOULD 

BE PURSUED

ESG Disclosure Standards 

In making decisions to buy or sell securities, or 

to vote as a shareholder, many investors take into 

consideration information regarding what is known 

as “ESG”—environmental, social, and governance 

factors that may affect the long-term success of 

a company. For many years, investors large and 

small have called upon the Commission to require 

public companies to disclose more information 

about these matters. For example, in 2018 the 

Commission received a rulemaking petition signed 

by a number of institutional investors and securities 

law professors.48 Earlier this year, the Investor 

Advisory Committee recommended that the 

Commission begin in earnest an effort to update 

public company reporting requirements because 

investors need ESG-related information. The IAC 

noted that private-sector voluntary reporting 

initiatives are inefficient and inadequate, and that 

the U.S. appears to be falling out of step with 

capital markets trends in the European Union and 

elsewhere, where the Commission’s counterparts 

are setting new disclosure standards in response to 

investor demand.49

Some view the Commission’s principles-based 

disclosure requirements as adequate to serve 

investors’ needs because they require the disclosure 

of “material” information—i.e., information that 

a reasonable investor would consider important 

in making an investment or voting decision. But, 

we agree with the many investors who assert 

that the principles-based disclosure requirements 

have failed to deliver important, decision-useful 

information. The information provided by 

companies tends to vary in quality, and it is 

not presented in a standard format that enables 

comparisons between companies.50

We are also concerned with “greenwashing,” the 

practice of making misleading claims regarding 

companies’ or funds’ ESG credentials in order 

to draw the interest of investors who place value 

in ESG matters. Greenwashing is likely to grow 

increasingly problematic as companies and funds 

viewed as ESG-friendly continue to attract assets 

at an accelerating pace. If not curtailed, the 

proliferation of greenwashing may cause investors 

to question the bona fides of the ESG sector as 

a whole.

In our view, the lack of substantive disclosure 

standards contributes to the practice of 

greenwashing because general, principlesbased disclosures make it difficult to determine 

whether a company or fund is following its 

stated objectives. In the absence of specific and 

comparable disclosures, even experienced investors 

and large financial institutions may struggle to 

discern meaningful differences in the practices of 

companies and funds. 

To address these issues, Commissioners Lee 

and Crenshaw have proposed the creation of 

a special ESG advisory committee to make 

recommendations to the Commission, as well as an 

internal SEC task force to consider and implement 

policies in this area. We believe this is a sensible 

course because the move toward a comprehensive 

ESG disclosure framework will be a challenging 

project involving numerous complex issues. While 

Congressional authorization may not be necessary 

for this approach, we nonetheless would welcome 

legislative and budgetary support for the initiative. 

Minimum Listing Standards for Exchanges

Exchange listing requirements impose, among 

other things, threshold standards for the corporate 

governance structure of issuers that want their 

shares trading in the U.S. public markets. These 
10 | OFFICE OF THE INVESTOR ADVOCATE

qualitative listing standards seek to ensure that 

public companies have an adequate corporate 

governance structure, including a fair proxy 

voting process, and generally protect the interests 

of shareholders. 

The Commission has an oversight function and 

reviews whether exchanges’ proposed amendments 

to their listing standards are consistent with the 

Exchange Act. Courts have noted, however, that 

corporate governance remains largely the province 

of state law. While the Commission has statutory 

authority to further the Exchange Act’s underlying 

disclosure objectives around the proxy voting 

process, only the exchanges themselves have 

broader authority to regulate other substantive 

aspects of corporate governance for their listed 

issuers. On this point, the D.C. Circuit Court of 

Appeals once held that the Commission lacks 

statutory authority to address the use of dualclass shares by publicly listed companies through 

its own rulemaking, as Congress did not 

contemplate federal regulation of corporate 

governance when it passed the Exchange Act 

in 1934.51 The court noted, however, that the 

self-regulating exchanges could adopt rules 

governing this area of corporate governance for 

issuers seeking to list on the exchanges.

Market developments since that ruling suggest it is 

time to revisit this allocation of responsibility. The 

primary listing exchanges are now for-profit entities 

that, unlike their prior mutual ownership structure, 

have an inherent conflict of interest between 

protecting investors and generating business revenue 

from listed issuer fees. Our Office has long been 

concerned about an apparent race-to-the-bottom 

in this area—with the primary listing exchanges 

proposing to voluntarily lower their qualitative 

corporate governance standards in an effort to 

attract issuers, but at the expense of the protections 

the original standards provided investors. 

If these for-profit businesses are to be entrusted 

with regulatory responsibility for corporate 

governance standards, it would make sense for 

Congress to set, by statute, certain minimum 

standards to guarantee investor protections. As an 

alternative, Congress should give the Commission 

clear statutory authority to set minimum listing 

standards that apply to all exchanges. 

Congress has just taken an action of this nature 

with passage of the Holding Foreign Companies 

Accountable Act, S. 945 (116).52 This Act requires 

the Commission to prohibit the listing of securities 

for companies whose auditors, or accounting 

firms engaged to assist the audit, are located in 

jurisdictions that limit the PCAOB’s ability to 

inspect the auditors. We were pleased with the 

adoption of this legislation, which addressed a 

significant risk to U.S. investors, and we encourage 

Congress to consider other threats to investor 

protection that have arisen because of weak 

qualitative listing standards. 

In our view, the minimum listing standards should 

also include the following requirements:

1. If a company chooses to issue multiple classes 

of stock with differing voting rights, then 

the dual-class stock must contain a “sunset” 

provision. While we prefer the principle 

behind “one share, one vote” for the long-term 

protection of investors, some companies express 

reluctance to go public when the founding 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 11

management team may still be executing 

a long-term strategy that may not appear 

profitable in the short term. As a compromise to 

allow retail investors access to these companies 

at an earlier stage, a sunset provision would 

provide a visionary founder a reasonable length 

of time to execute his or her initial vision 

as a public company, while ensuring that a 

disciplined governance mechanism provides 

long-term protection to investors.53

2. To make fully informed investment decisions, 

investors generally would benefit from greater 

insight into the diversity characteristics of 

a company’s current board, as well as its 

policies designed to promote diversity in 

board composition going forward. Thus, to 

be listed on a national exchange, a company 

should be required to provide more fulsome 

disclosure regarding the composition of its 

board of directors, nominees for director 

positions, and executive officers. The company 

should also provide greater transparency 

around its nominating process for director 

and officer selection, and any initiatives it has 

in place to increase board diversity. Voluntary 

disclosures in this regard have been useful, but 

listing standards could help ensure that more 

companies make this information publicly 

available on a basis that enables investors to 

draw comparisons.54 We believe that robust 

policies of this nature should be a minimum 

standard for listing on any exchange, and we 

support efforts in Congress to advance this type 

of disclosure.55

Machine-Readable Disclosures

Notwithstanding the Commission’s many recent 

“modernization” initiatives, one area in which 

there remains much room for improvement is 

machine-readability. Investors consume more 

information now than ever before, and they 

increasingly utilize technological tools for this 

purpose.56

Consider the challenges related to simple identifiers. 

If an investor wants to extract data about a 

company from multiple datasets, the investor 

must identify the correct company within each 

dataset. But, this task is often problematic because 

there are too many different entity identifiers in 

use. The most common is ‘company name,’ and 

there can be numerous variations in the name 

(e.g., “Inc.” or “Incorporated”). Without the 

adoption of a uniform and specific identifier, 

linking between datasets must rely on mapping 

tables, which require significant maintenance and 

updates that are manual, duplicative, expensive, 

and error-prone. The Commission participates 

in international efforts to implement uniform 

identifiers, such as the Legal Entity Identifier (LEI), 

but should do more to incorporate these identifiers 

in its regulations and forms.

The Financial Transparency Act (H.R. 4476) is 

a bill that was introduced in the U.S. House of 

Representatives in 2019 that would require the 

eight financial regulatory member-agencies of 

the U.S. Financial Stability Oversight Council to 

adopt and apply uniform data standards for the 

information collected from regulated entities.57

Among other things, the legislation would require 

regulators to adopt a uniform legal entity identifier, 
12 | OFFICE OF THE INVESTOR ADVOCATE

such as the G-20 backed LEI. We strongly 

support this type of proposal because it would 

help investors utilize publicly-available data from 

multiple sources.

More broadly, we urge the Commission to 

implement the directives of the Open, Public, 

Electronic and Necessary Government Data Act 

(Data Act), which codifies and builds on Federal 

policies and data infrastructure investments 

supporting information quality, access, protection, 

and use.58 Signed into law on January 14, 2019, the 

Data Act provides a sweeping, government-wide 

mandate for all federal agencies to publish 

government information in a machine-readable 

language by default.59 This is a timely impetus for 

updating the manner in which SEC registrants 

currently report information, much of which is still 

not machine-readable. 

OFFICE OF THE INVESTOR ADVOCATE 

OPERATIONS AND RESPONSIBILITIES

Investor Testing

We believe that the SEC should reinforce its 

commitment to evidence-based rulemaking and 

decision-making throughout the agency. For our 

Office in particular, this tenet is embodied in our 

authorizing statute—Section 4(g) of the Exchange 

Act—which envisions a robust research function 

within the Office of the Investor Advocate and 

includes several provisions that support the goal of 

evidence-based advocacy. For example, Exchange 

Act Section 4(g)(3) authorizes the Investor 

Advocate to retain or employ research staff as the 

Investor Advocate deems necessary to carry out the 

functions, powers, and duties of the Office. Among 

those responsibilities is the express mandate of 

Exchange Act Section 4(g)(4)(D), which requires 

us to analyze the potential impact on investors of 

proposed regulations of the Commission and rules 

of SROs. In addition, Exchange Act Section 4(g)(6)

(B) requires us to submit to Congress, within our 

annual Report on Activities, “appropriate statistical 

information and full and substantive analysis.”

Historically, the Commission’s analysis of 

a particular rule’s impact on investors has 

largely been an exercise in regulatory intuition. 

Commission attorneys with expertise in very 

specialized areas of securities law typically draft 

rule amendments, and while these practitioners 

are well-intentioned, they may be too far removed 

from the perspective of the average investors whom 

they serve. Moreover, the public comment period 

to which proposed SEC and SRO rules are subject 

can at times seem like little more than a polite 

fiction. In reality, the vast majority of “public” 

comments typically emanate from regulated entities 

rather than from the investing public. Even when 

individual investors provide comments to the SEC, 

those submissions may be the result of a grassroots 

campaign organized by an interest group and, 

consequently, those comments may not necessarily 

reflect the views of the population at large. 

Unfortunately, the economic analyses conducted 

in many Commission rulemakings fail to address 

these shortcomings because they rely so heavily 

on data provided by self-interested and oftentimes 

well-funded commenters.

The Office of the Investor Advocate strives to 

be more proactive in determining the impact 

on investors of proposed rule changes and to 

conduct those efforts in accordance with scientific 

methods. Instead of relying solely upon the public 

comment process and our own outreach initiatives 

to inform our policy positions, we have created a 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 13

platform with which to conduct investor testing 

on a routine and ongoing basis. This program, as 

described more extensively below in the section 

entitled “Report on Investor Testing,” utilizes tools 

such as surveys and focus groups to reach actual 

retail investors. These tools help us gain deeper 

insights into the demographics and characteristics 

of the investing public, and we have the capacity 

to embed experiments into our surveys to examine 

how changes to the rules will actually affect 

investors in the real world.

While we believe this program is an important 

element of our Office’s statutory mission, it also 

will provide a new stream of valuable data for the 

Commission. By leveraging this new resource, the 

Commission will be able to have a much higher 

degree of confidence regarding the impact of 

policies on investors. For example, we can conduct 

research to determine the optimal ways to deliver 

and present information to investors. In our view, 

this type of research program is long overdue for 

a 21st Century financial regulatory agency, and 

we believe the SEC lags far behind many of its 

regulatory peers. 

Resource Needs

To date, nearly seven years since the creation of 

the Office of the Investor Advocate, we have been 

allocated only two full-time permanent positions 

for research staff. While these two economists have 

generated the impressive results as described below 

in this Report, we require additional staff and 

resources to conduct the type of research necessary 

to meet our Office’s statutory mission and provide 

support to the Commission’s broader efforts to 

engage in data-driven policymaking. In addition to 

economists, we require researchers with specialized 

skills such as decision science, marketing, data 

analytics, and survey design, as well as staff to 

support those professionals. We also need a steady 

commitment of funding so that we can continue 

to contract with outside vendors who assist us in 

fielding the surveys and collecting the data. 

Independence 

It can be tempting for policymakers to conduct 

research that is designed to provide data that 

supports a predetermined policy outcome. In 

the Office of the Investor Advocate, our goal is 

simple—to determine how policy changes will, in 

fact, impact investors. In order to achieve this goal, 

it is important for us to have ultimate control over 

the research design so that we can safeguard the 

objectivity and integrity of the work.

This is not a theoretical concern. In a recent 

rulemaking, the Commission adopted a new 

disclosure document for retail investors, Form 

CRS. According to the proposing release, Form 

CRS was originally intended to help retail investors 

understand the differences between investment 

advisers and broker-dealers, understand the fees 

and costs associated with those services, and 

understand the potential conflicts of interest that 

may create incentives for a financial professional to 

render advice that is not in a client’s best interest. 

To evaluate the efficacy of Form CRS, we proposed 

a research plan to determine whether the form 

actually improved investor comprehension of these 

matters and to examine potential ways to improve 

the form to meet its stated goals. Contrary to 

our proposed research plan, the testing protocol 

that was approved and that was subsequently 

implemented by an outside vendor was far too 

limited in scope to be reliable. For example, 

investor comprehension of the form was not 

tested, which, in our estimation, was a significant 
14 | OFFICE OF THE INVESTOR ADVOCATE

omission. Ultimately, our staff determined not to 

co-author the resulting report because, in our view, 

the research did not meet our standards for rigor 

and objectivity.

At least three factors can impede our ability 

to conduct independent research. First is the 

funding for our research. Because the Chairman’s 

office controls the budget for our Office, including 

our research function, we risk disfavor whenever 

we produce results that run counter to any of 

the Chairman’s preferred policy goals. In order 

to produce objective research on behalf of the 

investing public, we respectfully request a specific 

budgetary authorization for the Office of the 

Investor Advocate. This type of “ring-fenced” 

budget is used to protect the independence 

of other offices, including the Office of the 

Inspector General. 

Another factor that can jeopardize our 

independence is the ownership of the data we 

collect. Because such data is deemed to be the 

property of the SEC, we are required to seek 

Commission approval to release the data. For 

example, if we are studying ways to improve the 

jargon used in a mutual fund summary prospectus, 

the data we collect from surveys and focus groups 

is not considered to belong to us. If we want to 

publish an analysis of that data or our research 

findings, we must first seek Commission approval 

to make the underlying data public. Not only 

is this a labor-intensive and time-consuming 

process, but in our experience, the Commission is 

reluctant to approve the release of the underlying 

data unless we first show them our analysis of 

that data. This, of course, provides opportunities 

for the Commission to withhold approval and 

effectively block the publication of research that 

may run counter to the Commission’s regulatory 

preferences. We respectfully request legislation that 

would grant the Investor Advocate the authority 

to release publicly the data we collect (excluding 

personally identifiable information).

Similarly, we request legislation that gives the 

Investor Advocate the authority to make a finding 

that investor testing and investor research are in 

the public interest, for purposes of obtaining an 

exception from the requirements of the Paperwork 

Reduction Act (PRA). Sections 19(e) and (f) of the 

Securities Act of 1933 authorize the Commission 

to make such a finding and trigger the PRA 

exemption, but not the Investor Advocate. In effect, 

this gives the Commission the ability to veto certain 

research projects at the outset.

We emphasize that our call for enhanced protection 

of our independence is in no way a reflection 

upon the incoming administration. Indeed, we are 

hopeful that new leadership of the Commission will 

support our efforts to conduct rigorous investor 

research. Nonetheless, we believe that structural 

improvements are necessary to safeguard our 

long-term mission to engage in evidence-based 

advocacy for the benefit of investors. We trust that 

the Commission’s new leadership will appreciate 

the importance of preserving the objectivity and 

integrity of our work.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 15

Administration of Investor Protection 

Grant Programs

Grant Program for Investor Advocacy Clinics

In 1997, then-SEC Chairman Arthur Levitt 

established two pilot law school investor advocacy 

clinics60 in response to concerns voiced by retail 

investors at investor town hall meetings.61 The 

pilot clinics, created to provide quality legal 

representation and information to investors with 

small claim amounts, proved successful. Over the 

next fifteen years, twenty-four investor advocacy 

clinics were established at law schools across the 

country, funded in part by settlement proceeds from 

state securities fraud cases,62 financial support from 

state securities commissions,63 and start-up grants 

from the FINRA Investor Education Foundation.64

At the peak, 22 investor advocacy clinics were 

in active operation in 2012.65 However, securing 

funding to sustain operations has been an ongoing 

challenge, and as a result, the number of clinics in 

operation has dwindled to 12.66

At the March 2018 SEC Investor Advisory 

Committee meeting, the IAC voted to approve 

a recommendation to the Commission entitled 

“Financial Support for Law School Clinics that 

Support Investors.” The IAC highlighted the 

important investor protection services the clinics 

provide to retail investors with small claim 

amounts, the declining number of clinics, and 

their ongoing funding challenges.67 The IAC 

formally recommended that the Commission 

explore ways to improve external funding sources 

for the clinics and encouraged the Commission 

to request legislation from Congress to provide 

permanent funding for the clinics through a 

matching grant program.68

To date, the Commission has not acted on the 

IAC’s recommendation. However, the House 

of Representatives has considered such a grant 

program. In a report accompanying H.R. 3351—

Financial Services and General Government 

Appropriations Bill, 2020,69 the Committee on 

Appropriations70 expressed concern about the lack 

of access to high-quality legal advice for smalldollar retail investors and directed the Commission 

to develop recommendations for a grant program 

to expand the availability of, and access to, 

high-quality legal assistance to retail investors 

with small claim amounts.71

Furthermore, a draft of the proposed “Investor 

Justice Act of 2020” was provided to the Investor 

Advocate and Ombudsman for review and 

comment earlier this year. If passed, the Investor 

Justice Act would require the Commission, through 

the Office of the Investor Advocate, to establish 

and administer a matching grant program to 

assist in the creation, development, expansion, 

or continuation of qualified investor advocacy 

clinics affiliated with law schools or nonprofit 

organizations to help expand the availability of 

high-quality legal assistance for investors with 

small claims. 

There are significant parallels in the language of 

the proposed Investor Justice Act of 2020 and 

the Internal Revenue Service (IRS) Restructuring 

and Reform Act, IRC § 7526, that authorized the 

creation of the Low Income Taxpayer Clinic (LITC) 

Program at the Internal Revenue Service.72 The 

LITC Program, administered by the IRS Office of 

the Taxpayer Advocate, is a matching federal grant 

program that provides up to $100,000 per year 

for the development, expansion, or continuation 
16 | OFFICE OF THE INVESTOR ADVOCATE

of low-income taxpayer clinics by qualified 

organizations that represent low-income taxpayers 

in disputes with the IRS and provide other related 

services as required under the program.73 Similar 

to the LITC Program legislation, the draft Investor 

Justice Act of 2020 would require the Investor 

Advocate to administer the proposed program 

and award grants of up to $150,000 per year to 

qualified investor advocacy clinics that provide, or 

will provide, free representation to investors with 

claim amounts of less than $100,000. 

The LITC Program has been in operation since 

1999. To put the impact of the LITC Program into 

perspective, there were only 17 clinics available to 

assist low-income taxpayers in 1990.74 In 1999, 34 

entities in 18 states and the District of Columbia 

received matching grants from the LITC Program 

to establish and fund LITCs. Since that time, 

the grants awarded by the LITC Program have 

supported the creation and expansion of LITCs 

across the country. As of December 2019, 131 

LITCs in operation at academic institutions, legal 

services organizations, and other nonprofits in 

46 states and the District of Columbia received 

funding under the LITC Program.75

Again, there were 22 investor advocacy clinics in 

active operation in 2012, but now there are only 

12.76 These clinics are often the only option for 

quality legal representation for retail investors 

without the means to retain counsel, and those 

that cannot retain legal counsel due to the small 

amount in dispute.77 When clinics are unable to 

secure adequate funding, they are forced to reduce 

the number of cases they take on, and in some 

circumstances, they must decline investors’ cases 

altogether. When clinics close, investors with small 

claim amounts or limited incomes are left without 

affordable access to quality legal representation. 

The scope of investor outreach and education the 

clinics provide to their local communities suffers 

as well. 

The 20-plus year journey of the LITC Program 

provides a successful model for an investor 

advocacy clinic grant program to follow. We 

support legislation that would establish such a 

grant program to provide funding to qualified 

investor advocacy clinics affiliated with law schools 

or nonprofit organizations, and we would welcome 

the opportunity to administer it within the Office 

of the Investor Advocate. 

Senior Investor Protection Grant Program

Another promising grant program was authorized 

by Congress a decade ago but has never been 

implemented. At the request of the North American 

Securities Administrators Association (NASAA),78

our Office has reviewed a statutory provision 

enacted by Congress in 2010 that directs the 

establishment of a “Senior Investor Protection 

Grant Program.” The statutory provision in 

question, which was enacted in Section 989(A) of 

the Dodd-Frank Act,79 establishes a grant program 

within the Consumer Financial Protection Bureau 

(CFPB) to provide state regulators with funding for 

technology, equipment, and training to increase the 

successful prosecution of salespersons and advisers 

who target seniors for fraud. The grants also may 

be used to fund educational materials and training 

to raise awareness and understanding of misleading 

or fraudulent marketing practices among seniors.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 17

These are important tools to deter financial 

exploitation of seniors. As our Office and many 

others have documented, threats to elderly investors 

continue to expand, and the consequences of fraud 

are especially devastating to seniors who have 

less time to rebuild lost wealth.80 A state securities 

regulator, while testifying this past summer to a 

House subcommittee about state regulators’ work 

to protect investors from pandemic-related scams, 

observed as follows:

Financial institutions have reported over 

180,000 suspicious activities targeting 

older Americans since 2013. While the 

total financial loss is hard to determine, 

the estimated losses of older adults due to 

exploitation ranges from $2.9 billion to 

$36.5 billion annually. Moreover, Congress 

has repeatedly recognized that seniors are 

especially susceptible to fraud and agreed 

on a bipartisan basis regarding the importance of supplementing state resources to 

educate and protect senior investors. Amid 

the COVID-19 pandemic, Congress should 

assist state regulators in securing resources 

to combat financial exploitation against 

those most vulnerable in this crisis.81

Unfortunately, the Senior Investor Protection Grant 

Program has not been established as required by 

the law, despite considerable bipartisan support 

from Congress.82 Indeed, efforts to implement 

the program, as presently constituted, appear 

to have been on hold since at least mid-2014, 

when the CFPB informed members of the Senate 

Special Committee on Aging that it would not 

implement the program because “there has been no 

appropriation made for these grants to date.”83

We are informed that the impasse has proven 

tricky to resolve. The CFPB’s operations are not 

funded by Congressional appropriation, but by 

transfer from the Federal Reserve.84 Since the CFPB 

has never sought nor received a Congressional 

appropriation, Congress has never had the 

opportunity to vote on legislation appropriating 

funds necessary for the grants. Unless the CFPB 

requests an appropriation, that is unlikely 

to change.

To date, the 116th Congress has held at least two 

hearings to explore legislative remedies that could 

fix the grant program.85 Unfortunately, a remedy 

has so far proven elusive. Meanwhile, as recently as 

January 2020, the CFPB reiterated to Congress that 

it still has no plans to implement the program.86

In our view, the premise of the Senior Investor 

Protection Grant program had real merit when 

Congress enacted it in 2010, and we believe this 

remains the case today. As NASAA President and 

New Jersey Securities Bureau Chief Christopher 

Gerold recently explained:

State securities regulators are on the front 

lines of the fight against elder financial 

exploitation. We are in every state and 

every community. But because of a procedural knot, states are not receiving the 

funds Congress authorized nearly a decade 

ago to help in this critical battle.87

To resolve the funding impasse, we are informed 

that it might be helpful for the Office of the 

Investor Advocate to accept responsibility to 

manage the program. This would require an 

amendment to Section 989(A) so that our Office, 
18 | OFFICE OF THE INVESTOR ADVOCATE

or the Commission itself, would be charged with 

the program. An advantage of this approach is 

that it would reconstitute the program within 

the primary federal agency charged with investor 

protection. Moreover, because the SEC is funded 

by an annual appropriation from Congress, such 

a change would allow Congress to review the 

program and fund the grants annually.

To the extent the 117th Congress remains 

committed to this program, and the CFPB 

remains unable or unwilling to commit to its 

implementation, the Office of the Investor 

Advocate is prepared to work with Congress 

and the relevant state securities and insurance 

regulators to implement it.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 19

On June 27, 2019, the Office of the 

Investor Advocate filed a Report on 

Objectives for Fiscal Year 2020.88 The 

Report identified eight key policy areas that would 

be the primary focus of the Office during Fiscal 

Year 2020:89 corporate disclosure and investor 

protection in registered and exempt offerings, 

the proxy process and other proxy issues, equity 

market structure, fixed income market reform, 

accounting and auditing, non-transparent 

exchange-traded funds, protecting senior investors, 

and broker migration and misconduct. This 

Report on Activities describes our activities and 

recommendations within each of those policy areas 

from October 1, 2019 to September 30, 2020 (the 

Reporting Period). 

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, and tightened wording. 

At the same time, we opposed the elimination of 

disclosures that investors contended were useful. 

On January 30, 2020, the Commission proposed 

changes to certain financial disclosure requirements 

in Regulation S-K.90 The proposed changes 

included eliminating Item 301 (selected financial 

data) and Item 302 (supplementary financial data) 

and amending Item 303 (management’s discussion 

and analysis, or “MD&A”) to streamline and 

refocus the instructions with a more principlesbased approach. We advocated retaining a number 

of the prescriptive disclosure requirements based on 

feedback from investors that the disclosures elicited 

were valuable and otherwise difficult to derive. For 

instance, on May 21, 2020, the Investor Advisory 

Committee recommended that the Commission 

reconsider proposed changes permitting registrants 

to omit fourth-quarter data from annual reports 

and forgo presenting contractual obligations in 

the easy-to-follow tabular format.91 Sometimes 

registrants have an incentive to be less than 

forthcoming about unfavorable facts, like revisions 

to prior-period results or a mismatch between 

lower-than-projected revenues and near-term 

cash requirements. Yet these are areas in which 

investors tend to want detailed factual information, 

in addition to receiving management’s perspective. 

Prescriptive disclosure requirements can be more 

REPORT ON ACTIVITIES 

RELATING TO THE

FISCAL YEAR 2020 POLICY AGENDA
20 | OFFICE OF THE INVESTOR ADVOCATE

useful than principles-based requirements in 

capturing what management might be inclined to 

gloss over in discussion or otherwise characterize 

as immaterial. On November 19, 2020, the 

Commission adopted the changes substantially as 

proposed, largely ignoring the recommendations of 

the IAC and other investors.92

In our last Report on Activities, we expressed 

concern about the practice of reverse factoring, 

which entails a company working with a thirdparty intermediary to arrange a trade payables 

program with the company’s suppliers.93 This 

can be a form of financing that makes balance 

sheets look better and is often not disclosed. In 

addition to our report identifying the opacity 

of reverse-factoring arrangements as one of the 

most problematic practices for investors, it has 

been the subject of a number of critical articles in 

the past year.94 Standard-setters are looking at it, 

which we view as a positive development, and the 

Commission’s Division of Corporation Finance 

issued comments to a number of companies and 

published disclosure guidance on supply-chain 

and other types of short-term financing in light 

of pandemic-related disruptions.95 On May 21, 

2020, the IAC recommended that the Commission 

devote more attention to the issue, including by 

considering whether any specific line item relating 

to reverse factoring should be included in the 

MD&A rulemaking.96 Although the Commission 

did not explicitly consider such a line item in the 

MD&A adopting release, we believe the Division 

of Corporation Finance has ample authority to 

continue pressing for disclosure under the revised 

principles-based MD&A item requirement. 

Also on January 30, 2020, the Commission 

issued interpretive guidance with MD&A 

disclosure considerations for key performance 

indicators and similar metrics.97 The guidance 

provides that, where registrants disclose metrics, 

they should consider whether additional disclosures 

are necessary and be mindful of disclosure controls 

and procedures.

On August 26, 2020, the Commission adopted 

amendments to Regulation S-K to modernize 

the description of business, legal proceedings, 

and risk-factor disclosures that registrants are 

required to provide.98 Among other features, the 

amendments revised Items 101(a) (description of 

the general development of the business), 101(c) 

(narrative description of the business), and 105 

(risk factors) to emphasize a more principles-based 

approach on the rationale that some aspects of 

these disclosures may be material to a particular 

registrant while other aspects may not. As in the 

MD&A rulemaking, additional rule text revisions 

were designed to encourage registrants to enhance 

the salience of information by streamlining and 

avoiding duplication. Arguably, the most notable 

substantive development was a broadening of the 

requirement for a registrant to disclose the number 

of persons employed. Going forward, registrants 

must discuss, to the extent material, their human 

capital resources, including the number of persons 

employed, and any human capital measures or 

objectives that management focuses on in managing 

the business, such as measures or objectives 

that address the development, attraction, and 

retention of personnel. Although the Commission’s 

amendments are not as comprehensive as those 

outlined in a March 28, 2019 Investor Advisory 

Committee recommendation, we view them 

as a positive step forward for the disclosure 

framework.99

In another Disclosure Effectiveness work stream, 

the Commission sought to refresh industryspecific disclosure requirements. On September 

11, 2020, the Commission adopted rules updating 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 21

the statistical disclosures that bank and savings 

and loan registrants provide to investors.100 The 

rules codify the updated disclosure requirements 

in new subpart 1400 of Regulation S-K and 

rescind Industry Guide 3, Statistical Disclosure 

by Bank Holding Companies, which was not a 

Commission rule. We advocated primarily for 

requiring the disclosures to be presented in a 

machine-readable format.101 The Commission 

opted not to structure disclosures in this 

rulemaking, citing cost to issuers.102

In yet other work streams, the Commission 

adopted changes to rules in Regulation S-X related 

to requirements for financial statements for 

registered debt offerings103 and for acquired and 

disposed businesses.104 We did not have significant 

comments on these rulemakings. 

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 of the regulatory framework for exempt 

offerings with the objective of harmonizing and 

streamlining the rules.105 During the Reporting 

Period, the Commission advanced rulemakings 

stemming from that review. 

On December 18, 2019, the Commission 

proposed amendments to the definition of 

accredited investor.106 Among other changes, the 

Commission sought to allow individuals to qualify 

as accredited investors if they possessed certain 

professional credentials or affiliations, even if they 

did not meet the income or net worth thresholds. 

The Commission also chose not to modify the 

definition’s income or net worth thresholds, 

reasoning that the income and net worth thresholds 

still exceeded the mean and median household 

income and household net worth in all regions of 

the country, information about issuers and other 

participants in the exempt markets had become 

more readily available due the rise of the internet, 

and reducing the pool of accredited investors could 

make it harder for companies to raise capital in 

the Regulation D markets.107 Given the broadly 

remedial purposes of federal securities legislation, 

we urged the Commission to demonstrate more 

convincingly the presumption that the population 

of investors toward the lower end of the accredited 

investor range of income and wealth do not need 

the protections of the Securities Act. We pointed 

to descriptive statistics from the Federal Reserve 

Board’s Survey of Consumer Finances regarding 

the financial assets of households toward the 

lower end of the range and suggested elaborating 

on the assumptions that could fairly be made 

about such households in terms of their ability 

to protect themselves and sustain the risk of loss. 

We also challenged the Commission’s assertion 

regarding information availability in the exempt 

markets, as there was no comparison to the kind 

of information that registration would require 

an issuer to disclose. On August 26, 2020, the 

Commission adopted amendments to the definition 

of accredited investor without addressing these 

important considerations.108

On March 4, 2020, the Commission proposed 

amendments to the Securities Act registration 

exemptions.109 The amendments included: 

addressing, in one broadly applicable new rule, 

the ability of issuers to move from one exemption 

to another, as well as to a registered offering; 

raising offering limits for Regulation A, Regulation 

Crowdfunding, and Regulation D Rule 504 

offerings, and raising individual investment 

limits; relaxing restrictions on general solicitation; 

and adjusting certain disclosure and eligibility 

requirements and bad actor disqualification 
22 | OFFICE OF THE INVESTOR ADVOCATE

provisions in order to reduce differences between 

exemptions. We agreed with commenters who 

argued that the Commission first ought to require 

changes to filing requirements for the existing 

exemptions in order to collect greater information 

concerning the exemptions’ use.110 This information 

could be used to inform future policymaking. We 

also expressed concern that the rulemaking would 

allow capital formation to shift further from public 

markets to exempt markets.111 With this shift, 

investors lose an array of protections provided 

in the public markets, including more robust 

disclosure, a broader range of remedies for fraud, 

and more intensive regulatory oversight.112 The 

Commission was largely dismissive of this concern, 

contending in a subsequent adopting release that 

the exemptions in question were for early-stage and 

smaller issuers for which using the public markets 

is “not practical.”113 Missing from this rulemaking 

was any inquiry whatsoever into outcomes for 

retail investors who had invested in these offerings. 

Instead, the Commission relied intuitively on the 

presumption that broadening the exemptions would 

increase investment opportunities for investors, 

including non-accredited investors, which in theory 

could allow for greater wealth accumulation as 

compared to their investing in a narrower set 

of opportunities in the public markets.114 On 

November 2, 2020, the Commission adopted 

the amendments substantially as proposed.115

We call for the reversal of this rulemaking in the 

foregoing section entitled “Recommendations for 

Administrative and Legislative Actions.”

THE PROXY PROCESS AND OTHER 

PROXY ISSUES 

During the Reporting Period, the Commission 

undertook two rulemakings—one on proxy voting 

advice and one on shareholder proposals—that 

impact the ability of investors to vote their shares 

on matters related to corporate governance. The 

first, which was proposed on November 5, 2019 

and adopted on July 22, 2020, concerns proxy 

advisory firms.116 The second, which was proposed 

on November 5, 2019 and adopted on September 

23, 2020, concerns the inclusion of shareholder 

proposals in corporate proxy statements. We 

describe both of these rulemakings above under 

the section entitled “Recommendations for 

Administrative and Legislative Actions.”

EQUITY MARKET STRUCTURE

During the Reporting Period, the Commission 

continued to take action dealing with many 

aspects of the equity market, both large and small. 

Concerning mostly smaller capitalization issuers, 

in October 2019 the Commission published a 

statement on market structure innovation for thinly 

traded securities, inviting market participants to 

submit innovative proposals designed to improve 

the secondary market for these securities, including, 

in connection with such proposals, requests to 

suspend or terminate unlisted trading privileges, 

known as UTP.117 We have been supportive of 

this effort and continue to monitor submissions 

from market participants, including the national 

securities exchanges, that could enhance the pools 

of liquidity for these public companies’ securities 

(and inspire other smaller companies to consider 

going public). We are hopeful that ideas like 

periodic, intraday batch auctions could optimize 

the trading process for these smaller issuers and 

ultimately benefit investors. 

Along those lines, the CBOE BYX Exchange, Inc. 

(BYX) proposed to introduce intra-day, periodic 

auctions albeit for all securities listed on the 

exchange, not just thinly-traded ones. In October 

2020, the Commission instituted proceedings 

to determine whether to approve or disapprove 

the BYX batch auction proposal.118 Given its 

much broader application, we supported taking 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 23

additional time to consider the complexity of 

implementing the proposal, especially for securities 

that are already highly liquid and could experience 

systemic latency in a bifurcated market on BYX. 

We are reviewing the comments and evaluating 

whether this broader proposal could lessen costs 

associated with the speed “arms race” in the 

equity market. 

Also focused on investors in smaller issuers, 

in September 2020 the Commission adopted 

amendments to Rule 15c2-11 which addresses 

“over-the-counter” (OTC) securities not listed on 

the exchanges.119 While the prior rule required a 

broker-dealer to review certain issuer information 

and have a reasonable basis for believing such 

information is accurate before initiating quotations 

for OTC securities, it allowed the quotes to 

continue indefinitely, even after current public 

information about the issuer became stale. That 

indefinite exception may have previously permitted 

unscrupulous market participants to more easily 

engage in pump-and-dump retail fraud. We 

supported the Commission’s proposal to add a 

reasonable time limit to the exception, and we plan 

to monitor its implementation. 

The Commission’s multi-year effort regarding 

equity market structure continued. In May 2020, 

the Commission adopted an order directing 

the exchanges and FINRA to modernize the 

governance of National Market System (NMS) 

plans that produce public consolidated equity 

market data and disseminate trade and quote data 

from trading venues.120 We supported the order and 

were pleased to see the SROs’ responsive proposal 

published for public comment in October.121 In 

Fiscal Year 2021, we will work to ensure that the 

improvements to the governance of NMS plans 

allow for the appropriate representation of retail 

and institutional investors.

More broadly on market data, in February 2020 

the Commission proposed to modernize the overall 

infrastructure for the collection, consolidation, and 

dissemination of market data for NMS stocks.122

This will 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 as participants in 

mutual funds and pension funds. During the year, 

we have reviewed the comments, and we were 

pleased to see the Commission take many of the 

helpful comments into account when finalizing the 

proposal on December 9, 2020.

Disappointingly, in June 2020 the U.S. Circuit 

Court of Appeals for the District of Columbia 

struck down the Commission’s intended 

Transaction Fee Pilot regarding NMS stocks, 

which would have otherwise started collecting 

experimental data concerning broker-dealer order 

routing behavior.123 We continue to believe that 

the potential conflicts of interest created by 

exchange fees and rebates is worth studying, and 

we will continue to support the Commission’s 

efforts to evaluate the issue in light of the Court’s 

instructive guidance.

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 SROs.124 In furtherance of this 

objective, the Office has analyzed the potential 

impact of various SRO proposals related to equity 

market structure, including the periodic auction 

proposal described above. In September 2019, 

in another rulemaking related to the speed of 

trading, the Commission instituted proceedings 

to determine whether to approve or disapprove 

a Cboe EDGA Exchange, Inc. (EDGA) proposal 
24 | OFFICE OF THE INVESTOR ADVOCATE

to create a 4-millisecond speedbump for all 

executable orders submitted to the exchange, 

except for modification and cancel instructions for 

existing quotes.125 We reviewed the proposal and 

the comments submitted,126 and we recommended 

that the Commission disapprove the proposed 

speedbump.127 We were pleased when the 

Commission disapproved the EDGA proposal 

in February.128

There were numerous other SRO rule proposals 

that we monitored closely during the Reporting 

Period. As examples, we have reviewed proposed 

rules that would have changed exchange listing 

standards for companies based on countries that 

restrict investor access to accounting documents,129

listing standards that would permit a company 

to conduct a hybrid offering with both an initial 

public offering (IPO) and a direct listing for some 

of its shares,130 and the application to register a new 

equity exchange with a novel pricing model, the 

Members Exchange, LLC (MEMX).131

We continue to monitor progress on the implementation of the Commission’s Consolidated Audit 

Trail, which is intended to enhance, centralize, and 

generally update the regulatory data infrastructure 

available to market regulators.132 In August 2020, 

the Commission proposed amendments to enhance 

data security for the database.133

FIXED INCOME MARKET REFORM

During the year, our Office has continued to 

monitor the public meetings of the Commission’s 

Fixed Income Market Structure Advisory 

Committee (FIMSAC)134 and reviewed its 

recommendations concerning reforms for both 

the corporate and municipal bond markets. 

In February 2020, the FIMSAC made several 

recommendations concerning investor protection 

in relation to the timeliness of financial disclosures 

from municipal bond issuers, including 

recommending Congress consider granting the 

Commission additional statutory authority to 

enforce compliance with continuing disclosure 

agreements and recommending the Commission 

evaluate how to make disclosure deadlines for 

audited financials from municipal issuers more 

certain and predictable.135 In June 2020, the 

FIMSAC recommended that the Commission 

revisit the possibility for pre-trade transparency in 

the municipal securities market, noting it had been 

almost a decade since the Commission last looked 

at the issue in a comprehensive manner.136 We are 

supportive of these recommendations.

In August 2020, FINRA requested public comment 

on the practice of “pennying” in the corporate 

bond market.137 Typically, a bond dealer places a 

retail client’s bid-wanted out to the market and 

compiles the bids received to determine the winning 

bid, but a broker engages in pennying when it 

nominally exceeds the high bid in order to purchase 

for its own account rather than execute the trade 

with the highest external bidder.138 As noted in 

last year’s Report on Activities, this follows from 

a FIMSAC recommendation to curb the pennying 

in both corporate and municipal bond auction 

processes.139 The MSRB Board has indicated it is 

coordinating with FINRA on further analysis of the 

issue.140 Our Office will continue to monitor what 

actions the MSRB and FINRA take to address the 

practice of pennying in response to the comments 

received this year. 

In September 2020, the Commission proposed 

to enhance the operational transparency, system 

integrity, and regulatory oversight for alternative 

trading systems (ATSs) that trade government 

securities.141 The rule would require these ATSs 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 25

to file comprehensive public disclosures on new 

Form ATS-G, informing market participants about 

potential conflicts of interests arising from trading 

activity of the ATS’s broker-dealer operator or its 

affiliates, and the ATS’s manner of operations, 

such as order types, use of market data offered 

and used by the ATS, and fees. The Commission is 

also proposing to amend Regulation SCI to apply 

its provisions to ATSs that meet certain trading 

volume thresholds, which would help address 

technological vulnerabilities and improve the 

Commission’s oversight of the core technology 

of key entities in the markets for government 

securities. We originally recommended the 

Commission take action in this area in September 

2016 when it was finalizing a similar proposal 

for enhancing its oversight of equity ATSs and are 

pleased to see this investor friendly proposal come 

closer to fruition. 

At the same time, the Commission issued a 

broad concept release focused on the regulatory 

framework for electronic platforms that trade 

corporate debt and municipal securities, soliciting 

public comment to obtain information about fixed 

income electronic trading platforms, including 

their operations, services, fees, market data, and 

participants. We expect to review the comments 

received in the coming months, and will likely 

encourage the Commission to take further action 

on this subject.

ACCOUNTING AND AUDITING

Investor confidence in the audited financial 

statements of public companies listed in the U.S. 

is a bedrock principle that grounds our capital 

markets. A commitment to high quality, timely, 

and independent audits underlies investor 

confidence and requires unwavering application 

and regulation.

Hence the critical role of 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. The PCAOB’s 

mission is to protect investors and further the 

public interest in the preparation of informative, 

accurate, and independent audit reports. During 

the Reporting Period, we monitored developments 

at the PCAOB, and we will continue to do so. 

As noted in our prior reporting, we again find 

it troubling that the PCAOB has not convened 

a meeting of its Investor Advisory Group since 

November 2018.142 At this rate, some members 

may not have the opportunity to attend even a 

single meeting during the entirety of their three-year 

term. The lack of meetings of the Investor 

Advisory Group is perhaps symptomatic of a more 

significant issue at PCAOB—the failure to consider 

investor perspectives and interests in all aspects 

of PCAOB policies and rulemaking. We agree 

with PCAOB Board Member Jay Brown, who has 

asserted publicly that investors should be at the 

forefront of how the PCAOB conducts itself.143

In addition, we monitored activity at the Financial 

Accounting Standards Board (FASB) as well as 

developments related to auditing and accounting 

policies at the Commission. Activity involving FASB 

earlier this year suggests a concerning development 

—Congressional override. Under the Coronavirus 

Aid, Relief, and Economic Security Act (CARES 

Act), the implementation of Accounting Standards 

Update No. 2016-13, Financial Instruments—

Credit Losses, Topic 326, Measurement of Credit 

Losses on Financial Instruments (CECL) was 

deemed optional for banking organizations. While 

Congressional interest and support are encouraged, 

we believe that overruling the judgment of FASB 

is fraught with complication. In the long run, even 

though we do not always agree with the decisions 
26 | OFFICE OF THE INVESTOR ADVOCATE

of FASB, we believe investors are best served by an 

independent standard setting body whose members 

possess decades of relevant and diverse experience.

As a follow up item to last year’s Report on 

Activities, the SEC approved expanding the 

exemption, under Section 404(b) of the SarbanesOxley Act, for issuers to obtain certification 

from an independent auditor of management’s 

assessment of the effectiveness of internal controls 

over financial reporting (ICFR).144 More recently, 

the SEC also approved loosening the auditor 

independence rules.145 Both approved rule 

amendments appear to fly in the face of continued 

evidence that ICFR and auditor independence 

deficiencies remain recurring problems in the 

accounting and auditing spheres.146

NON-TRANSPARENT EXCHANGETRADED FUNDS

Exchange-traded fund (ETF) sponsors launched the 

first non-transparent ETFs during the Reporting 

Period, representing a significant milestone for 

the ETF industry while triggering potential new 

investor protection concerns. Unlike traditional 

ETFs, non-transparent ETFs are not required to 

disclose their portfolio holdings on a daily basis. 

This feature enables asset managers to utilize the 

ETF structure for active portfolio management 

strategies without exposing their proprietary 

strategies to the marketplace. The feature also 

necessitates, however, that a non-transparent ETF 

find a satisfactory replacement or substitute for the 

transparency-based arbitrage mechanism that has 

been at the conceptual core of ETFs for decades.

In our Report on Objectives for Fiscal Year 2020, 

we noted that the Commission had granted 

exemptive relief to Precidian ETFs Trust (Precidian) 

to introduce its model of non-transparent 

ETFs (ActiveShares) to the market.147 The first 

non-transparent ETFs using Precidian’s model 

began trading on an exchange on April 2, 

2020.148 Typically, a traditional ETF with full 

daily portfolio transparency can rely on financial 

institutions to directly identify and act on arbitrage 

opportunities when the market value of the ETF’s 

shares are over- or under-valued relative to the 

ETF’s portfolio holdings. As a substitute for this 

traditional arbitrage mechanism, an ActiveShares 

ETF provides confidential information concerning 

the securities that the ETF would exchange for 

its shares to agents working on behalf of such 

financial institutions. The agents then facilitate 

the transactions expected to keep the market value 

of the ETF’s shares in line with the value of the 

ETF’s holdings.149

In our Report on Objectives for Fiscal Year 2021, 

which we submitted to Congress this past June, 

we noted that the Commission had granted 

newer exemptive relief permitting sponsors to 

utilize a number of alternative non-transparent 

ETF models.150 While the details of these models 

vary slightly amongst each other, each generally 

provides daily information regarding a “proxy 

portfolio” in lieu of providing full daily portfolio 

transparency. The proxy portfolios aim to provide 

financial institutions enough information to engage 

in transactions that mimic the traditional ETF 

arbitrage mechanism. The first of these secondgeneration non-transparent ETFs launched in 

June 2020.151

Given the very recent launch of these products, it 

is too early for us to conclude whether the various 

arbitrage mechanisms utilized by non-transparent 

ETFs are as safe and effective as the traditional, 

transparency-based ETF arbitrage mechanism. 

In a 2019 joint statement, then Commissioner 

Robert Jackson and current Commissioner Allison 

Lee observed that non-transparent ETFs would 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 27

“come with real risk that, in moments of limited 

liquidity, ordinary investors will face wider spreads 

and hence get prices that do not accurately reflect 

the value of their shares.”152 These Commissioners 

also expressed a variety of other concerns regarding 

these novel products, stating, “in particular, we 

wonder whether additional disclosure of the risks, 

as well as enhanced board oversight of the efficiency 

of these ETFs, is necessary. . . . [W]e are only in the 

early stages of determining the information investors 

need to evaluate the unique risks of non-transparent 

ETFs, including mechanisms to ensure accuracy and 

price efficiency.”153 We will continue to scrutinize 

the use of non-transparent ETFs with these concerns 

in mind, examining whether they are functioning as 

intended and evaluating the unique risks they may 

present to investors.

PROTECTING SENIOR INVESTORS

In our Report on Objectives for Fiscal Year 2020, 

we noted that protecting senior investors has 

always been a priority for this Office, and stated 

that protecting senior investors would remain a 

priority throughout the Reporting Period.154 We 

observed then, and continue to believe now, that 

demographic, financial, and other trends are likely 

to result in greater challenges associated with elder 

financial exploitation and diminished capacity in 

coming years. 

Accordingly, we have continued our efforts to raise 

public awareness and to highlight issues and policy 

choices that impact these investors. We monitor 

new legal and regulatory developments with senior 

investors in mind, and we strive consistently to help 

protect senior investors when reviewing rulemaking 

initiatives at the Commission. In addition, we have 

continued to explore potential investor behavior 

research projects to fill gaps in existing data 

regarding the impact of cognitive decline on the 

financial capability of investors. 

We also note that the specific investor protection 

concerns discussed elsewhere in this report tend 

to be particularly acute with respect to senior 

investors. During the Reporting Period, for 

example, the Commission announced settled 

charges against Wells Fargo Clearing Services and 

Wells Fargo Advisors Financial Network relating to 

unsuitable recommendations of inverse ETFs and 

stated specifically that a number of these clients 

were senior citizens and retirees.155 Awareness of 

the dangers that leveraged and inverse products 

pose to senior investors helped shape our advocacy 

in favor of heightened sales practice requirements 

for these products when we evaluated the 

Derivatives Rule that the Commission recently 

adopted.156 Advocacy on behalf of particularly 

vulnerable investors is central to our mission, and 

we expect this work to continue indefinitely.

Relatedly, in the section of this Report entitled 

“Recommendations for Administrative 

and Legislative Actions,” we support the 

implementation of the Senior Investor Protection 

Grant Program. The grants, if funded, would 

provide important resources to state regulators 

who are on the front lines of efforts to protect 

seniors from securities fraud and other forms of 

financial exploitation. If needed, we are willing to 

take on the responsibility for administering this 

grant program.

BROKER MIGRATION AND 

MISCONDUCT

As discussed last year, in May 2019 FINRA 

published a new request for comment on proposed 

rules targeting firms with a disproportionate history 

of broker and other misconduct relative to their 

similarly-sized peers. The proposed new Rule 4111 

(Restricted Firm Obligations)157 would impose, 

in certain instances, conditions or restrictions on 

member operations, including requirements for 
28 | OFFICE OF THE INVESTOR ADVOCATE

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.158 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. In December 2019, FIRNA’s Board of 

Governors approved an amended version of the 

rule to be filed for Commission approval,159 and 

on December 4, 2020, the Commission published 

the proposal for public comment.160 We will 

encourage the Commission to give the proposal 

due consideration in the coming months.

In November 2019, FINRA proposed to 

expand the options available to customers if a 

firm or broker becomes inactive. Specifically, if 

the customer withdraws the claim under these 

circumstances, the proposal would allow customers 

to amend pleadings, postpone hearings, request 

default proceedings and receive a refund of filing 

fees.161 Given that FINRA has limited disciplinary 

leverage over inactive members or associated 

persons that fail to pay arbitration awards, it is 

important for a customer to have a full set of 

alternative options before pursuing the claim in 

arbitration when collection of an award may be 

more difficult. We reviewed the public comments 

and were pleased when the Commission approved 

the proposal in February 2020.162

In April 2020, FINRA proposed to modify its rules 

to better address risks posed by specific brokers 

with a significant history of misconduct.163 For 

example, to better address the risks to investors 

where a broker is still appealing a disciplinary 

ruling, FINRA proposed allowing its hearing 

officers to impose conditions or restrictions on 

the activities of a broker and require their firm to 

adopt heightened supervisory procedures for the 

broker when a disciplinary matter is appealed. 

Having reviewed the comments, we supported this 

common sense proposal and were pleased to see the 

Commission approve the proposal on December 

10, 2020. 

Issues related to broker misconduct are the frequent 

subject of complaints that investors bring to the 

attention of SEC Ombudsman Tracey McNeil. 

Thus, our advocacy in this area was led by 

Ombudsman McNeil and her staff, who continued 

to dialogue with FINRA during Fiscal Year 2020.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 29

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.164

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;

PROBLEMATIC INVESTMENT 

PRODUCTS AND PRACTICES

§	NASAA’s Activity Report,165 2020 Enforcement 

Report,166 and Top Investor Threats;167

§	The SEC’s Office of Compliance Inspections 

and Examinations’ Examination Priorities 

for 2020;168

§	SEC and SRO staff reports providing guidance 

and interpretations relating to investment 

products; and

§	Discussions with SRO staff, including a 

November 20, 2020 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 on page 30 lists certain potentially 

problematic products or practices during Fiscal 

Year 2020 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.
30 | OFFICE OF THE INVESTOR ADVOCATE

SEC169 NASAA170 FINRA171 MSRB

 Spoofed Websites 

Offering Phony CDs 

 Initial Exchange 

Offerings

 COVID-19 Related 

Investment Scams 

 Indexed Annuities 

 Interval Funds

 Publicly Traded 

Business Development 

Companies

 Publicly Traded ClosedEnd Funds

 Early Withdrawals from 

Retirement Accounts

 Private Placement 

Offerings

 Affinity Fraud

 Bond Ratings

 Contracts for Difference 

(speculative derivative 

contracts)

 Stock Fraud in the Wake 

of Hurricanes

 Social Sentiment 

Investing Tools

 Broker Imposter Scams 

(confirming broker 

registration)

 Fake Check Scams

 High-Yield CD Offers 

as Bait for HighCommission Investments

 Fraudulent Binary 

Options

 Timeliness of Issuer 

Disclosure

 Migration to Managed 

Accounts Without 

a Supportable Fee 

Structure

 Timeliness and Access 

to Pricing Data For 

Purposes of Calculating 

NAVs

Each of the products and practices listed above 

represented 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 will highlight 

two areas of concern: the new-issue process for 

investment-grade corporate bonds and leveraged 

and inverse exchange-traded funds. Previous 

reports have highlighted other issues, including 

reverse factoring,172 dual-class share structures,173

the LIBOR transition,174 initial coin offerings,175

binary options,176 public non-traded REITS,177

municipal market disclosure practices,178 belowminimum denomination positions in municipal 

securities,179 and Simple Agreements for Future 

Equity in crowdfunding investments.180

THE NEW-ISSUE PROCESS 

FOR INVESTMENT-GRADE 

CORPORATE BONDS

Dollar-denominated investment-grade corporate 

debt issuance amounted to $1.309 trillion in 

2019, and was expected to increase to $1.995 

trillion in 2020.181 Issuance is quadruple what it 

was in 2010.182

The new-issue corporate bond market moves at a 

rapid pace, enabling issuers to raise capital more 

efficiently than ever. Yet on closer inspection, the 

market does not function as seamlessly as might 

be presumed. In recent years, many institutional 

investors have raised concerns that the marketing 

process for new issues does not provide buy-side 

participants an adequate opportunity to make 

informed investment decisions.183 We outline these 

concerns below and invite all market participants 

to provide feedback and help us evaluate them. 

Companies that participate in this market are 

generally well-known and widely followed. From 

a regulatory perspective, they are eligible to 

register offerings through a streamlined “shelf” 

process, forgo prior Commission staff review, 

and incorporate by reference periodic and current 

Exchange Act reports.184 The rationale for allowing 

eligible issuers to offer securities without filing a 

new registration statement each time is that these 

issuers regularly disclose material information 

to the public that investors can use to evaluate 

the issuer.185 This approach works for equities 

offerings, where the security terms are standardized 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 31

and largely determined by state law, and where 

investors consider mainly an issuer’s enterprise 

value when pricing the securities. In debt markets, 

however, investors must consider not only the 

issuer’s value, but also risks associated with the 

unique terms and structure of the particular bond 

issue. Unlike equities, bonds have terms that are 

contractual in nature. This means that terms and 

structures can vary significantly across bond issues. 

Investors require specific information about a bond 

issue in order to price it appropriately.

Dealers market an offering through human 

bilateral negotiations, usually over the telephone 

or by electronic message.186 As a result, dealers 

do not convey information about an offering 

consistently.187 They generally seek to get the best 

terms for the issuer and provide deal certainty, 

but they have discretion in deciding with which 

investors they wish to place the bonds.188

It is typical for an investment-grade bond offering 

to be announced and priced within the span of 

a day.189 Indeed, the amount of time between a 

deal’s announcement and the deadline given for 

submitting orders is sometimes as short as fifteen 

minutes.190 This window of opportunity does 

not always allow investors time to locate and 

evaluate relevant disclosure concerning covenants, 

redemption provisions, and other information about 

offering terms before placing orders. Although 

investors are not obligated to purchase bonds after 

placing their orders, significant market pressures 

make it difficult to back out once they do. Nearly 

all of the market participants are repeat-players. 

Buy-side participants with whom we have spoken 

worry that if they complain about information 

availability, or back out of an offering after 

submitting an order, dealers will retaliate by giving 

a smaller allocation in a subsequent offering.191

The Credit Roundtable, a trade association of 

institutional investors organized to protect the 

interests of bondholders, has sought to reform 

customary practices in the process for marketing, 

pricing, and distributing new bonds by promoting 

what it characterizes as “best practices.”192 These 

include standardized offering protocols and 

reference data, which they say would improve 

their ability to assimilate offering information 

more quickly. Offering protocols include making 

a prospectus available immediately upon deal 

announcement, as opposed to sometime later, and 

allowing a minimum of 30 minutes between the 

start of the allocation process and the pricing of the 

deal.193 Reference data include such information 

as the bonds’ maturity date, the intended use of 

proceeds, and other bond characteristics. Bond 

covenants and redemption provisions are the 

most difficult information to assimilate during the 

compressed offering timeframe, and the Credit 

Roundtable has sought to enhance information 

accessibility by promoting standardized model 

covenants and other indenture terms.194

Pending developments in trading technology 

might ameliorate some of the current informationdelivery pain points. White papers published by 

research firm Greenwich Associates describe new 

trading desk software that promises to combine the 

functionality that historically has been segregated 

in legacy applications, automate workflow, and 

reduce manual data entry.195 Primary markets 

for European investment-grade debt have begun 

utilizing 24 standardized data fields, including a 

Legal Entity Identifier for the issuing entity.196 A 

next step for U.S. market participants could be 

agreement on a similar set of standardized data 

fields, which dealers could use to disseminate 

reference data for bond issues. Many market 

participants anticipate that a new web-based 
32 | OFFICE OF THE INVESTOR ADVOCATE

platform,197 developed by a consortium of sell-side 

banks and set to launch in late 2020, may help to 

address some of the Credit Roundtable’s concerns 

inasmuch as it reportedly will disseminate, via 

structured data, deal announcements and updates 

for U.S. dollar investment-grade bond offerings.198

However, the proposed platform is not intended 

to replace the current relationship-based allocation 

process, a business that is highly lucrative for 

sell-side banks.199

The economic implications of these reported 

concerns are significant. On the one hand, 

investment-grade corporate bonds comprise a 

high-quality asset class, and the institutional asset 

managers who participate in the primary market 

tend to be diversified in their respective investment 

strategies, which would mitigate the risk of 

mispricing. However, they are purchasing trillions 

of dollars of bonds on behalf of clients that include 

pension funds and mutual funds catering to Main 

Street investors. Main Street investor exposure to 

the corporate bond market is likely to increase 

due in part to demographics—the aging of the 

U.S. population—and the corresponding shift in 

investments from equity to comparatively more 

secure fixed-income strategies. We suggest that the 

Commission host a roundtable to consider these 

issues and trends in greater detail.

LEVERAGED AND INVERSE 

EXCHANGE-TRADED FUNDS

As described previously in this Report, the 

Commission recently approved a rule to regulate 

the use of derivatives by most registered funds. 

Unfortunately, the Derivatives Rule, as adopted, 

stripped away measures set forth in the Proposed 

Derivatives Rule that were intended to protect 

investors from the unique dangers of leveraged 

and inverse ETFs.200 For example, the final rule 

removed provisions that would have required 

broker-dealers and investment advisers to exercise 

due diligence before approving retail investor 

accounts to invest in such products.201

On the same day the rulemaking was finalized 

without these investor protections, Chairman Jay 

Clayton and three SEC division directors issued 

a joint public statement recognizing the unique 

dangers presented by leveraged and inverse 

ETFs.202 Specifically, the joint statement noted 

that these ETFs and other complex products 

“may present investor protection issues—

particularly for retail investors who may not fully 

appreciate the particular characteristics or risks 

of such investments,” expressed concern that 

“retail investors, and in certain cases financial 

professionals, may not fully appreciate how these 

types of products operate,” and stated “investor 

protection concerns are heightened, moreover, 

in times of market stress, which typically have a 

disproportionate impact on complex products, such 

as leveraged/inverse products and other products 

that use certain financial instruments that may not 

perform as expected in such times.”203 The joint 

statement noted further that the Commission’s 

Office of Investor Education and Advocacy 

received investor complaints indicating the pricing 

and trading dynamics of these products during 

the market volatility of Spring 2020 was not 

consistent with investor expectations.204 Finally, 

the joint statement indicated that technological 

advancements have increased investor access to 

leveraged and inverse ETFs without the aid of a 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 33

registered representative or investment adviser, and 

recognized that these self-directed investors “do not 

have the required protections that apply when they 

receive recommendations or advice from a broker 

or investment adviser.”205

The joint statement noted that Commission staff 

would review the effectiveness of regulatory 

requirements in mitigating the special investor 

protection concerns presented by complex financial 

products.206 We generally support this planned 

effort, but with respect to leveraged and inverse 

ETFs, the relevant investor protection concerns 

are longstanding and well-documented.207 We 

find it puzzling, then, that the Commission would 

deem this review necessary in the context of 

leveraged and inverse ETFs. Additionally, we find 

it disconcerting that, despite its investor protection 

concerns, the Commission has chosen to entrench 

in its regulations much of the special exemptive 

relief granted to leveraged and inverse ETF 

sponsors over a decade ago.208 Because the investor 

protection concerns associated with leveraged 

and inverse ETFs are well-known, because the 

process of a holistic review of all complex financial 

products is likely to be lengthy and burdensome, 

and because investors will be harmed by leveraged 

and inverse ETFs while such a review is conducted 

(and while any recommendations stemming from 

the review are formulated/implemented),209 we 

urge the Commission to take immediate action to 

mitigate the dangers associated with these products.

REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 35

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.210

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).211 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 June 30 Report on 

Objectives 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 December 31 

Report on Activities 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 

Ombudsman212 for the full fiscal year from October 

1, 2019 through September 30, 2020 (Reporting 

Period), and provides a brief outlook for Fiscal 

Year 2021. 

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 persons 

explore available SEC 

options and resources;

§	clarifying certain SEC 

decisions, policies, and 

practices;

§	taking objective 

measures to 

informally resolve matters that fall outside of the 

established resolution channels and procedures 

at the SEC; and,

§	acting as an alternate channel of communication 

between retail investors and the SEC.

OMBUDSMAN’S REPORT
36 | OFFICE OF THE INVESTOR ADVOCATE

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:

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 sta, 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 sta 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 sta 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 

oce, 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.

Figure 1: What Happens When You Contact the Ombudsman
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 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

During the Reporting Period, retail investors, 

industry professionals, concerned citizens, and 

other interested persons contacted the Ombudsman 

for assistance on 1,647 matters covering 12 

primary issue categories:

Figure 2: Matters by Primary Issue Category

October 1, 2019–September 30, 2020

Investment Products / Retirement Accounts (383)

Non-SEC / Other Matters (367)

Allegations of Securities Law Violations / Fraud (301)

SEC Questions / Complaints (157)

Atypical Matters (129)

SEC Investigations / Litigation / Enforcement Actions (84)

Organized Campaigns (69)

Securities Ownership (54)

Company Disclosures and Information (48)

Securities Laws / Rules / Regulations / Procedures (32)

FINRA Complaints / Questions / Procedures (21)

SRO Rules / Procedures (2)

23.3%

18.3%

7.8%

9.5%

1.9%

3.3%

5.1%

22.3%

2.9%

4.2%

1.3%

0.1%
38 | OFFICE OF THE INVESTOR ADVOCATE

In addition to the 1,647 matters received, we 

fielded 2,441 contacts covering 12 primary issue 

categories during the Reporting Period, for a total 

of 4,088 contacts. The chart that follows displays 

the distribution of the 4,088 total contacts by 

primary issue category:

Figure 3: Contacts by Primary Issue Category

October 1, 2019–September 30, 2020

Investment Products / Retirement Accounts (924)

Non-SEC / Other Matters (920)

Allegations of Securities Law Violations / Fraud (752)

SEC Questions / Complaints (444)

Atypical Matters (308)

SEC Investigations / Litigation / Enforcement Actions (249)

Securities Ownership (139)

Company Disclosures and Information (118)

Organized Campaigns (89)

Securities Laws / Rules / Regulations / Procedures (77)

FINRA Complaints / Questions / Procedures (64)

SRO Rules / Procedures (4)

22.6%

18.4%

7.5%

10.9%

1.6%

2.9%

6.1%

22.5%

3.4%

1.9%

2.2% 0.1%

How the Numbers Inform Our Efforts

The Ombudsman tracks matter and contact data 

to maintain a comprehensive view of the allocation 

of staff resources and to identify matters and 

contacts that significantly alter workflow volumes, 

call for the realignment of Ombudsman staff 

assignments, or require added staff support to 

manage effectively. The data also informs staff 

resource allocation considerations related to 

proposed program development, training, and 

outreach efforts. By tracking the distribution 

of matters and contacts across primary issue 

categories, the data helps the Ombudsman identify 

potential areas of concern or interest and enables 

the Ombudsman to act as an early warning system, 

as necessary, to alert agency leaders about the 

number and potential impact of particular issues 

and concerns raised by retail investors and others. 

From the first full fiscal year of Ombudsman 

operations in Fiscal Year 2015 through the 

end of Fiscal Year 2020, at peak staffing levels, 

the Ombudsman team was comprised of the 

Ombudsman, one full-time attorney-adviser, one 

contract attorney, and one contract paralegal—and 

these staffing levels have fluctuated from time to 

time over the years due to turnover. The activities 

and initiatives covered in this Ombudsman’s 

Report, including the review, responses, and 

recordkeeping for the 4,088 contacts fielded during 

this Reporting Period, were led and completed 

by the Ombudsman and one attorney-adviser 

with significant support from one contract law 

clerk and one contract paralegal. While staffing 

levels remained flat, the total number of matters 

and contacts received and responded to by the 

Ombudsman increased from 727 matters and 

contacts in Fiscal Year 2015 to 4,088 matters 

and contacts in Fiscal Year 2020—an increase 

of 462 percent. 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 39

SERVICE BEHIND THE NUMBERS

While the matter and contact data quantify 

the volume and categories of inquiries the 

Ombudsman receives, the data does not capture 

the full value of the service the Ombudsman 

provides to the investing public. Among the most 

common problems and concerns brought to 

the Ombudsman are those where investors 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. The Ombudsman routinely receives 

requests from investors who want the Ombudsman 

to, for example, automatically grant them SEC 

whistleblower status and provide monetary awards, 

reveal confidential information relating to SEC 

investigations, stop a publicly traded company 

from taking certain corporate actions, prosecute a 

particular broker or investment adviser, overturn 

an arbitration decision, or terminate specific 

SEC or SRO personnel. At times, they resist the 

Ombudsman’s efforts to engage in a productive 

dialogue and conclude that the only acceptable 

outcome is the particular outcome they want.

The vignettes that follow give a sense of the variety 

of issues addressed by the Ombudsman during 

the Reporting Period. Collectively, they offer a 

closer look at how the Ombudsman’s time, effort, 

and commitment provide a meaningful service 

to investors and other interested persons, and 

demonstrate the value and effectiveness of these 

interactions with retail investors better than the 

numbers alone.

A retail investor contacted the Ombudsman after he invested in an issuer based on public reports that the 

issuer would be awarded a large government contract in the fight against COVID-19. Despite an initial rise in 

stock price, it plummeted after reports of alleged insider trading by company insiders. The investor was distraught over losing his investment and asked the Ombudsman for help in recovering his losses. Because of 

the investor’s concerns relating to possible insider trading and fraud, the Ombudsman recommended that he 

submit a complaint to the Division of Enforcement (Enforcement) through the SEC’s Tips, Complaints, and 

Referrals (TCR) system. However, the Ombudsman explained to the investor that the SEC does not pursue 

investigations and enforcement actions solely to recover money that a particular investor may have lost, but 

rather to enforce the federal securities laws. She recommended that the investor consult with private legal 

counsel for assistance in protecting his particular legal rights. The investor expressed his appreciation to the 

Ombudsman for listening to his concerns, and directing him to the appropriate SEC resources for further 

assistance. 
40 | OFFICE OF THE INVESTOR ADVOCATE

Several investors contacted the Ombudsman to complain about research firms issuing negative reports 

about public companies, while at the same time selling short on these companies and reaping profits. While 

some investors complained that the reports were false, others expressed their concerns about the profitbased motive for these reports and suggested that the SEC prohibit this type of conduct. The Ombudsman 

encouraged those retail investors who were concerned about possible violations of the securities laws to 

submit their complaints directly to Enforcement through the TCR portal. In addition, the Ombudsman suggested that investors wanting the Commission to consider changes to rules governing short sellers express 

their concerns and submit their feedback directly to the Division of Trading and Markets, which is the rulemaking division responsible for issues relating to short selling. 

A retail investor submitted a complaint to the Ombudsman relating to her attempts to trade on an online 

trading platform. The investor noticed that a particular company’s stock price was rising at a fast pace and 

placed an order to purchase shares of the stock on the online trading platform. When she noticed the stock 

price beginning to drop, she attempted to sell her shares but found that the platform had restricted trades 

in the stock. She made several requests for support over the next few hours, but by the time she received a 

response from the platform, the stock price had dropped well below her purchase price. She expressed her 

frustration with the trading platform and her belief that the platform’s alleged inaction caused her significant 

losses. Because the investor’s complaint was primarily about her personal investment matters, the Ombudsman referred her to the SEC Office of Investor Education and Advocacy (OIEA) for further information 

and assistance. 

A retail investor in Europe contacted the Ombudsman about communications he received from an entity 

purporting to be a U.S. securities regulator. The entity advised the investor that he was eligible to receive 

proceeds from a class action lawsuit and sent him a “court order” to support its claim. The Ombudsman 

reviewed the document and identified certain red flags to the investor, including suspicious docket numbers 

and court employees. The Ombudsman told the investor that he may have been the victim of an advance 

fee fraud, which is a common fraudulent scheme directed at non-U.S. investors. This type of scam generally 

involves requests that investors provide personal information and ultimately pay a fee in advance of receiving any proceeds, money, stocks, or warrants to complete a transaction. After the investor pays the advance 

fee or similar fees as directed, the soliciting person or entity may break off contact. In the end, the proposed 

transaction or settlement does not take place, and the investor is never paid and never recovers the fees 

paid in advance. The Ombudsman provided the investor with links to guidance on advance fee fraud available on SEC.gov, and recommended that he both contact OIEA for additional resources and assistance and 

submit a TCR to Enforcement. The Ombudsman also suggested that the investor refrain from sending any 

funds and that he consider consulting private counsel for further advice. The investor expressed his appreciation to the Ombudsman for her assistance. 

A retail investor discovered some very old paper stock certificates and asked the Ombudsman if the certificates had any value. The Ombudsman provided the investor with links to information on the SEC’s website 

about old stock certificates. Because the investor’s question also related to a personal investment matter, 

the Ombudsman referred her to OIEA for further assistance. The investor told the Ombudsman that while 

she knew that it might be very difficult to determine the value of such old stock certificates, she appreciated 

the information as well as the referral to OIEA. 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 41

The Ombudsman heard from several retail investors who disagreed with the SEC’s proposal to amend 

Form 13F to update the reporting threshold for institutional investment managers from $100 million to $3.5 

billion.214 These investors expressed concern that the proposed rule appeared to be designed to protect 

hedge funds over the needs of retail investors. They argued that the proposed amendment would greatly 

decrease the transparency of hedge funds, most of which would be below the new reporting threshold. 

The Ombudsman listened to their concerns and advised the investors to submit formal comments on the 

rulemaking so that their views would be reviewed and considered by the appropriate rulemaking staff, and 

referred them to the instructions in the proposed order for submitting comments on the rulemaking. 

A retail investor contacted the Ombudsman to express his disappointment with the SEC’s Staff Guidance 

for Conducting Shareholder Meetings in Light of COVID-19 Concerns (Staff Guidance)213 which addressed 

compliance with the SEC’s proxy rules in light of the health and safety concerns presented by COVID-19. 

This investor felt very strongly that his requests for paper proxies should be met by the issuers without 

any delays. He noted that for many stocks that he owned, the issuers sent incomplete meeting information, and as a result, he could not exercise his right to vote with respect to these issuers. He asked that the 

SEC strongly consider revoking the Staff Guidance and communicate to public companies that they should 

respect the wishes of shareholders. The Ombudsman replied to this investor and highlighted the information 

in the Staff Guidance that encouraged people to contact the staff in the SEC Division of Corporation Finance 

to discuss concerns resulting from delays in the printing and mailing of proxy materials. 

A new filer was unable to upload a required disclosure form to EDGAR, despite numerous attempts, and 

contacted the Ombudsman to express his concerns. He said that several SEC staff members told him that 

the EDGAR filing system was being upgraded and was experiencing some technical issues. Given certain 

market and timing sensitivities for this particular form, the filer asked the Ombudsman if he could submit 

hard copies of the filing, or email them to the appropriate office. The Ombudsman referred the individual 

to staff in the Edgar Business Office, who walked him through the submission process and corrected the 

uploading error, enabling him to successfully submit his filing. The filer expressed his appreciation to the 

Ombudsman for taking the time to listen and for connecting him with the appropriate SEC office to resolve 

his concerns. 

A retail investor complained to the Ombudsman about the seemingly delayed posting of comment letters 

and responses on EDGAR between the SEC and an issuer relating to the issuer’s Form 10-K. He argued that 

the comment letters should have been posted when each letter was sent. The Ombudsman listened to the 

investor’s concerns, explained the comment letter process, and referred the investor to additional guidance 

on the SEC Division of Corporation Finance’s webpage relating to the review of periodic reports and the 

availability of comment letters on EDGAR. The Ombudsman also provided the investor with information on 

how to submit any additional questions or feedback relating to the comment letter process directly to the 

Division of Corporation Finance.
42 | OFFICE OF THE INVESTOR ADVOCATE

Our interactions with investors provide insight 

into the information investors rely upon and the 

assistance they want when making investment 

decisions. The tailored information and responses 

the Ombudsman provides to investors are unique 

and 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 details, track all related contacts and 

correspondence, update matter comments, and 

communicate with the investor via the OMMS 

platform. OMMS also allows the Ombudsman 

and staff to search and analyze matters and 

contacts by submitter, primary issue, fiscal year, 

and a number of other categories, and review 

data and customize specific reports when a deeper 

examination is required.

As a result of our ongoing efforts to streamline 

and enhance communications with retail investors 

during Fiscal Year 2020, we received 715 

new matters submitted via the OMMS Form, 

representing 43.4 percent of the 1,647 new 

matters received during Fiscal Year 2020. As a 

comparison, during Fiscal Year 2019, we received 

791 new matters submitted via the OMMS Form, 

representing 53.4 percent of the 1,480 new matters 

received during Fiscal Year 2019. The Ombudsman 

will continue to encourage persons to submit their 

inquiries via the OMMS Form, closely monitor 

questions and suggestions relating to the OMMS 

Form, and work with the Office of Information 

Technology, the technology contractor, and the 

Office of Public Affairs to enhance the OMMS 

user experience and the Ombudsman-related 

information and resources available to the public. 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 43

STANDARDS OF PRACTICE

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 

existing 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 Chairman 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.
44 | OFFICE OF THE INVESTOR ADVOCATE

The Ombudsman’s Challenge

The mission statement of the SEC is to “protect 

investors, maintain fair, orderly, and efficient 

markets, and facilitate capital formation.”215 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, the Ombudsman 

routinely explains to investors that they have the 

ability to 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 decide to request representation or 

counseling services 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 engage 

with those who represent investors, including law 

school investor advocacy clinics, to gain a deeper 

understanding of potential legal and structural 

barriers encountered by investors. 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 45

To retail investors, FINRA is perhaps the most 

well-known SRO under SEC oversight. FINRA 

operates BrokerCheck216 and a dispute resolution 

forum,217 both of which are commonly used by 

retail investors. As discussed in prior reports, the 

Ombudsman closely follows FINRA’s rulemaking 

and dispute resolution forum activities that may 

have a direct and significant impact on retail 

investors. We also look for ways to improve SEC 

or SRO processes and regulations for the collective 

benefit of investors, and we advocate 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

Retail Investor Concerns relating to 

the COVID-19 Pandemic

The COVID-19 pandemic has had an 

unprecedented impact on financial markets, and 

the SEC has taken numerous steps to provide 

ongoing information to retail investors. The SEC’s 

homepage has a banner—“SEC Response to 

COVID-19”—that takes the reader to an overview 

of the agency’s current “operational initiatives, 

market-focused actions, guidance and targeted 

assistance and relief, investor protection efforts 

and other work” in response to the effects of 

COVID-19 pandemic.218

The Ombudsman heard from several retail 

investors in February and March 2020 who 

wanted the SEC to take actions to address the 

volatility of the stock market due to the COVID-19 

pandemic. Several of these investors urged the 

SEC to reinstate the SEC’s original uptick rule, 

which prohibited short selling a stock unless the 

price of the stock had ticked upward.219 Others 

suggested that the SEC stop, or at least pause, all 

algorithmic and computer trading for an indefinite 

period. Although the market stabilized somewhat 

in early April 2020, the Ombudsman continued to 

receive COVID-19-related submissions from retail 

investors. These included complaints about insider 

trading by company insiders or public officials 

based on nonpublic information, and complaints 

about alleged short selling by research firms who 

published negative reports and then profited from 

the ensuing drop in stock price. Other investors 

complained about their online trading platforms 

being temporarily unavailable or failing to respond 

to their requests. The Ombudsman team answered 

their questions, provided appropriate information 

and resources, assured them that the SEC 

appreciated hearing their views and concerns, and 

encouraged them to follow the agency’s rulemaking 

activity and COVID-19 updates on SEC.gov. 

The SEC transitioned to mandatory telework 

for all employees on March 10, 2020. While 

the transition required substantial adjustments 

early on, the SEC remained committed to its 

mission to protect investors; maintain fair, 

orderly, and efficient markets; and facilitate 

capital formation.220 As the Ombudsman team 

primarily communicates with investors by phone 

or email, or through OMMS, the transition to 

telework for the Ombudsman team was relatively 

seamless. The Ombudsman staff continues to 

work together as a team to review and respond to 

investor questions and complaints, and to identify 

procedures, options and resources to help retail 

investors resolve their concerns.
46 | OFFICE OF THE INVESTOR ADVOCATE

FINRA Arbitration and Mediation during 

the COVID-19 Pandemic

As a general matter, retail investors are bound 

by clauses in their contracts with member firms 

to resolve any disputes through arbitration or 

mediation in the FINRA dispute resolution forum. 

However, the risks associated with the COVID-19 

pandemic necessitated changes to the in-person 

dispute resolution process. On March 17, 2020, 

FINRA postponed all in-person arbitration and 

mediation proceedings through May 31, 2020.221

After subsequent interim postponements, FINRA 

ultimately decided to administratively postpone all 

in-person arbitration and mediation proceedings 

scheduled through January 31, 2021.222 For now, 

parties may agree to reschedule, or they may agree 

to conduct their proceedings virtually by telephone 

or by video conference arranged by FINRA 

through the Zoom platform.223

As COVID-19 continued to spread, there was 

an expectation that the number of new customer 

arbitration filings would surge due to market 

volatility and customer service disruptions at 

member firms as a result of the pandemic.224

However, as of August 31, 2020, there were only 

1,359 new customer arbitration cases filed in 

2020—329 fewer than were filed by that date in 

2019.225 Attorneys representing retail investors 

and firms appear to be adjusting well to the 

virtual hearing environment,226 which may prove 

beneficial to their clients. However, retail investors 

representing themselves, and elderly investors more 

so, may experience challenges transitioning to the 

virtual hearing environment—including technology 

difficulties, the absence of the interpersonal 

dynamic that occurs during the in-person process, 

and postponements—that could potentially affect 

settlement options, the presentation of evidence, 

hearing outcomes, and award amounts. While 

they cannot provide legal advice or representation, 

FINRA Dispute Resolution Services staff are 

available to provide technical support and 

resources to all parties and arbitrators. Parties 

may contact their case administrator if they have 

questions or need additional assistance throughout 

the virtual hearing process.227

FINRA Rule Limiting Brokers as Beneficiaries

On July 2, 2020, FINRA submitted to the SEC 

a proposed rule that would change FINRA rules 

governing the circumstances under which a 

registered person may be named as a beneficiary 

or hold a position of trust for a customer.228

The proposed rule addresses FINRA’s concerns 

regarding the vulnerabilities faced by older 

investors who may be isolated or suffering from 

cognitive decline,229 and the conflicts of interest 

that arise when a registered person is named as a 

beneficiary, executor, or trustee for a customer, or 

when a registered person holds a power of attorney 

on behalf of a customer. FINRA recognizes many 

member firms have rules in place to address and 

limit these potential conflicts. However, despite 

members’ best efforts, potentially problematic 

arrangements may develop and can remain 

unknown to member firms and surviving family 

members for years to come.230

With this proposed rule, FINRA aims to create a 

new national standard to ensure consistency across 

all member firms and better protect retail investors. 

The proposed rule would require a registered 

person to decline being named a beneficiary of, 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 47

or from receiving a bequest from, the customer’s 

estate, as soon as the registered person becomes 

aware of either gift. The registered person will then 

be required to inform his member firm employer 

of the gift. The member firm must evaluate and 

grant written approval in order for the registered 

person to receive the gift. The proposed rule will 

not apply where the retail investor is a member of 

the registered person’s immediate family. 

The SEC received one comment letter from an 

industry interest group and two comment letters 

from public advocacy groups.231 The Securities 

Industry and Financial Markets Association 

(SIFMA) and the Public Investors Advocate Bar 

Association (PIABA) supported the proposed rule; 

however, PIABA believed that the rule should go 

further and “prescribe a uniform written notice 

provision rather than permitting individual 

member firms to specify the required form of 

written notice for its registered persons.”232

The North American Securities Administrators 

Association, Inc. (NASAA) opposed the proposed 

rule and maintained that “a registered person 

should simply be prohibited from being named 

to customer beneficiary and trust position 

arrangements, with only a narrow exception 

for arrangements involving a registered person’s 

immediate family.”233 NASAA also recommended 

that beneficiary and trust arrangements with 

immediate family members be “subject to firm 

scrutiny and approval.”234

In its response letter, FINRA reiterated its belief 

that an outright ban on all positions of trust is 

not appropriate because there are instances when 

“a registered person with financial acumen and 

knowledge of a customer’s financial circumstances 

may be better positioned to serve in a position 

of trust than other alternatives available to the 

customer.”235 FINRA also defended the application 

of the proposed rule to customers who are not 

immediate family members (as defined in the 

proposed rule) because “[t]he risk that a registered 

person misused his or her role in the brokercustomer relationship to be named a beneficiary 

or hold a position of trust is reduced when the 

customer is an immediate family member.”236

The Commission considered the proposed rule 

and the comment letters and found that “the 

proposed rule strikes a balance by allowing a 

firm to reasonably assess the risks to customers 

associated with those conflicts of interest and 

permitting a registered representative to be named a 

beneficiary of a customer or hold a position of trust 

on behalf of a customer for personal monetary 

gain if the firm reasonably determines the risks are 

acceptable.”237 In approving the rule on October 

7, 2020, the Commission noted that the rule “will 

provide additional investor protections, especially 

for broker-dealers who do not currently have 

policies and procedures in place to address these 

scenarios, or have such policies and procedures 

that are either less restrictive than the proposed 

rule change or are applied inconsistently.”238 When 

the rule becomes effective on February 15, 2021,239

it will join FINRA’s existing Senior Exploitation 

Rules,240 which have been in effect since 2018.
48 | OFFICE OF THE INVESTOR ADVOCATE

OUTREACH ACTIVITIES

SEC Investor Advocacy Clinic Summit 

During Fiscal Year 2019, the Ombudsman took 

significant steps to strengthen the Office’s Law 

School Clinic Outreach Program241 by hosting 

the first SEC Investor Advocacy Clinic Summit 

(the Summit) at SEC Headquarters in April 2019. 

The Summit, a success on all fronts, provided 

an exceptional, in-person opportunity for SEC 

and SRO staff to interact with directors and 

law students from 10 clinics, learn about their 

policy perspectives and clinic initiatives, and 

take a closer look at their client experiences 

during the daylong event. As previously discussed 

in the Report on Objectives for Fiscal Year 

2021,242 the Ombudsman team planned to host 

a second Summit on March 26, 2020 at SEC 

Headquarters. The Ombudsman expected to 

host over 100 confirmed participants and speakers 

at the Summit, including clinic directors and 

law students from 9 of the 12 active law school 

advocacy clinics,243 SEC commissioners and 

senior agency staff, and senior leaders from 

SROs and stakeholders including FINRA, 

NASAA, and PIABA. Additionally, harmed 

investors who benefited from the services 

provided by the clinics were also confirmed to 

attend and share their experiences with attendees. 

Unfortunately, the in-person Summit was 

cancelled in early March 2020 when the SEC 

transitioned to mandatory telework in the wake 

of the COVID-19 pandemic.244

During the Reporting Period, the Ombudsman 

team resumed planning the Summit as a virtual 

event, tentatively scheduled for the spring of 2021. 

In September 2020, the Ombudsman staff began 

contacting the clinic directors to gauge interest 

in a virtual Summit and to determine possible 

program topics. Several clinics expressed interest 

in a virtual Summit, and, although a virtual event 

presents a different set of logistical challenges, 

we are developing topics and formats to facilitate 

participation, engagement, and the thoughtful 

exploration of ideas to benefit retail investors. 

In particular, we may spend time examining the 

experiences of their retail investor clients during 

the pandemic—from lessons learned relating to 

elderly investors and social isolation, to the impact 

of virtual hearings on the arbitration process, to 

changes in investing behavior and risks, to novel 

frauds and schemes—and discussing regulatory 

and policy approaches responsive to their needs. 

Additional Outreach Activities

During the Reporting Period, the Ombudsman 

continued to seek out opportunities to increase 

awareness and elevate the visibility of the services 

the Ombudsman and the SEC provide to retail 

investors. These outreach activities included 

participation in the ombudsman and securities 

industry events, professional conferences, and 

related activities listed below.

§	American Bar Association Section of 

Dispute Resolution—Annual Spring 

Meeting Webinar (Panelist)

§	American Bar Association Section of 

Dispute Resolution—Ombuds Day (Panelist) 

§	American Bar Association Section of 

Dispute Resolution—Ombuds Subcommittee 

monthly meetings 

§	Coalition of Federal Ombudsmen Annual 

Conference (Experienced Ombudsman 

discussion leader)
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 49

§	Coalition of Federal Ombudsmen 

monthly meetings

§	Corporate Counsel Women of Color 

Annual Conference

§	Drexel University School of Law, Securities 

Law Summer Speaker Series webinar (Speaker)

§	Federal Financial Regulatory Ombudsmen 

Working Group quarterly meetings

§	Fordham University School of Law, Black 

Law Students Association, Career Opportunities 

Panel (Panelist) 

§	Fordham University School of Law, Black Law 

Students Association, Women’s Committee, 

Career Strategies Panel (Panelist) 

§	Fordham University School of Law, Securities 

Arbitration Clinic webinar (Speaker)

§	International Network of Financial Services 

Ombudsmen Annual Conference

§	International Ombudsman Association 

Annual Conference—Government Sector 

Session (Co-Presenter)

§	Northeast Ombudsmen Working Group 

quarterly meetings

§	SEC New York Regional Office and 

Fordham University School of Law, 

“Preventing Community-Based Financial 

Fraud“ investor outreach conference (Panelist) 

§	Securities Arbitration Clinic Directors 

Annual Roundtable

§	University of Cambridge, Executive 

MBA Program, “The Bridge” virtual 

discussion (Panelist)

OUTLOOK FOR FISCAL YEAR 2021

On a day-to-day basis, the most apparent aspect 

of my role as Ombudsman is the interactions with 

retail investors and others who contact me with 

their questions or concerns about the SEC or the 

SROs we oversee. As Ombudsman, I am available 

to serve as an additional channel of communication 

between retail investors and the SEC or SROs and 

to clarify certain regulations, policies, and practices. 

Where an established resolution process exists, I 

typically explain the process and direct the investor 

to the appropriate staff or resources, and I will 

follow up with the investor, if necessary. I may 

also identify resources outside of the SEC to help 

investors resolve their questions and concerns.

From the beginning, however, I recognized that I 

have no real control over the volume or substance 

of matters that I receive. Because of that, I have 

never equated the number of matters I receive to 

the value of the role. That said, from Fiscal Year 

2015—my first full fiscal year in the Ombudsman 

role—through Fiscal Year 2020, my very small 

team fielded over 13,200 investor contacts. While 

that is an impressive number, the quality of the 

information we provide as we liaise with retail 

investors is more meaningful and significant than 

the number of contacts. Assisting just one investor 

with one issue can make a significant difference 

to that investor, and at times, may inform our 

approach as we consider policies, regulations, 

and rulemakings.

As noted in prior reports, current staffing levels 

have not kept pace with the increased volume of 

investor matters and contacts. Compared to the 

4,088 investor contacts fielded by me and one 

full-time attorney in Fiscal Year 2020—an average 

of 2,044 investor contacts each—other SEC 

divisions and offices with similar external response 

duties have many more full-time staff responsible 

for significantly fewer responses per person per 

fiscal year. The approval to hire one senior special 
50 | OFFICE OF THE INVESTOR ADVOCATE

counsel in Fiscal Year 2021 will double the size 

of my full-time staff and will help me meet my 

statutory requirements, address complex investor 

issues, and collaborate with colleagues across the 

agency and at the SROs to ensure that the concerns 

of retail investors are considered throughout the 

regulatory and policy making processes. I will 

need additional full-time staff as I expand my 

programmatic and policy work through internal 

collaborations with SEC divisions and offices, 

through increased outreach and engagement with 

retail investors and SROs, and, if the proposed 

legislation is passed, through leading the efforts to 

establish an investor advocacy clinic grant program.

Finally, in Fiscal Year 2021, I will continue to 

track detailed matter and contact information 

relating to investor complaints. I will also refine 

the secondary issue category reporting capability in 

OMMS to identify additional areas within certain 

primary issue categories that may require targeted 

research and analysis. As I have in the past, I will 

continue to seek out meaningful opportunities to 

share my work and the work of the SEC with retail 

investors, industry organizations, and the broader 

ombudsman community in ways that may directly 

benefit retail investors. I look forward to providing 

additional updates on our Fiscal Year 2021 

activities in my next Ombudsman’s Report. 

Tracey L. McNeil

Ombudsman
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 51

We launched our investor testing 

initiative, POSITIER, in 2017 with 

the hope of using the program to 

fulfill our Office’s statutory mandate and provide 

empirical evidence to help the Commission fulfill 

its investor protection mission. Over the past three 

and a half years, we have built what we consider to 

be the most innovative and versatile data collection 

architecture in government. POSITIER is unique in 

that it provides rapidly deployable, cost-effective, 

and high-quality data collection capacities with 

a high degree of flexibility. This combination of 

analytic power and flexibility gives us tools to 

respond rapidly to emergent developments in 

the economy.

We have used these tools to engage in an 

unprecedented number of innovative data 

collection projects related to investor issues, 

behavior, and thinking. To date, we have 

completed nearly 50 testing efforts in addition 

to 23 nationally representative probability-based 

surveys, 4 quota sample survey projects, and 9 

qualitative research studies. Last year, we also 

created our own longitudinal survey panel to track 

a group of investors over time. In August of this 

year, we launched a monthly survey following 

these investors, which has enabled us to develop 

insights on the effects of market movements and 

COVID-19. In sum, over just three and a half 

years, our efforts have yielded over 25 million new 

data elements. 

Research plays a number of critical roles in the 

Office of the Investor Advocate and contributes to 

the broader mission of the SEC: 

§	It allows us to assist the Investor Advocate 

in meeting our statutory mandate to conduct 

research on investors and identify issues of 

importance to investors. For example, it 

allows us to identify 

areas of concern for 

the investing public, 

such as financial 

literacy deficiencies, 

disclosure problems, or 

inappropriate financial 

products so that the 

Investor Advocate can 

advocate for solutions 

on these issues. 

§	It enables us to develop 

tools and data that are useful for rulemaking 

and other policy pursuits. By developing a 

library of investor research, we can quickly 

contribute to evidence-based policymaking as 

questions arise rather than starting from scratch 

in time-sensitive rulemakings. Our versatile 

toolkit also provides a mechanism for collecting 

data in a compressed timeframe.

REPORT ON 

INVESTOR TESTING
52 | OFFICE OF THE INVESTOR ADVOCATE

§	It allows us to explore investor issues outside 

of a specific rule proposal, and to consider 

investor issues that might fall outside of the 

range of a particular rule-writing office. For 

example, issues that affect investors may not fit 

neatly into the responsibilities of the Division 

of Investment Management or the Division of 

Trading and Markets and, as a result, may not 

receive the attention they deserve. 

§	It develops our credibility with academics, 

policymakers, and rule-writing divisions. 

Research that is in the public domain can 

be cited in rule proposals and can be used 

to inform rule-writers’ initial views on a 

rulemaking. It encourages engagement with 

academics and other experts to ensure that 

our research and rulemaking activities achieve 

the highest possible standards of quality and 

maximize benefits to investors in a way that also 

accounts for industry impact. 

§	Further, it allows us to provide an attractive 

work environment for staff, fellows, and others 

who are crucial to helping our Office achieve 

its mission. To advocate effectively on behalf 

of investors, we need to attract the best human 

capital so that our thinking and research skills 

remain at the leading edge.245

Since the founding of POSITIER, we have tried 

to build our research group within the Office of 

the Investor Advocate and expand our network. 

Just a week before the pandemic forced the SEC 

to move to a remote work environment, we 

welcomed a second staff member, Alycia Chin. 

Alycia is a highly regarded researcher of national 

prominence. She holds a Ph.D. from Carnegie 

Mellon University and has worked on consumer 

disclosure and related issues for the PCAOB and 

the CFPB. Alycia’s expertise in financial disclosure 

is nearly unmatched in government, with published 

work on consumer attention issues, comprehension 

of disclosed product features, and evaluations 

of financial products. She has a long record of 

accomplishment in conducting consumer and 

investor tests for policymaking purposes, including 

developing disclosures to inform rulemaking and 

conducting retrospective reviews of adopted rules.

While COVID-19 has upended some of our 

research and data collection this year, POSITIER’s 

flexibility has enabled us to adapt more readily 

and easily than many other evidence initiatives in 

government. For example, although we planned 

to conduct in-person focus groups starting in 

March, we quickly pivoted to an online bulletin 

board format and research topics amenable to that 

structure. Although we look forward to eventually 

conducting in-person surveys on selected topics, we 

currently deploy surveys by phone or online rather 

than in-person, which has further insulated our 

work from the pandemic’s disruptive effects and 

enabled us to continue to hear from investors and 

non-investors during this unique period. 

We have accomplished our work despite an array 

of difficult headwinds. As noted by the Investor 

Advocate in this Report’s administrative and 

legislative recommendations, unrealistic human 

resource levels and fiscal uncertainty have impeded 

our ability to fulfill our Office’s statutory mission, 

which envisions advocacy for investors that is 

rooted in sound research. In addition, we have 

encountered cultural and institutional challenges 

that impede our ability to contribute to the SEC’s 

broader mission, including obstacles to the use of 

non-sensitive data and an institutional ecosystem 

that tends to keep social scientists at arm’s-length 

until after most policy decisions have already 

been finalized.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 53

Our report this year will discuss some of these 

challenges in detail. We also suggest institutional 

changes that would integrate research into work 

processes and bring science to bear on policy 

development at the Commission. These changes 

can help the SEC more effectively achieve its 

tripartite mission to protect investors; maintain 

fair, orderly, and efficient markets; and facilitate 

capital formation. 

SELECTED RESULTS OF 

INVESTOR RESEARCH 

In this section, we share highlights from the 

results produced by our group over the past year, 

along with a glimpse into some of our ongoing 

research projects. 

Investor Financial Literacy 

A lack of financial literacy is commonly viewed as 

an obstacle limiting retail investors’ ability to make 

appropriate financial choices and achieve financial 

security. Financial literacy is related to consequential 

life outcomes such as wealth accumulation, financial 

management, and uptake of financial advice.246

Data from the FINRA Foundation suggests that 

financial literacy levels were low in 2009 and 

have deteriorated further over the subsequent 

decade.247 Unfortunately, programs to raise 

financial literacy have not demonstrated widespread 

effectiveness except in very limited circumstances.248

Furthermore, some evidence suggests that those 

who are already financially literate are more likely 

to access financial education programs,249 limiting 

the impact of such programs on reducing financial 

literacy gaps.

The most widely used approach to measuring 

general financial literacy is a set of questions 

developed by Annamaria Lusardi and Olivia 

S. Mitchell,250 which tests knowledge of basic 

economic concepts, with extended versions 

that probe deeper on particular issues.251 The 

Lusardi-Mitchell measures have helped to raise 

awareness of the importance of financial literacy 

and are extremely valuable in most contexts. 

Yet, we found the traditional approach to be not 

well attuned to identifying the problems faced by 

investors. The existing set of questions focuses 

on broad understanding of economic principles 

that may not be representative of the technical 

knowledge needed to make good investment 

decisions. Additionally, these questions do not 

speak directly to the specialized policy areas of 

the SEC and other financial regulators. As such, 

these measures may be less meaningful when 

studying investment outcomes. In particular, as we 

began to study investor understanding of mutual 

fund fee characteristics as recommended by the 

Investor Advisory Committee,252 it was apparent 

that general financial literacy might fall short in 

helping us evaluate whether investors understand 

their choices with respect to specialized financial 

products. For example, general financial literacy 

may guide an individual to include mutual funds 

in an investment portfolio, but fail to prevent the 

selection of suboptimal funds. 

To address this limitation, we developed a 

specialized battery of questions related to 

mutual fund characteristics and issues relevant 

to individual investor choice problems. In 

developing the questions, we first considered the 

extant literature.253 We also sought to identify 

issues related to investors’ ability to navigate the 

disclosure-centric world of mutual fund investing, 

including mutual fund features that current rules 

suggest are essential for investors to consider. In the 

end, we developed an easy-to-administer battery 

of 11 true-false questions relating to risk, fees, and 

other features of funds.254
54 | OFFICE OF THE INVESTOR ADVOCATE

While our exact methods are still being refined, 

our initial results using a nationally representative, 

probability-based panel survey reveal fresh insights. 

In our data, most respondents were unable to 

answer the majority of these basic questions 

correctly. This startling result suggests a significant 

fraction of potential investors lack adequate 

knowledge to guide their decision-making in the 

mutual fund marketplace. As with all research, our 

work must be approached cautiously in terms of 

policy implications, lest it be misinterpreted, but 

we can say that our scale provides an important 

litmus test of whether investors have the capacity 

to make choices using the information with 

which they are provided in the current regulatory 

environment. Important next steps are to establish 

whether knowledgeable individuals are more likely 

to purchase mutual funds, as well as the extent 

to which investors learn from their experiences 

holding funds. 

In addition to developing a battery of questions 

to gauge financial literacy specific to mutual 

funds, we have explored other questions related 

to mutual fund disclosures. For example, we 

have conducted research on investors’ ability to 

understand fee disclosures as set forth in fee tables. 

We gave respondents a mocked up fee table and 

asked them to approximate the actual fees that 

would be paid on a hypothetical investment. Only 

20 percent of respondents answered this question 

correctly. Remaining respondents were nearly 

evenly split between explicitly stating that they did 

not know the answer, and those that gave answers 

ranging from $0 to less than 10 percent of the 

true fees charged. Again, policy implications must 

be approached cautiously—this result does not 

suggest that fees should not be disclosed. Rather, 

these results suggest that further study is needed 

because existing efforts to raise investor awareness 

and understanding of mutual fund fees may not 

be effective.

Readability of Disclosures

Why do investors face so many obstacles to 

understanding their investments? Could it be that 

disclosures—the primary method by which the 

SEC expects investors to acquire knowledge about 

their funds—are provided only after a purchase 

has been made, and that they are dense documents 

with difficult-to-interpret implications? Just as 

former SEC Chairman Christopher Cox predicted 

over a decade ago, we have begun to examine the 

readability of mutual fund disclosures using the 

Flesch-Kinkaid scoring system in research conducted 

with Dan Silverman of Arizona State University.255

We started here because the Flesch-Kinkaid score 

is one of the most commonly used measures 

of readability, despite its imperfections. Our 

preliminary work suggests that nearly 40 percent of 

summary prospectus documents are harder to read 

than the seminal Black-Scholes option pricing paper 

(which requires advanced college or post-college 

reading levels), and only a handful are as readable 

as a USA Today newspaper article (which maps to a 

10th-12th grade reading level). 

Given that our retirement system generally asks 

individuals to manage their own retirement 

savings, these results suggest severe obstacles for 

the approximately two-thirds of Americans that 

do not have a college degree, as well as the 43 

million American adults that have trouble with 

simple literacy tasks like comparing and contrasting 

information.256
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 55

Other Research

Over the past year, we have conducted a number of 

other studies. Some we hope to finalize and release 

soon, while others represent longer-term research 

undertakings. These research studies include: 

§	A qualitative study of digital asset users’ 

behaviors and vulnerabilities; 

§	Qualitative and quantitative research on wealth 

proxies and wealth measurement; 

§	Research on racial and gender inequities in 

investment and wealth;

§	Research on financial markets, with a particular 

focus on issues affecting retail investors; 

§	Impacts of COVID-19 on households’ economic 

situations; and

§	Investor responses to framing, context, 

and terminology used in disclosures and 

economic surveys.

OBSTACLES TO INVESTOR TESTING 

In POSITIER, we would argue that the SEC has 

the most sophisticated, flexible, cost-effective, 

and responsive evidence generation toolkit in 

government. Nevertheless, we still do not have the 

thorough testing program that investors deserve. 

To effectively support the work of the Investor 

Advocate and contribute in a positive way to the 

Commission’s broader mission, three elements are 

critical for our success: (1) resources to build our 

research team and carry out research projects; (2) 

an SEC culture that supports evidence-based policy 

development and incorporates researchers early in 

the policymaking process; and (3) independence so 

that we can conduct objective research that is free 

from political influence and make our work public 

without interference. 

Adequate Resources to Support POSITIER

One major distinction between our Office’s work 

under POSITIER and other research groups in 

government is the human resource levels allocated 

to our group. While we pride ourselves in running 

a unit that requires only a fraction of the resources 

required by our peers, our staffing levels are simply 

unrealistic for fulfilling our statutory mission. Our 

initiative is a comprehensive testing program with 

survey and data collection capacities intended 

to inform the Investor Advocate, the Investor 

Advisory Committee, the Commission, and 

the public, as well as to guide the identification 

of problems for investors and assist in the 

development of rule proposals. 

In other agencies, such as the Federal Reserve 

(Fed) and the Consumer Financial Protection 

Bureau (CFPB), survey and testing teams tend to 

be comprised of 6-12 staff for each project. In the 

SEC’s Division of Economic and Risk Analysis 

(DERA), economic analysis research projects 

(which do not normally involve the time-consuming 

data collection that is required for investor testing) 

each have comparable staffing levels to Fed and 

CFPB research projects. By contrast, for most of its 

history, our group has had one researcher working 

on approximately 20 projects—an approach which 

is unsustainable. Under a multi-year hiring freeze 

that had been in place since POSITIER’s launch, 

we cobbled together a patchwork of temporary 

support for a long-term staffing need. Although 

each POSITIER visitor has made a meaningful 

contribution to our work, time spent recruiting and 

onboarding for highly technical positions erodes 

the value of such temporary labor and limits our 

ability to be effective in the long-term. Nevertheless, 

we have persevered and collected unprecedented 

amounts of data during our initial years because 

testing initiatives were desperately needed. 
56 | OFFICE OF THE INVESTOR ADVOCATE

Earlier this year, Alycia Chin joined our group, 

immediately providing impact. Yet we simply need 

more help. Success requires more than naming 

a point-person to be responsible for a project; it 

requires resources commensurate with the task 

at hand. And it requires a variety of skill sets, 

from survey design to data analytics to household 

finance economics to marketing and decision 

science. Unfortunately, we do not have even a single 

complete testing team, much less multiple teams 

that can focus on a variety of survey and other data 

collection projects. In short, we believe that the 

CFPB, Fed, and other agencies offer an appropriate 

benchmark for adequate staffing levels to engage 

in the types of data collection and analysis we are 

already attempting to conduct. Testing programs 

of the scale envisioned in H.R. 1815,257 the SEC 

Disclosure Effectiveness Testing Act, would require 

multiple testing teams with a variety of skill sets on 

each team. No matter the scope of our work, we 

believe it will provide benefits to investors that far 

exceed the costs.

We are frequently asked whether SEC economists 

within DERA already have the capability to do the 

type of investor testing we envision. DERA has a 

large contingent of highly skilled economists, but 

it is important to note that they are specialized 

in areas like asset pricing and corporate finance 

sub-fields—important issues for the Commission, 

but ones that have little topical or methodological 

connection to our Office’s main research interests. 

Indeed, our Office is charged with the statutory 

obligation to examine the impact on investors of 

SEC and SRO rules, so we believe it is imperative 

that we develop a robust research program that 

is able to independently assess the viability of 

policy proposals, staffed by researchers that are 

specialized in our issue areas, and freely able to 

critique DERA’s or an SRO’s economic analysis 

when it lacks adequate perspective on investors. 

Importantly, we need not only additional human 

capital, but also an adequate and stable amount of 

fiscal resources to field surveys and perform our 

other research tasks, often with the assistance of 

third-party vendors. Uncertainties regarding fiscal 

resources, ever present across government in the 

past decade, have been particularly challenging for 

our program. In recent years, we have had little 

information about our funding level until as late 

as March. Since our projects take time to plan and 

execute, in some years we have had to compress a 

year’s worth of work into about six months—not 

accounting for other obstacles such as government 

shutdowns, continuing resolutions, and other 

challenges. While the consequences of major fiscal 

disruptions are well-documented,258 what has 

received less attention are the planning challenges 

and other distractions that such uncertainty 

creates. In some years, we have been left constantly 

rewriting our internal work plan to adapt to 

changing fiscal circumstances. 

POSITIER is highly adaptable to changing 

circumstances, but these disruptions and a lack 

of fiscal flexibility mean more resources devoted 

to planning and less to execution. They also have 

knock-on repercussions for our contractors who 

must constantly adapt to changing conditions by 

reallocating their workers and potentially disrupting 

their other work streams. More commitment, and 

more certainty, would allow us to use our resources 

more effectively. 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 57

While resolving budget discussions at the Federal 

level involves much debate beyond our purview, 

we believe there are some concrete steps that could 

facilitate investor testing. In particular, ring-fencing 

our Office’s budget with a lower bound set as a 

fixed fraction of the SEC’s budget, in a manner 

similar to the Office of the Inspector General, would 

help provide clarity and budgeting continuity. 

Creating a Culture that Supports 

Evidence-based Policy Development

In recent years, our Office’s ability to influence 

policy at the early stages has been limited. If we are 

only able to comment on a rule proposal after it has 

been written, there are constraints on our ability to 

deploy our tools to make the rule more effective. 

In the long-term, changing this dynamic requires 

institutional changes so that we are formally 

integrated into the policy development process 

rather than being positioned as a critic after the fact. 

A simple step would be for rule-writing divisions 

to consult with our Office early in the rule-writing 

process, even if they do not anticipate new or 

specialized investor testing for the rule proposal. 

We believe rulemakings would benefit from the 

input of social scientists and other experts from 

our team who could, for example, help rule-writers 

understand the ways that average people process 

information and make investment decisions.

Strengthening Independence 

While integration and access within the rule-writing 

process is critical for success, our Office must also 

preserve its independence in order to maintain 

our commitment to research validity. Two issues 

are relevant here. First, the Office of the Investor 

Advocate is de-jure an independent office because 

of the provisions in the Dodd-Frank Act, but it 

relies on the will of the Chair’s office for fiscal 

resources so it is not de facto fiscally independent. 

Fiscal independence would help institutionalize 

our Office’s autonomy and forestall a future 

Commission from using fiscal disruption to 

circumscribe our role. A second consequential 

component of our independence is our ability to 

make our research products public and discuss 

our work with academic experts. This aspect of 

independence is crucial to creating credible testing 

results that can withstand reasonable scrutiny. To 

date, the SEC has chosen to condition release of 

our research on approval from the Commission. 

This de facto restriction risks allowing a future 

Commission to veto viable research projects that 

may conflict with preconceived beliefs or policy 

objectives, potentially undermining our ability to 

provide an independent voice for investors. 

A DIFFERENT APPROACH 

TO POLICYMAKING

Challenges in the SEC’s rulemaking process arise 

from a mix of cultural, institutional, and other 

issues, which may limit the SEC’s ability to adopt 

rules that can achieve the best outcomes at the 

lowest cost. In this section, we lay out a vision for 

reforming the policymaking process to develop 

policies more suitable to the needs of the investing 

public. Our fundamental view is that an evidencebased approach to institutional effectiveness is 

essential to the integrity of financial regulators 

and government itself. Because effective regulation 

is essential to functioning financial markets and 

protecting the investing public, it is important 

to collect the evidence needed to ensure that 

regulations serve the needs of the population 

and accomplish their intended purposes.
58 | OFFICE OF THE INVESTOR ADVOCATE

To achieve more effective policymaking, we believe 

that it is essential to build a collaborative work 

environment that brings intellectual diversity into 

the problem identification and idea generation 

process. Rule-writing groups need to work across 

not only office boundaries, but also professional 

boundaries so that social scientists and other 

professional groups are included in the process 

early and on equal footing. Equal footing is key, 

because if the range of possibility is circumscribed 

from the outset by a particular point of view, then 

the insights and perspectives potentially offered by 

diverse professional groups will likely have more 

limited impact. In this regard, multidisciplinary 

teams are often critical because the issues the 

SEC faces are complex. Disclosures, for example, 

have an important legal basis, but disclosure 

effectiveness also heavily depends on economic, 

psychological, and other factors. The equality 

of such diverse perspectives would be facilitated 

by an SEC that included more intellectual and 

professional diversity in leadership positions 

throughout the agency. 

Below we outline some steps and basic principles 

for what would be, in our view, an evidence-based 

rulemaking process (summarized in Figure 4): 

Step 1: Identify the problem.

All too often, policy develops from an idea about 

a certain action (e.g., delivering new information, 

delivering a program, introducing a new 

regulation). A policy action is a natural starting 

point, but it typically fixates the policy process 

on that particular solution, limiting inquiry on 

other potential options. It further leads to success 

being measured in terms of the implementation of 

the specific activity itself (i.e., the policy has been 

enacted, which is a success), rather than in terms of 

improved outcomes in society. 

In our view, policy development should instead 

strive for an articulation and understanding of the 

problem that requires government intervention. 

As indicated above, problem identification should 

involve a collaboration of professional groups 

working together in the same room on equal 

footing, including economists, social scientists, and 

other relevant professional groups, in addition to 

the attorneys who are traditionally rule-writers. 

Such a working group should ask critical questions 

such as: What are the social or economic challenges 

that individuals, markets, institutions, or other 

parties face? What is the market failure that 

requires government intervention? What is the 

source of that market failure? How are different 

groups in society affected by the problem? Where 

does our existing regulatory regime fail? 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 59

Figure 4: An Evidence-Based Rulemaking Policy Process

No

Step 1: 

Identify Problem

Step 2: 

Identify Outcomes

Step 3: 

Make Outcomes 

Measurable

Step 4: 

Develop Theory

of Change

Ready 

for Test?

Yes

Step 5: 

Iterate as Needed

Step 6: 

Test

Step 7: 

Iterate as Needed

Step 8: 

Make Results Public

Principles of Good Tests:

• Independence = Credibility

• Accept unfavorable results

• Consider outcomes broadly

• Avoid “disclosure default”

Step 2: Identify specific, concrete outcomes. 

No policy proposal can truly succeed without 

concrete details about desired outcomes—whether 

and how policymakers intend to affect individuals, 

firms, or markets. A new policy makes a change 

to the economic environment and will have 

consequences; if it does not, why consider a policy 

change at all? Identifying the intended shift in 

outcomes is essential to the success of any initiative. 

Yet, policymakers often overlook this critical stage 

in policy development. 

Consider the proximate and distal outcomes 

associated with a change in fee disclosures. The 

proximate outcome might be something along the 

lines of, “investors better understand the fees they 

pay for their investments.” But, understanding may 

be of limited use if it does not lead the investor to 

make better choices, so a distal outcome might 

be something like, “investors make better choices 

based on fees.” Importantly, outcomes can be 

distinguished from the policy change itself (e.g., 

requiring a new fee disclosure) and confirmation 
60 | OFFICE OF THE INVESTOR ADVOCATE

that the policy has been enacted (e.g., 98% of 

entities provide new disclosure or a new form 

filing with the SEC).

Step 3: Ensure outcomes are measurable.

An important attribute of policy outcomes is that 

they should be measurable. Measurable outcomes 

are essential so that their effectiveness can be 

determined using tools like the ones POSITIER has 

developed related to investor impact, or that DERA 

has at its disposal for other aspects of market 

impact. Measurable outcomes allow researchers 

to develop a framework for assessing how the 

policies may impact the public ex-ante, and also 

enable ex-post assessments of whether an initiative 

is effective in the field. To demonstrate the ability 

to measure certain outcomes, researchers might 

conduct a study that collects baseline data. Such a 

study also supports careful thinking about future 

data collection efforts to enable improved ex-post

evaluation of policy effectiveness. 

Outcomes studied should reflect both directly 

targeted outcomes and potential adverse side 

effects. For example, a new disclosure may induce 

better comprehension of risks than a status quo 

disclosure for those that read it, but it could also 

frighten skittish investors unnecessarily, leaving 

them unprepared for retirement. As such, outcomes 

should be focused enough to speak to the problem, 

but broad enough to account for unintended 

consequences of a policy.

Step 4: Articulate a convincing Theory 

of Change.

This is arguably the most crucial step in the 

process. A Theory of Change is a map from 

actions the policymaker is considering undertaking 

to the desired outcomes. Because policy and social 

phenomena are complex, a Theory of Change 

typically involves multiple intermediate steps 

between the actions and outcomes. Those steps 

should be grounded in social science theory and 

evidence, or else identified as assumptions that 

need to be checked. 

Figure 5 sketches a stylized theory of change with 

two candidate policies. For illustrative purposes, 

the diagram is highly simplified as compared 

with a proper theory of change. For each of the 

two candidate policies, the theory traces the path 

that the policy action takes through investors and 

markets, along with assumptions, moderating 

factors, and so on that ultimately lead to the 

proximate and distal outcomes. A theory of change 

carefully outlines assumptions and places where 

Figure 5: Stylized Theory of Change

Potential 

Policy 1

Actions 

Taken by 

Investors/

Firms

Intermediate 

Responses

Distal 

Outcome(s)

Potential 

Policy 2

Actions 

Taken by 

Investors/

Firms

Intermediate 

Responses

Proximate 

Outcome
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 61

evidence is available and more evidence is needed, 

and—if constructed properly—naturally leads 

policymakers to a framework that helps answer 

outstanding questions, identify competing policy 

proposals, and provides a basis for investor testing. 

As a concrete example, suppose policymakers are 

considering a change that would require firms 

to disclose new information on risky financial 

products. The desired outcome may be to limit 

the extent to which less experienced investors lose 

money in those products. A Theory of Change 

analysis asks: what has to happen for such an 

action to translate into the desired result? For 

example, an investor in this case would need to 

recognize that a new disclosure has been issued 

(and perhaps distinguish it from junk mail); open 

and read the disclosure; understand the terms used 

in the disclosure; comprehend the information; 

understand the implications of the disclosure; 

perhaps decide to change their investment 

strategy, and so forth. Often, investors may need 

to undertake an economically costly search for 

further information, perhaps exploring alternative 

investment options. To make a change in their 

financial mix, they might pay for financial advice 

to better understand risks or issues, and then pay 

the transaction costs to sell one investment and buy 

another. Finally, there is always the chance that 

they will inadvertently pick an equally problematic 

investment—perhaps one that also suffers from 

a lack of adequate disclosure. Going back to the 

simplest, earliest steps of this Theory of Change—

the assumption that the mailed disclosure is opened 

and read—if the existing data suggests that 44 

percent of junk mail is discarded unopened,259 then 

the Theory of Change for this policy may already 

be on shaky grounds.

A Theory of Change should have rigorous 

underpinnings in social science and legal theory, 

but should be relatively concise in its presentation: 

each theory can typically be summarized with a 

box-and-arrow cause-and-effect diagram on a 

few pages. Construction should typically work 

backwards from intended outcomes to policy 

action. Working backwards creates a natural 

tendency to consider alternative policies as the 

Theory of Change is developed. 

At an institution like the SEC, there will be a 

natural tendency to have causal chains that stop 

short of actionable change and end at something 

along the lines of, “investors are informed.” A 

narrow focus on “informed” investors often 

leads to policymaking that relies primarily on 

disclosures—and a tendency to default to solving 

all problems through new or different disclosures 

(we refer to this as the “disclosure default”). We 

would argue that in most instances focusing only 

on disclosure is incomplete. One issue is that 

this stance ignores the fact that there are often 

significant obstacles that inhibit an investor from 

turning information into action (for example, 

the search costs of identifying and evaluating 

alternatives, or an understanding of the exact 

implications of disclosed legal nuances), and those 

challenges need to be included in the policymaking 

calculus. In addition, even if an investor is aware 

of the existence of the problem, they may not 

have a grasp of the magnitude of its implications, 

and they may not know how to identify a better 

option. The final outcome should be thought of in 

terms of an observable change for institutions or 

markets, and ultimately for investors. From our 

Office’s perspective, policymakers should take on 

the tough task of developing policies that advance a 

particular cause or goal, not simply rely on abstract 

or untested assumptions that a policy will work. 
62 | OFFICE OF THE INVESTOR ADVOCATE

Note that policy development experts do not 

necessarily need to solve every issue in the Theory 

of Change for a policy to be viable, but they do 

need to be cognizant of potential obstacles so that 

they can identify the most promising solutions. 

Even in instances of a shaky connection between 

actions and outcomes, the Theory of Change is 

extraordinarily valuable because it provides a 

framework for social scientists, policymakers, and 

the public to have an honest discussion about how 

a proposal might work and any possible alternative 

policy options. Alternatives almost always exist 

and should be considered because policies are 

costly to implement and are difficult to get right. 

If the initial causal chain is built on shaky footing, 

working backwards from intended outcomes will 

help in the identification of additional, potentially 

more effective, policy options. Perhaps an investor 

awareness bulletin achieves the same outcome 

with a lower burden for firms and investors, or 

perhaps a certain type of product should not 

be offered to retail investors. If the problem is 

that investors do not read their mail, or cannot 

distinguish it from advertising material, providing 

more mail might not be an answer. If people do not 

understand the technical terms used in disclosures, 

then other policy levers might be worth pursuing. 

A disciplined approach to formulating a Theory 

of Change provides the framework for investor 

testing to quantify the effects of various potential 

pathways and determine the most effective 

approach to achieving the desired outcomes. 

While we have articulated an example in the 

context of investor concerns, this is not simply 

a matter of pursuing investor interests. This 

approach will be beneficial to all stakeholders. If 

there is a tension between, for example, investor 

interests and business interests from a particular 

policy, clearly articulating a coherent Theory of 

Change is vital because it also provides the basis 

for thinking through and quantifying the costs 

and benefits of a proposal. If a given proposal 

costs billions of dollars to implement and only 

helps a handful of investors, perhaps other options 

should be considered. POSITIER seeks to develop 

sensible and actionable policies that make sense for 

stakeholders while enhancing investor protection. 

Unfortunately, we are not aware of any SEC rule 

proposal that has been framed around a Theory of 

Change. Instead, rule texts are lengthy and filled 

with legal nuance. Although some building blocks 

may be embedded in the hundreds of pages of 

language accompanying a rule proposal, the lack 

of a concise articulation that can guide others to 

a basic understanding of how the policy change 

is expected to work makes collaboration and 

discussion extremely difficult. Further, it is much 

more costly for individual investors to understand 

the key elements of the proposal and weigh in if 

they choose. We recognize that there will still be 

obstacles to this kind of retail investor participation 

in the notice and comment process, but describing 

the Theory of Change would alleviate the 

requirement of reading a 1,000-page proposal. 

It also would set the stage for us to pursue more 

proactive engagements with investors by using 

high-quality surveys and other research tools to 

inform the policymaking process, rather than 

relying solely upon the public comment process. 

Introducing a Theory of Change-focused approach 

to policy development would be a quantum 

leap for the SEC, and one that would require 

long-term cultural shifts along with mandates from 

leadership. To be most effective, it should be the 

starting point in policy development, rather than 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 63

something that is retrofitted after a policy has been 

finalized. Speaking from personal experience over 

several decades working on policy development 

and evaluation in business, consulting, and 

government service, it seems that the fundamental 

problem hindering effectiveness of a policy or a 

coherent evidence program is often a nonexistent 

or ill-conceived Theory of Change. 

Step 5: Iterate on prior steps until 

things make sense. 

To be effective, policymaking should be 

approached with humility and intellectual 

curiosity, while maintaining a focus on urgency 

that is commensurate with the nature of the 

problem. It is difficult to make serious progress 

towards addressing economic and social ills if one 

begins with ideological beliefs or affiliations that 

circumscribe policy solutions to those that fit a 

given ideology or brand, while ignoring lower-cost, 

more effective and less-burdensome approaches that 

would achieve the same or better results with fewer 

resources. Similarly, it is a serious danger to become 

overly wedded to one potential solution and only 

collect evidence to support that solution rather 

than to determine if that solution is in fact the most 

viable. In either case, doing so likely leads to less 

effective government, with potential negative effects 

on the public’s trust in regulatory institutions.

Step 6: Test proposals.

Evidence should provide insights to guide 

policymakers to this point, but almost invariably 

there should be new questions that arise at this 

stage that call for further data generation or 

inquiry. Policy options that have been identified 

may require tests to assess their feasibility. 

Generating specific insights to test a particular 

proposal is almost always necessary because either 

the extant research does not translate directly 

to the exact problem, or the world simply may 

have changed since the research was published. 

Seemingly minor variations on design may 

substantially affect user experiences and have 

different consequences for the success of the policy. 

In fact, in many cases, we recommend not only 

initial small-scale testing, but we also strongly 

urge field-testing or pilot projects to validate that 

small-scale tests translate directly to the field. With 

POSITIER, we have developed a unique toolkit 

for conducting testing rapidly and iteratively in 

a way that can provide insights. The goal need 

not be perfection—too much iteration can cause 

unnecessary delays with limited benefits. Yet 

even a small amount of testing can often provide 

enormous benefits. Too often at the SEC and 

other agencies, it is the conclusion that it is not 

worthwhile to test at all because policymakers do 

not have the time or money. Such reluctance to test 

can be interpreted another way: that it is better 

to impose potentially adverse consequences on 

stakeholders rather than engaging in the research 

that would help to identify and mitigate such 

problems. Put bluntly, forgoing testing may result 

in significant costs to stakeholders who must bear 

the consequences of ill-conceived policies.

With POSITIER, we have made the process much 

easier, leaving little excuse in terms of time or costs. 

In the past, a single test often took three to five years 

to conduct at budgets of several million dollars, 

which meant leadership was often understandably 

unenthusiastic about testing. POSITIER upends 

this calculus completely because we have developed 

rapidly deployable and cost-effective data collection 

tools that have generated data and research results 

quickly. Within the past year, we were prepared to 

put a unique high-frequency survey into the field 
64 | OFFICE OF THE INVESTOR ADVOCATE

in a little over a week, and on numerous other 

occasions we conducted data collection and analysis 

on highly abridged timeframes. The problems that 

POSITIER cannot solve are a lack of interest among 

decision-makers and a lack of adequate resourcing 

to our testing initiative. With a greater commitment 

to testing and commensurate cultural change, 

testing can be integrated into the Commission’s 

ethos at all levels, allowing it to provide value and 

get policy right.

Step 7: Repeat and revisit steps 1-6 as needed.

A learning organization is one “where people 

continually expand their capacity to create the 

results they truly desire, where new and expansive 

patterns of thinking are nurtured, where collective 

aspiration is set free, and where people are 

continually learning how to learn together.”260

We believe the SEC should always aspire to become 

more of a learning organization. This does not 

mean that policy should wait until all research is 

completed before taking action. Rather, it suggests 

that the SEC should be continually evaluating 

and reassessing the regulatory environment and 

its own approaches. 

In this vein, it is important to recognize the 

importance of accepting unfavorable results. 

To faithfully develop good policies, one needs a 

readiness to ask questions and develop testable 

hypotheses. The possibility is always present that 

such testing might demonstrate a policy’s lack of 

effect, or that the benefits do not outweigh the 

costs. To get to better policy, it is crucial to ask the 

right questions and be accepting of answers that 

contradict one’s beliefs or initial assumptions, and 

go back to the drawing board as necessary.

Step 8: Make the results public.

As important as it is to conduct research and ask 

viable questions, our Office must make research 

public unless there is a pressing confidentiality 

reason for secrecy (which should be the exception 

rather than the norm). The Office of Evaluation 

Science, an evaluation group at the General 

Services Administration, has committed that it 

will share “findings from every completed 

evaluation” to increase transparency and ensure 

that learning can occur.261 We would prefer a 

similar policy at the SEC.

Testing relies crucially on credibility, so that results 

are believable, and public-facing results coupled 

with the independence of research is essential to 

that credibility. The Investor Advocate’s role as an 

independent office enables us to pursue investorfocused research with the intention of promoting 

investor interests, and it creates more favorable 

conditions for credible testing than would be the 

case if investor testing were to be conducted in 

other parts of the SEC that may have institutional 

incentives for research results to turn out a certain 

way. Our independence allows us to make sure that 

tough questions, methodological complexities, and 

investor interests are not ignored. 

The above steps articulate a framework for 

evidence-based policy development. For some, these 

steps will seem logical, perhaps even obvious. For 

others, they will seem new and may run counter to 

decades of tradition. We strongly believe that an 

approach of this kind would lead to better policies 

that protect investors, maintain market stability, 

and promote capital formation. 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 65

CONCLUDING COMMENTS

POSITIER was developed within the vision and 

framework articulated in a host of executive 

orders, OMB guidance, legislation, and other 

directives of recent years that were intended 

to enhance overall policy effectiveness. This 

year’s Report on Activities has attempted to 

provide an overview of our successes, while also 

articulating headwinds that our Office faces, 

including institutional challenges that impede the 

development or effective use of research. We have 

also outlined revised processes that can make 

the SEC more effective in its mission. We hope 

these suggestions are insightful and can lead to 

an environment that would truly benefit investors 

and other stakeholders and help the SEC fulfill 

its mission to protect investors; maintain fair, 

orderly, and efficient markets; and facilitate 

capital formation. We look forward to continuing 

to build a rigorous, investor-focused research 

program in FY 2021 and beyond. 

Brian Scholl, Ph.D.

Principal Economic Advisor

Chief Architect, POSITIER Investor 

Testing Initiative 

Chief Evaluation Officer

Office of the Investor Advocate

REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 67

Congress established the Investor Advisory 

Committee 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.262

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.263

Exchange Act Section 39 authorizes the IAC 

to submit findings and recommendations for 

review and consideration by the Commission.264

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.265

While the Commission must respond to the IAC’s 

recommendations, it is under no obligation to 

agree with or act upon the recommendations.266

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.267 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.268 Therefore, any such 

initiatives are not reflected in this Report.

SUMMARY OF 

INVESTOR ADVISORY COMMITTEE 

RECOMMENDATIONS AND 

SEC RESPONSES
68 | OFFICE OF THE INVESTOR ADVOCATE

Topic Date IAC Recommendation SEC Response

Accounting 

and Financial 

Disclosure269

May 21, 2020 Reconsider a 2020 rulemaking 

proposal 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.270 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.271 On November 19, 

2020, the Commission adopted the 

amendments to Regulation S-K, largely 

as proposed.272

ESG Disclosure273 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 

Effectiveness274

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.275 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 

Proposals276

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.277

On September 23, 2020, the 

Commission adopted the amendments 

to Exchange Act Rule 14a-8 without 

republishing them for further 

comment.278
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 69

Topic Date IAC Recommendation SEC Response

Exchange Rebate 

Tier Disclosure279

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.

Proxy Plumbing280 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.

Pending.

Structural Changes 

to the US Capital 

Markets Regarding 

Investment 

Research in a 

Post-MiFID II 

World281

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, 2023.282

Human Capital 

Management 

Disclosure283

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.284
70 | OFFICE OF THE INVESTOR ADVOCATE

Topic Date IAC Recommendation SEC Response

Transaction Fee 

Pilot for NMS 

Stocks285

Sept. 13, 2018 Adopt a proposed Transaction Fee 

Pilot with the following conditions: 

(1) include a “no rebate” bucket; 

(2) permit companies to opt out 

of the pilot; and (3) consider 

consolidating Test Groups 1 and 2.

On December 19, 2018, Commission 

approved the adoption of new Rule 

610T of Regulation NMS to conduct a 

Transaction Fee Pilot in NMS stocks.286

On June 16, 2020, following a lawsuit 

filed by several exchanges, the 

transaction fee pilot was struck down in 

the U.S. Circuit Court of Appeals for the 

District of Columbia.287

Financial 

Support for Law 

School Clinics 

that Support 

Investors288

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. 

Dual Class and 

Other Entrenching 

Governance 

Structures in Public 

Companies289

Mar. 8, 2018 Direct Division of Corporate 

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.

Mutual Fund Cost 

Disclosure290

Apr. 14, 2016 Enhance investors’ understanding 

of mutual fund costs and the 

impact of those costs on total 

accumulations over time. Provide 

standardized disclosure of actual 

dollar costs on customer account 

statements.

On June 5, 2018, the Commission 

published a request for comment on 

ways to enhance the delivery, design, 

and content of fund disclosures, 

including shareholder reports and 

prospectuses. The request for comment 

solicited investor feedback on fund 

fees and expenses, and it included 

other questions related to the IAC 

recommendation (e.g., dollar vs. 

percentage disclosure, disclosure within 

account statements, etc.).291

On Oct. 30, 2018, the Commission 

proposed amendments to help investors 

make informed investment decisions 

regarding variable annuity and variable 

life insurance contracts.292 On March 

11, 2020, the Commission adopted the 

amendments largely as proposed.293
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 71

Topic Date IAC Recommendation SEC Response

Accredited 

Investor 

Definition294

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.295 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 

Results296

Oct. 9, 2014 Ensure impartiality in the disclosure 

of preliminary voting results.

Pending. 

Universal Proxy 

Ballots297

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.298 The 

rulemaking has not been finalized.
72 | 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 2020 (June 27, 2019) 

[hereinafter Report on Objectives, Fiscal Year 2020], 

https://www.sec.gov/files/sec-office-investor-advocatereport-on-objectives-fy2020.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 15 U.S.C. § 78d(g)(6)(B).

7 Congressional Review Act, 5 U.S.C. § 801(b), 

providing for Congressional disapproval of rules and 

regulations by joint resolution.

8 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) [hereinafter Rule 14a-8 Amendments 

Adopting Release]. See also Procedural Requirements 

and Resubmission Thresholds under Exchange Act 

Rule 14a-8, Exchange Act Rel. No. 87458, 84 Fed. 

Reg. 66,458 (Dec. 4, 2019) [hereinafter Rule 14a-8 

Amendments Proposing Release]. 

9 See, e.g., Letter from Kenneth A. Bertsch, Executive 

Director, and Jeffrey P. Mahoney, General Counsel, 

Council of Institutional Investors (Jan. 20, 2020), SEC 

File No. S7-23-19, https://www.sec.gov/comments/

s7-23-19/s72319-6729684-207400.pdf; Letter from 

Lucian A. Bebchuk, James Barr Ames Professor of Law, 

Economics, and Finance, Harvard Law School (Feb. 

3, 2020), SEC File No. S7-23-19, https://www.sec.gov/

comments/s7-23-19/s72319-6744343-207928.pdf. 

10 See Rule 14a-8 Amendments Proposing Release, supra

note 8, at 66,477 & Fig. 1.

11 See Rule 14a-8 Amendments Adopting Release, supra

note 8, at 70,257-70,258.

12 See Rule 14a-8 Amendments Adopting Release, supra

note 8, at 70,267.

13 See Rule 14a-8 Amendments Adopting Release, supra

note 8, at 70,269-70,270 (citing letter from Council of 

Institutional Investors et al. dated Sept. 4, 2020)

14 See Rule 14a-8 Amendments Adopting Release, supra

note 8, at 70,274 (counting all Russell 3000 Index 

constituents for an upper-bound cost-savings estimate).

15 See Memorandum from S.P. Kothari, Chief Economist, 

regarding the analysis of data provided by Broadridge 

Financial Solutions, Inc. (Aug 14, 2020), at 8, https://

www.sec.gov/comments/s7-23-19/s72319-7645492-

222330.pdf

16 See Exemptions from the Proxy Rules for Proxy Voting 

Advice, Exchange Act Release No. 89372, 85 Fed. 

Reg. 55,082 (Sept. 3, 2020) [hereinafter Proxy Voting 

Advice Adopting Release]. See also Amendments to 

Exemptions from the Proxy Rules for Proxy Voting 

Advice, Exchange Act Release No. 87457, 84 Fed. Reg. 

66,518 (Dec. 4, 2019) [hereinafter Proxy Voting Advice 

Proposing Release. 

17 See Supplement to Commission Guidance Regarding 

Proxy Voting Responsibilities of Investment Advisers, 

Investment Advisers Act Rel. No. 5547, 85 Fed. Reg. 

55,155 (Sept. 3, 2020).

18 See Proxy Voting Advice Proposing Release, supra note 

16, at 66,520 (Dec. 4, 2019) (citing concerns about 

“the accuracy and soundness of the information and 

methodologies used to formulate proxy voting advice 

businesses’ recommendations”).

19 See Proxy Voting Advice Adopting Release, supra

note 16, at 55,107 (“Indeed, the principle that more 

complete and robust information and discussion 

leads to more informed investor decision-making, and 

therefore results in choices more closely aligned with 

investors’ interests, has shaped our federal securities 

laws since their inception and is a principal factor in 

the Commission’s adoption of these amendments. 

Regardless of the incidence of errors in proxy voting 

advice, we believe it is appropriate to adopt reasonable 

measures designed to promote the reliability and 

completeness of information available to investors 

and those acting on their behalf at the time they make 

voting determinations.”).

20 The concerns cited about proxy voting advice 

businesses being not sufficiently transparent about 

the methodologies, models, and formulas used to 

generate recommendations—all came from the issuer 

community rather than from clients of proxy voting 

advice businesses and investors. See Proxy Voting 

Advice Adopting Release, supra note 16, at 55,120 & 

n.438 (Sept. 3, 2020).
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 73

21 See Jonathan Macey, Behind the SEC’s War on Freedom 

of Speech, Bloomberg Opinion, Mar. 2, 2020, https:

www.bloombergquint.com/gadfly/sec-s-new-rulesundermine-shareholder-rights (“It is indeed strange 

that the SEC, whose mission is to protect investors, 

is putting its thumb forcefully on the scale in favor of 

companies and against investors. Its proposal would 

land a one-two punch against corporate democracy 

and freedom of speech. Not only is the commission 

demonstrating a deep hostility for the value of dissent. 

It is also abandoning the idea that the free and open 

exchange of competing views will result in the triumph 

of good investment policies over inferior ones.”). 

22 See 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. 

23 See Proxy Voting Advice Adopting Release, supra note 

16, at 55,132 (Sept. 3, 2020).

24 See Facilitating Capital Formation and Expanding 

Investment Opportunities by Improving Access to 

Capital in Private Markets, Securities Act Rel. No. 

10884 (approved Nov. 2, 2020), https://www.sec.gov/

rules/final/2020/33-10844.pdf. 

25 In a 2019 concept release, the Commission provided 

statistical data on this shift: “In 2018, registered 

offerings accounted for $1.4 trillion of new capital 

compared to approximately $2.9 trillion that we 

estimate was raised through exempt offering channels.” 

Concept Release on Harmonization of Securities 

Offering Exemptions, Securities Act Rel. No. 10649, 

84 Fed. Reg. 30,460, 30,465 (June 26, 2019). 

26 See Written Testimony of Elisabeth de Fontenay, 

Professor of Law, Duke University, Before the U.S. 

House of Representatives, Committee on Financial 

Services, Subcommittee on Capital Markets, Securities, 

and Investments, 116th Cong. (Sept. 11, 2019), https://

financialservices.house.gov/uploadedfiles/hhrg-116-

ba16-wstate-defontenaye-20190911.pdf (explaining 

the growth in private capital raising at the expense of 

public capital markets). See also Written Testimony 

of Renee M. Jones, Associate Dean for Academic 

Affairs and Professor of Law, Boston College Law 

School, Before the U.S. House of Representatives, 

Committee on Financial Services, Subcommittee on 

Capital Markets, Securities, and Investments (Sept. 9, 

2019), https://financialservices.house.gov/uploadedfiles/

hhrg-116-ba16-wstate-jonesr-20190911.pdf (same).

27 See, e.g., Letter from Christopher Gerold, NASAA 

President (June 1, 2020) (“NASAA opposes a 30-day 

integration safe harbor because we believe that such a 

brief time period would render the integration doctrine 

a nullity.”), https://www.nasaa.org/wp-content/

uploads/2020/06/NASAA-Harmonization-CommentLetter-060120.pdf. 

28 Id. (“Issuers would have tremendous freedom to game 

the 30-day safe harbor, undermining the integration 

doctrine, because the SEC cannot possibly police 

compliance with it . . . .”)

29 See Facilitating Capital Formation and Expanding 

Investment Opportunities by Improving Access to 

Capital in Private Markets, Securities Act Rel. No. 

10763, 85 Fed. Reg. 17,956, 18,004 (Mar. 31, 2020) 

(“Expanded access to exempt securities could enable 

non-accredited investors to allocate capital across a 

broader range of opportunities.”); Facilitating Capital 

Formation and Expanding Investment Opportunities 

by Improving Access to Capital in Private Markets, 

Securities Act Rel. No. 10884 (approved Nov. 2, 2020), 

page 197, https://www.sec.gov/rules/final/2020/33-

10844.pdf (“Greater flexibility under the amendments 

may enable non-accredited investors to optimize 

their capital allocation through incrementally greater 

access to exempt offering investment opportunities.”). 

See also Concept Release on Harmonization of 

Securities Offering Exemptions, Securities Act Rel. No. 

10649, 84 Fed. Reg. 30,460, 30,467 (June 26, 2019) 

(contemplating allowing more non-accredited investors 

into exempt offerings in order to expand access to 

attractive investment opportunities in the exempt 

market). 

30 See, e.g., Letter from Erik Gerding, Professor of Law 

and Wolf-Nichol Fellow, University of Colorado Law 

School, et al. (Sept. 24, 2019), SEC File No. S7-08-19, 

https://www.sec.gov/comments/s7-08-19/s70819-

6193340-192501.pdf. 

31 See Use of Derivatives by Registered Investment 

Companies and Business Development Companies, 

Investment Company Act Release No. 34084 (adopted 

Oct. 28, 2020), https://www.sec.gov/rules/final/2020/

ic-34084.pdf [hereinafter Derivatives Rule]; Allison 

Herren Lee, Commissioner, SEC, Public Statement: 

Statement on the Final Rule on Funds’ Use of 

Derivatives (Oct. 28, 2020), https://www.sec.gov/

news/public-statement/lee-derivatives-2020-10-28

[hereinafter Lee Derivatives Statement]; Caroline A. 

Crenshaw, Commissioner, SEC, Public Statement: 

Statement on the Final Rule on Funds’ Use of 

Derivatives (Oct. 28, 2020), https://www.sec.gov/news/

public-statement/crenshaw-derivatives-2020-10-28

[hereinafter Crenshaw Derivatives Statement].

32 See Press Release, SEC, SEC Adopts Modernized 

Regulatory Framework for Derivatives Use by 

Registered Funds and Business Development 

Companies, 2020-269 (Oct. 28, 2020), available at 

https://www.sec.gov/news/press-release/2020-269. 

33 See Use of Derivatives by Registered Investment 

Companies and Business Development Companies; 

Required Due Diligence by Broker-Dealers and 

Registered Investment Advisers Regarding Retail 

Customers’ Transactions in Certain Leveraged/Inverse 

Investment Vehicles, Investment Company Act Release 

No. 33704, 85 Fed. Reg. 4,446 (proposed Nov. 25, 

2019) [hereinafter Proposed Derivatives Rule].
74 | OFFICE OF THE INVESTOR ADVOCATE

34 See id. at section II.D.2.a.

35 See id. at section II.D.2.b.

36 See id. at section II.D.2.a.

37 See id. at section II.G.2.

38 See Exchange-Traded Funds, Securities Act Rel. 

No. 10695, Investment Company Act Release No. 

33646, 84 Fed. Reg. 57,162 (adopted Sept. 25, 2019) 

[hereinafter ETF Rule] at section II.A.3.

39 See, e.g., Jay Clayton, Chairman, SEC, Public 

Statement: Taking Significant Steps to Modernize Our 

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

sec.gov/news/public-statement/clayton-2019-09-26-

three-rulemakings (“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.”). We note that 

the Derivatives Rule amends the ETF Rule to include 

leveraged and inverse ETFs within its scope before 

the Commission has addressed the investor protection 

concerns that have been raised regarding these 

products. See Derivatives Rule at section II.D.6. 

40 See, e.g., SEC Charges Wells Fargo In Connection 

With Investment Recommendation Practices, Press 

Release 2020-43 (Feb. 27, 2020), https://www.sec.

gov/news/press-release/2020-43; In the Matter of 

Wells Fargo Clearing Services, LLC, and Wells Fargo 

Advisors Financial Network, LLC, Exchange Act 

Release No. 88295 (Feb. 27, 2020) [hereinafter Wells 

Fargo Order] (The order finds that some Wells Fargo 

brokers and advisers did not fully understand the risk 

of losses these complex products posed when held 

long term. As a result, certain Wells Fargo investment 

advisers and registered representatives made unsuitable 

recommendations to certain clients to buy and hold 

single-inverse ETFs for months or years. According to 

the order, a number of these clients were senior citizens 

and retirees who had limited incomes and net worth, 

and conservative or moderate risk tolerances.); In the 

Matter of Morgan Wilshire Securities Inc., Exchange 

Act Release No. 89979 (Sept. 24, 2020), https://www.

sec.gov/litigation/admin/2020/34-89979.pdf (“During 

the relevant period, certain Morgan Wilshire registered 

representatives recommended that a number of their 

retail customers buy inverse ETFs without regard to 

holding periods. Based on these recommendations, 

Morgan Wilshire customers purchased and held 

these inverse ETFs for longer than a single day, and 

in many cases, months, or years. Those registered 

representatives did not adequately understand all of the 

features and risks of inverse ETFs.”).

41 See, e.g., Chris Flood, SEC Decision on Leveraged ETFs 

Sparks Concern for Retail Investors, ft.com (Oct. 29, 

2020), https://www.ft.com/content/f607fc5d-8b10-

4c09-9274-d040e617caa6 (noting that, despite the 

single-day investment horizon for leveraged/inverse 

ETFs, “about a quarter of the investors in some 

popular leveraged ETFs held on to these positions 

for more than a month while 8 percent owned their 

holdings for three months.”).

42 See Derivatives Rule, supra note 31, at section II.D.2.c.

43 See id. at section II.F.5.

44 See Lee Derivatives Statement, supra note 31.

45 See Derivatives Rule, supra note 31, at section 

II.D.2.b.ii.

46 See Lee Derivatives Statement, supra note 31. See 

also Crenshaw Derivatives Statement, supra note 31 

(“[T]oday’s rule fails to provide a meaningful limit on 

registered funds’ ability to take on leverage.).

47 See Derivatives Rule, supra note 31, at section II.F.

48 See Request for rulemaking on environmental, 

social, and governance (ESG) disclosure, SEC File 

No. 4-730 (Oct. 1, 2018), https://www.sec.gov/

rules/petitions/2018/petn4-730.pdf (a petition for 

rulemaking to the SEC on standardized disclosure 

related to environmental, social, and governance issues, 

including climate disclosure, signed by investors and 

organizations representing more than $5 trillion in 

assets under management).

49 See 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 [hereinafter 2018 

ESG Rulemaking Petition] 

50 See 2018 ESG Rulemaking Petition, supra note 48, 

at 13 (noting that the 2010 Commission guidance 

regarding disclosure related to climate change “has not 

been successful in producing consistent, comparable, 

high-quality information concerning climate change 

risks and opportunities”); Jill E. Fisch, Making 

Sustainability Disclosure Sustainable, 50 Env. L. Rep. 

10638, 10639 (2020) (“Climate change disclosure 

remains limited due in large part to the vagueness of the 

disclosure obligation and issuers’ ability to determine, 

in their judgment, that a given issue is not material 

enough to warrant disclosure.”).

51 See Business Roundtable v. SEC, 905 F.2d 406 (D.C. 

Cir. 1990)
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 75

52 Holding Foreign Companies Accountable Act, S. 945 

(116th Congress, 2019-2020), https://www.congress.

gov/bill/116th-congress/senate-bill/945. See Congress 

Clears Bill to Ban Trading in Chinese Firms that 

Thwart U.S. Auditors, Politico (Dec. 2, 2020), https://

www.politico.com/news/2020/12/02/congress-clearsbill-to-ban-trading-in-chinese-firms-that-thwart-usauditors-442362. 

53 See, e.g., Dual Class Stock, Counsel for Institutional 

Investors, https://www.cii.org/dualclass_stock (Nov. 24, 

2020). 

54 See Nasdaq to Advance Diversity through New 

Proposed Listing Requirements (Dec. 1, 2020), 

https://www.nasdaq.com/press-release/nasdaq-toadvance-diversity-through-new-proposed-listingrequirements-2020-12-01. 

55 Improving Corporate Governance Through Diversity 

Act of 2019, H.R. 5084 (116th Congress, 2019-2020), 

https://www.congress.gov/bill/116th-congress/

house-bill/5084. 

56 See Allison Herren Lee, Commissioner, SEC, The 

Promise of Structured Data: True Modernization of 

Disclosure Effectiveness (Nov. 17, 2020), https://www.

sec.gov/news/speech/lee-structured-data-2020-11-17

(also advocating for machine-readable disclosures).

57 Financial Transparency Act of 2019, H.R. 4476, 

(116th Congress, 2019-2020), https://www.congress.

gov/bill/116th-congress/house-bill/4476?q=%7B%22

search%22%3A%5B%22HR+4476%22%5D%7D

&r=1&s=1 (co-sponsored by Reps. Carolyn Maloney 

(D-NY) and Patrick McHenry (R-NC)).

58 See Exec. Order No. 13,642, Making Open and 

Machine Readable the New Default for Government 

Information (2013); OMB Memorandum 

M-13-09 Fiscal Year 2013 PortfolioStat Guidance: 

Strengthening Federal IT Portfolio Management; OMB 

Memorandum M-13-13, Open Data Policy-Managing 

Information as an Asset; OMB Memorandum M-19-15 

Improving Implementation of the Information Quality 

Act; OMB Memorandum M-19-18, Federal Data 

Strategy. 

59 See Foundations for Evidence-Based Policymaking Act 

of 2018, Pub. L. No. 115-435, § 201, 132 Stat. 5529, 

5534-5544 (2019) (with the OPEN Government Data 

Act beginning at Section 202).

60 As formal clinic names vary, for purposes of this 

Report, the law school securities law, securities 

arbitration, and investor protection focused clinics 

referenced herein are referred to as investor advocacy 

clinics or clinics.

61 Press Release, SEC, SEC Announces Pilot Securities 

Arbitration Clinic to Help Small Investors—Levitt 

Responds to Concerns Voiced at Town Meetings, 

97-101 (Nov. 12, 1997), available at https://www.sec.

gov/news/press/pressarchive/1997/97-101.txt.

62 See Ex-Qwest Chairman Settles IPO suit, CNN Money 

(May 12, 2003), https://money.cnn.com/2003/05/13/

news/spitzer_ipo/index.htm.

63 Press Release, Univ. of Pittsburgh, Pitt Law School 

to Open Securities Arbitration Clinic (May 2, 2011), 

http://www.news.pitt.edu/news/pitt-law-school-opensecurities-arbitration-clinic.

64 See FINRA Investor Education Foundation, Press 

Release, FINRA Foundation Announces $1 Million 

in Grants to Fund Securities Advocacy Clinics (Jan. 

28, 2010), https://www.finra.org/media-center/

news-releases/2010/finra-foundation-announces-1-

million-grants-fund-securities-advocacy; see also Jill 

Gross, The Improbable Birth and Conceivable Death 

of the Securities Arbitration Clinic, 15 Cardozo J. 

Conflict Resol. 597, 604 (2014) (“As a result of thes

grants, clinics opened at other law schools such as 

Florida International University, Howard University, 

Suffolk University, and Pepperdine in 2009; at Seton 

Hall University and University of Miami in 2010; and 

at Georgia State and Michigan State University in 

2012.”).

65 From 1997 to 2012, 24 investor advocacy clinics were 

established, and 22 were still in operation in 2012: 

twelve in New York (Pace University Law School, 

Fordham University School of Law, Brooklyn Law 

School, SUNY Buffalo Law School, Benjamin N. 

Cardozo School of Law, Cornell University School of 

Law, Hofstra University School of Law, New York Law 

School, St. John’s University School of Law, Syracuse 

University College of Law, and Touro Law Center); two 

in California (University of San Francisco School of 

Law and Pepperdine University School of Law), two in 

Florida (Florida International University School of Law 

and University of Miami School of Law); and one each 

in the District of Columbia (Howard University School 

of Law), Georgia (Georgia State University College of 

Law), Illinois (Northwestern University School of Law), 

Massachusetts (Suffolk University School of Law), 

Michigan (Michigan State University School of Law), 

New Jersey (Seton Hall University School of Law), and 

Pennsylvania (University of Pittsburgh School of Law). 

Clinics were also established, and subsequently closed, 

at Albany Law School (2004 – 2005) and Duquesne 

Law School (2001– 2011). See Gross, supra note 64, at 

602-603. 
76 | OFFICE OF THE INVESTOR ADVOCATE

66 As of the close of the Reporting Period, there were 

twelve clinics in active operation: 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). 

67 See SEC, Recommendation of the Investor Advisory 

Committee Subcommittee of the Whole: Financial 

Support for Law School Clinics that Support Investors, 

(Mar. 8, 2018), https:///www.sec.gov/spotlight/

investor-advisory-committee-2012/iac030818-lawclinics-recommendation.pdf. To date, the Commission’s 

response to this Recommendation is pending.

68 Id. 

69 Report 116-122 at 82, https://www.congress.gov/116/

crpt/hrpt122/CRPT-116hrpt122.pdf. This report 

was submitted by Congressman Quigley (D-IL-05) 

to accompany H.R. 3351, Financial Services and 

General Government Appropriations Bill, 2020, 

https://www.congress.gov/bill/116th-congress/

house-bill/3351/text. The bill, incorporated in the 

Consolidated Appropriations Act, 2020, became law 

on December 20, 2019. Pub. L. No. 116-93, 133 Stat. 

2317, https://www.congress.gov/116/plaws/publ93/

PLAW-116publ93.pdf (2019).

70 Id.

71 Id. See also https://docs.house.gov/

billsthisweek/20191216/BILLS-116HR1158SAJES-DIVISION-C.pdf, at 37. The Joint Explanatory 

Statement that passed along with the Act clarified that 

“[u]nder the agreement, reporting directives addressed 

to the SEC’s operating divisions are instead addressed 

to the SEC.”

72 See IRS Restructuring and Reform Act of 1998, Pub. 

L. No. 105-206, § 3601, 112 Stat. 685, 774 (1998), 

26 U.S.C. § 7526, and Low Income Taxpayer Clinics, 

2018 Grant Application Package and Guidelines 

(2018), at 3-5, https://www.irs.gov/pub/irs-pdf/p3319.

pdf. 

73 See Low Income Taxpayer Clinics, 2018 Grant 

Application Package and Guidelines (2018), at 3-5, 

https://www.irs.gov/pub/irs-pdf/p3319.pdf.

74 See supra note 72.

75 Low Income Taxpayer Clinics Program Report 2019, 

https://www.irs.gov/pub/irs-pdf/p5066.pdf, at 8.

76 See supra note 66. 

77 Clinic clients often include senior citizens as well as 

middle-class and working class Americans such as 

hairdressers, mail carriers, welders, schoolteachers, 

first-time investors, and millennials. See Letter from 

Nicole G. Iannarone, Director, Investor Advocacy 

Clinic, Georgia State University College of Law, et al. 

to FINRA (June 19, 2017), https://www.finra.org/sites/

default/files/notice_comment_file_ref/SN-32117_GSU_

comment.pdf at 2.

78 The NASAA’s membership is comprised of the 

securities administrators in the 50 states, the District of 

Columbia, Canada, Mexico, Puerto Rico, and the U.S. 

Virgin Islands. By statute, a state securities regulator 

serves as a voting member of the SEC’s Investor 

Advisory Committee. 

79 Dodd–Frank Wall Street Reform and Consumer 

Protection Act, Pub. L. 111-203, 124 Stat. 1376, §

989A (2010).

80 See Stephen Deane, Elder Financial Exploitation Why 

It Is a Concern, What Regulators Are Doing About it, 

and Looking Ahead (June 2018), https://www.sec.gov/

files/elder-financial-exploitation.pdf.

81 Written Testimony of Amanda Senn, Alabama 

Securities Commission Chief Deputy Director and 

NASAA Cybersecurity Committee Chair, on behalf of 

the NASAA, at the HFSC Subcommittee on National 

Security, International Development and Monetary 

Policy hearing on Cybercriminals and Fraudsters: 

How Bad Actors Are Exploiting the Financial System 

During the COVID-19 Pandemic, p.9, (June 16, 

2020) available at https://financialservices.house.gov/

uploadedfiles/hhrg-116-ba10-wstate-senna-20200616.

pdf.

82 On June 18, 2014, a bipartisan group of senators 

led by Sen. Susan Collins (R-ME) sent the CFPB a 

letter stating that “The grants authorized in Section 

989(A) reflect a bipartisan concern that seniors are 

susceptible to fraud, and this threat is likely to intensify 

with the aging of America’s ‘baby boom’ generation. 

We are concerned that if the CFPB fails to establish 

a procedure for reviewing and awarding the grants 

authorized by Section 989A, states securities and 

insurance regulators will be deprived of resources that 

would greatly augment their efforts, to the considerable 

detriment of aging and retired Americans. The CFPB 

has an obligation to implement this critical senior 

investor protection grant program, and it is imperative 

that it do so.”

83 Letter from CFPB Director Richard Cordray to Senate 

Special Committee on Aging Chairman Bill Nelson 

(D-FL) and Senate Special Committee on Aging 

Ranking Member Susan Collins (R-ME) (Aug. 9, 

2014).

84 See Section 1017(a), “Transfers of Funds from Board of 

Governors” of the Dodd-Frank Act.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 77

85 See draft legislation noticed in connection with the 

House Financial Services Committee (HFSC) hearing 

entitled, “Oversight of the CFPB” (Oct. 9, 2019) 

and the HFSC Subcommittee on National Security, 

International Development and Monetary Policy 

hearing entitled, “Cybercriminals and Fraudsters: How 

Bad Actors Are Exploiting the Financial System During 

the COVID-19 Pandemic” (Jun. 16, 2020), available at

https://financialservices.house.gov/uploadedfiles/bills116pih-sipfpa.pdf. 

86 On January 14, 2020, in response to a written 

inquiry from Senate Banking Committee member Bob 

Menendez (D-NJ), CFPB Director Kathleen Kraninger 

stated that “Currently, the Bureau does not have plans 

for the disbursement of grants or the implementation of 

Section 989(A) of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act (Dodd-Frank Act), As 

previously noted, no appropriations were provided 

to implement these grants, nor did Congress mandate 

that grants be provided.” See Hearing record—Senate 

Banking Committee hearing on Oversight of the CFPB 

(Oct. 14, 2019).

87 See https://thehill.com/blogs/congress-blog/

politics/475180-congress-should-seize-the-opportunityto-clear-the-way-for. 

88 Report on Objectives, Fiscal Year 2020, supra note 3. 

89 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.

90 See Management’s Discussion and Analysis, Selected 

Financial Data, and Supplementary Financial 

Information, Securities Exchange Act Rel. No. 88093, 

85 Fed. Reg. 12,068 (Feb. 28, 2020). 

91 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. 

92 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. 

93 See SEC, Office of the Investor Advocate, Report on 

Activities, Fiscal Year 2019, https://www.sec.gov/

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

Report on Activities, Fiscal Year 2019] at 19 (Reverse 

Factoring’s Rising Popularity and Hidden Risks).

94 See, e.g., Jean Eaglesham, Supply Chain Debt Draws 

Warnings, Wall St. J. (Apr. 6, 2020)

95 See Julie Steinberg, SEC Asks Boeing, Coca-Cola to 

Disclose More About Popular Financing Tool, Wall

St. J. (Aug. 27, 2020); 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/covid-19-disclosure-considerations. 

96 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.

97 See Commission Guidance on Management’s 

Discussion and Analysis of Financial Condition and 

Results of Operations, Securities Exchange Act Rel. 

No. 88094, 85 Fed. Reg. 10568 (Feb. 25, 2020).

98 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). 

99 See 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. 

100 See Update of Statistical Disclosures for Bank and 

Savings and Loan Registrants, Securities Exchange Act 

Rel. No. 89835, 85 Fed. Reg. 66,108 (Oct. 16, 2020). 

See also See Update of Statistical Disclosures for Bank 

and Savings and Loan Registrants, Securities Exchange 

Act Rel. No. 86984, 84 Fed. Reg. 52,936 (Oct. 3, 

2019) (proposing release).

101 For an example of our public advocacy on this 

topic, see Rick A. Fleming, Investor Advocate, SEC, 

Improving Disclosure with Smart Data (Oct. 24, 2016), 

https://www.sec.gov/news/speech/improvingdisclosurewith-smart-data.html. See generally “A Primer on 

Machine Readability for Online Documents and 

Data,” Data.gov Developers Blog, https://www.data.

gov/developers/blog/primer-machine-readability-onlinedocuments-and-data (last accessed Nov. 15, 2020).

102 See Update of Statistical Disclosures for Bank and 

Savings and Loan Registrants, Securities Exchange Act 

Rel. No. 89835, 85 Fed. Reg. 66,108, 66,109 (Oct. 

16, 2020) (declining to require disclosure in a machinereadable format and noting “we are cognizant of the 

additional costs that would be incurred”).
78 | OFFICE OF THE INVESTOR ADVOCATE

103 See Financial Disclosures About Guarantors and 

Issuers of Guaranteed Securities and Affiliates Whose 

Securities Collateralize a Registrant’s Securities, 

Securities Exchange Act Rel. No. 88307, 85 Fed. Reg. 

21,940 (Apr. 20, 2020). 

104 See Amendments to Financial Disclosures about 

Acquired and Disposed Businesses, Securities Exchange 

Act Rel. No. 88,914, 85 Fed. Reg. 54,002 (Aug. 31, 

2020). 

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

93, at 5; SEC, Office of the Investor Advocate, Report 

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

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

Objectives, Fiscal Year 2021] at 7. 

106 See Amending the “Accredited Investor” Definition, 

Securities Act Rel. No. 10734, 85 Fed. Reg. 2,574 (Jan. 

15, 2020).

107 See id. at 2,594. 

108 See Accredited Investor Definition, Securities Act Rel. 

No. 10824, 85 Fed. Reg. 64,234 (Oct. 9, 2020).

109 See Facilitating Capital Formation and Expanding 

Investment Opportunities by Improving Access to 

Capital in Private Markets, Securities Act Rel. No. 

10763, 85 Fed. Reg. 17,956 (Mar. 31, 2020). 

110 See, e.g., Letter from Erik Gerding, Professor of Law 

and Wolf-Nichol Fellow, University of Colorado Law 

School, et al. (Sept. 24, 2019), SEC File No. S7-08-19, 

https://www.sec.gov/comments/s7-08-19/s70819-

6193340-192501.pdf. 

111 In a 2019 concept release, the Commission provided 

statistical data on this shift: “In 2018, registered 

offerings accounted for $1.4 trillion of new capital 

compared to approximately $2.9 trillion that we 

estimate was raised through exempt offering channels.” 

Concept Release on Harmonization of Securities 

Offering Exemptions, Securities Act Rel. No. 10649, 

84 Fed. Reg. 30,460, 30,465 (June 26, 2019). 

112 See Letter from Erik Gerding, Professor of Law and 

Wolf-Nichol Fellow, University of Colorado Law 

School, et al. (Sept. 24, 2019), SEC File No. S7-08-19, 

https://www.sec.gov/comments/s7-08-19/s70819-

6193340-192501.pdf. 

113 See Facilitating Capital Formation and Expanding 

Investment Opportunities by Improving Access to 

Capital in Private Markets, Securities Act Rel. No. 

10884 (approved Nov. 2, 2020), pages 26-27, https://

www.sec.gov/rules/final/2020/33-10844.pdf.

114 See Facilitating Capital Formation and Expanding 

Investment Opportunities by Improving Access to 

Capital in Private Markets, Securities Act Rel. No. 

10763, 85 Fed. Reg. 17,956, 18,004 (Mar. 31, 2020) 

(“Expanded access to exempt securities could enable 

non-accredited investors to allocate capital across a 

broader range of opportunities.”); Facilitating Capital 

Formation and Expanding Investment Opportunities 

by Improving Access to Capital in Private Markets, 

Securities Act Rel. No. 10884 (approved Nov. 2, 2020), 

page 197, https://www.sec.gov/rules/final/2020/33-

10844.pdf (“Greater flexibility under the amendments 

may enable non-accredited investors to optimize 

their capital allocation through incrementally greater 

access to exempt offering investment opportunities.”). 

See also Concept Release on Harmonization of 

Securities Offering Exemptions, Securities Act Rel. No. 

10649, 84 Fed. Reg. 30,460, 30,467 (June 26, 2019) 

(contemplating allowing more non-accredited investors 

into exempt offerings in order to expand access to 

attractive investment opportunities in the exempt 

market). 

115 See Facilitating Capital Formation and Expanding 

Investment Opportunities by Improving Access to 

Capital in Private Markets, Securities Act Rel. No. 

10884 (approved Nov. 2, 2020), https://www.sec.gov/

rules/final/2020/33-10844.pdf. 

116 See Proxy Voting Advice Adopting Release, supra note 

16. See also Proxy Voting Advice Proposing Release, 

supra note 16. 

117 See Commission Statement on Market Structure 

Innovation for Thinly Traded Securities, Exchange 

Act Release No. 87327, 84 Fed. Reg. 56,956 (Oct. 24, 

2019). 

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

Amendment No. 2 and Order Instituting Proceedings 

to Determine Whether to Approve or Disapprove a 

Proposed Rule Change, as modified by Amendment 

No. 2, to Introduce Periodic Auctions for the Trading 

of U.S. Equity Securities, Exchange Act Release No. 

90288, 85 Fed. Reg. 70,678 (November 5, 2020), 

https://www.govinfo.gov/content/pkg/FR-2020-11-05/

pdf/2020-24495.pdf.

119 See Publication or Submission of Quotations Without 

Specified Information, Exchange Act Release No. 

89891, 85 Fed. Reg. 68,124 (adopted September 16, 

2020), https://www.govinfo.gov/content/pkg/FR-2020-

10-27/pdf/2020-20980.pdf. 
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 79

120 Order Directing the Exchanges and the Financial 

Industry Regulatory Authority To Submit a New 

National Market System Plan Regarding Consolidated 

Equity Market Data, Exchange Act Release No. 

88827, 85 Fed. Reg. 28,702 (adopted May 8, 2020), 

https://www.govinfo.gov/content/pkg/FR-2020-10-13/

pdf/2020-22467.pdf. 

121 Joint Industry Plan, Notice of Filing of a National 

Market System Plan Regarding Consolidated Equity 

Market Data, Exchange Act Release No. 90096, 

85 Fed. Reg. 64,565 (published October 13, 2020), 

https://www.govinfo.gov/content/pkg/FR-2020-10-13/

pdf/2020-22467.pdf.

122 See Market Data Infrastructure, Exchange Act Release 

No. 90610 (adopted Dec. 9, 2020), https://www.sec.

gov/rules/final/2020/34-90610.pdf. 

123 See NYSE LLC v. Securities and Exchange 

Commission, 962 F.3d 541 (D.C. Cir. 2020). 

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

125 See Cboe EDGX Exchange, Inc.; Order Instituting 

Proceedings To Determine Whether To Approve or 

Disapprove a Proposed Rule Change To Introduce a 

Liquidity Provider Protection Delay Mechanism on 

EDGA, Exchange Act Release No. 87096, 84 Fed. 

Reg. 51,657 (September 30, 2019) (“Order Instituting 

Proceedings” or “OIP”).

126 See Comments on Cboe EDGA Rulemaking, https://

www.sec.gov/comments/sr-cboeedga-2019-012/

srcboeedga2019012.htm. 

127 Memorandum from Rick A. Fleming, Investor 

Advocate, to the Securities and Exchange Commission 

(December 5, 2019), https://www.sec.gov/advocate/

investor-advocate-comment-letters.html.

128 See Cboe EDGA Exchange, Inc.; Order Disapproving 

Proposed Rule Change To Introduce a Liquidity 

Provider Protection Delay Mechanism on EDGA, 

Exchange Act Release No. 88261, 85 Fed. Reg. 11,426 

(February 27, 2020), https://www.govinfo.gov/content/

pkg/FR-2020-02-27/pdf/2020-03915.pdf. 

129 See, e.g., The Nasdaq Stock Market LLC; Order 

Instituting Proceedings To Determine Whether To 

Approve or Disapprove a Proposed Rule Change To 

Apply Additional Initial Listing Criteria for Companies 

Primarily Operating in Restrictive Markets, Exchange 

Act Release No. 89799, 85 Fed. Reg. 57, 282 (Sept. 15, 

2020), https://www.govinfo.gov/content/pkg/FR-2020-

09-15/pdf/2020-20259.pdf. 

130 See, e.g., SEC, Order Granting Petition for Review, 

Scheduling Filing of Statements and Denying NYSE 

Motion to List the Stay, Exchange Act Release No. 

90001 (Sept. 25, 2020) https://www.sec.gov/rules/

other/2020/34-90001.pdf (File No. SR-NYSE-2019-

67). 

131 See In the Matter of the Application of MEMX LLC 

for Registration as a National Securities Exchange 

Findings, Opinion, and Order of the Commission, 

Exchange Act Release No. 88806, 85 Fed. Reg. 27,451 

(May 8, 2020), https://www.govinfo.gov/content/pkg/

FR-2020-05-08/pdf/2020-09861.pdf. 

132 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.

133 See Proposed Amendments to the National Market 

System Plan Governing the Consolidated Audit Trail to 

Enhance Data Security, Securities Exchange Act Release 

No. 89632, 85 Fed. Reg. 65,990 (proposed August 21, 

2020), https://www.govinfo.gov/content/pkg/FR-2020-

10-16/pdf/2020-18801.pdf.

134 See SEC, Notice of Federal Advisory Committee 

Establishment, Fixed Income Market Structure 

Advisory Committee, Exchange Act Release No. 81958 

(Oct. 26, 2017), 82 Fed. Reg. 50460 (Oct. 31, 2017), 

https://www.federalregister.gov/d/2017-23670. 

135 FIMSAC, Recommendation Regarding Timeliness 

of Financial Disclosures in the Municipal Securities 

Market (February 10, 2020), https://www.sec.gov/

spotlight/fixed-income-advisory-committee/fimsacmuni-financial-disclosures-recommendation.pdf. 

136 FIMSAC, Recommendation Concerning Pre-Trade 

Transparency in the Municipal Securities Market (June 

1, 2020), https://www.sec.gov/spotlight/fixed-incomeadvisory-committee/fimsac-recommendations-pretrade-transparency.pdf. 

137 See FINRA Requests Comment on the Practice of 

Pennying in the Corporate Bond Market, FINRA 

Regulatory Notice 20-29 (August 17, 2020), https://

www.finra.org/sites/default/files/2020-08/RegulatoryNotice-20-29.pdf. 

138 Letter from Lynnette Kelly, Exec. Dir., MSRB, to Rick 

A. Fleming, Investor Advocate, SEC, RE: Response to 

Investor Advocate Request Highlighting Municipal 

Market Practices (Oct. 19, 2018), http://www.msrb.

org/Market-Topics/~/media/1BD671EB464F40628296

8143A8A65274.ashx.

139 See FIMSAC, Recommendations Regarding the 

Practice of Pennying in the Corporate and Municipal 

Bond Markets (June 11, 2019), https://www.sec.

gov/spotlight/fixed-income-advisory-committee/

fimsac-pennying-recommendations.pdf. Our Office 

previously highlighted the issue of pennying in our 

Report on Objectives, Fiscal Year 2019. SEC, Office 

of the Investor Advocate, Report on Objectives, Fiscal 

Year 2019 (June 29, 2018), at 9, https://www.sec.gov/

advocate/reportspubs/annual-reports/sec-office-investoradvocate-report-on-objectives-fy2019.pdf. 
80 | OFFICE OF THE INVESTOR ADVOCATE

140 Press Release, Leah Szarek, Director of 

Communications, MSRB Holds First Quarterly Board 

Meeting of FY 2020 (Oct. 25, 2019), http://msrb.

org/About-MSRB/Governance/MSRB-Board-ofDirectors/~/link.aspx?_id=CD2CA7D229484D279295

24D3B4A54776&_z=z. 

141 See Proposed Rule and Concept Release, Regulation 

ATS for ATSs that Trade U.S. Government Securities, 

NMS Stock, and Other Securities; Regulation SCI 

for ATSs that Trade U.S. Treasury Securities and 

Agency Securities; and Electronic Corporate Bond and 

Municipal Securities Markets, Exchange Act Release 

No. 90019 (approved Sept. 28, 2020), https://www.sec.

gov/rules/proposed/2020/34-90019.pdf. 

142 Polina Marinova, Why Investors Should Worry About 

the Regulator of U.S. Auditors, Fortune, Nov. 26, 

2019, https://fortune.com/2019/11/26/why-investorsshould-worry-about-the-regulator-of-u-s-auditors/.

143 See J. Robert Brown, Board Member, PCAOB, 

PCAOB 3.0: The Evolving Role of Investor Protection 

at PCAOB (Nov 6, 2020), https://pcaobus.org/

news-events/speeches/speech-detail/pcaob-3.0-theevolving-role-of-investor-protection-at-the-pcaob. 

144 See Accelerated Filer and Large Accelerated Filer 

Definitions, Exchange Act Release No. 88365, 85 Fed. 

Reg. 17178 (March 26, 2020).

145 See Qualifications of Accountants, Exchange Act Rel. 

No. 90210 (approved Oct. 16, 2020), https://www.sec.

gov/rules/final/2020/33-10876.pdf. 

146 PCAOB Spotlight Staff Update and Preview of 2019 

Inspection Observations (Oct. 8, 2020), pages 6-8, 

https://pcaobus.org/Inspections/Documents/StaffPreview-2019-Inspection-Observations-Spotlight.pdf. 

147 See Report on Objectives, Fiscal Year 2020, supra note 

3, at 10; see also Investment Company Act Rel. No. 

33477 (May 20, 2019) [hereinafter Precidian Order].

148 See James Lord, New Breed of Active ETF Hits the 

Market, ETF Strategy (Apr. 3, 2020), https://www.

etfstrategy.com/new-breed-of-semi-transparent-activeetf-called-activeshares-from-precidian-investments-hitsthe-market-58569. 

149 See Precidian Order, supra note 147.

150 See Report on Objectives, Fiscal Year 2021, supra note 

105; see also Investment Company Act Rel. No. 33710 

(Dec. 10, 2019); Investment Company Act Rel. No. 

33711 (Dec. 10, 2019); Investment Company Act Rel. 

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

Rel. No. 33713 (Dec. 10, 2019). 

151 See James Lord, Fidelity Debuts Semi-Transparent 

ETFs with Triple Launch, ETF Strategy (June 8, 2020), 

https://www.etfstrategy.com/fidelity-debuts-semitransparent-etfs-with-triplelaunch-95487. 

152 See Robert J. Jackson, Commissioner, SEC, and Allison 

Herren Lee, Commissioner, SEC, Public Statement: 

Statement of Commissioners Jackson and Lee on 

Non-Transparent Exchange Traded Funds (Nov. 15, 

2019), https://www.sec.gov/news/public-statement/

statement-jackson-lee-2019-11-15.

153 See id.

154 See Report on Objectives, Fiscal Year 2020, supra note 

3, at 11.

155 See Wells Fargo Order, supra note 40.

156 The heightened sales practice requirements were, 

unfortunately, ultimately stripped from the Derivatives 

Rule adopted by the Commission. See supra notes 

31-47 and accompanying text.

157 FINRA, Regulatory Notice 19-17; Protecting Investors 

from Misconduct (May 2, 2019), https://www.finra.

org/sites/default/files/notice_doc_file_ref/RegulatoryNotice-19-17.pdf.

158 Id. The new rule would “create a multi-step process 

to guide FINRA’s determination of whether a member 

raises investor protection concerns substantial enough 

to require it to be subject to additional obligations”, 

such as deposits of cash or qualified securities, or other 

conditions or restrictions deemed to be in the public 

interest.

159 FINRA, Report from FINRA Board of Governors 

Meeting (December 13, 2019); https://www.finra.org/

media-center/newsreleases/2019/report-finra-boardgovernors-meeting-december-2019. 

160 Financial Industry Regulatory Authority, Inc.; Inc.; 

Notice of Filing of a Proposed Rule Change To Adopt 

FINRA Rule 4111 (Restricted Firm Obligations) and 

FINRA Rule 9561 (Procedures for Regulating Activities 

Under Rule 4111), Exchange Act Release No. 90527, 

85 Fed. Reg. 78,540 (Dec. 4, 2020), https://www.

govinfo.gov/content/pkg/FR-2020-12-04/pdf/2020-

26594.pdf.

161 Financial Industry Regulatory Authority, Inc.; Notice 

of Filing of a Proposed Rule Change To Amend FINRA 

Rule 12000 Series To Expand Options Available to 

Customers if a Firm or Associated Person Is or Becomes 

Inactive, Exchange Act Release No. 87557, 84 Fed. 

Reg. 64,581 (Nov. 19, 2019), https://www.govinfo.gov/

content/pkg/FR-2019-11-22/pdf/2019-25324.pdf.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 81

162 Financial Industry Regulatory Authority, Inc.; Order 

Approving a Proposed Rule Change To Amend FINRA 

Rule 12000 Series To Expand Options Available to 

Customers if a Firm or Associated Person Is or Becomes 

Inactive, Exchange Act Release No. 88254, 85 Fed. 

Reg. 11,157 (Feb. 26, 2020), https://www.govinfo.gov/

content/pkg/FR-2020-02-26/pdf/2020-03771.pdf.

163 See Financial Industry Regulatory Authority, Inc.; 

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 (December 10, 2020), https://

www.sec.gov/rules/sro/finra/2020/34-90635.pdf.

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

(B)(ii)(V).

165 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. . 

166 NASAA, NASAA Enforcement Report: 2020 Report 

Based on 2019 Data (Sept. 2020), https://www.

nasaa.org/55763/nasaa-releases-annual-enforcementreport-6/. 

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

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

(last visited Nov. 25, 2020).

168 SEC, Office of Compliance Inspections and 

Examinations, Examination Priorities for 2020 (Jan. 7, 

2020), https://www.sec.gov/about/offices/ocie/nationalexamination-program-priorities-2020.pdf. 

169 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 Office of Compliance 

Inspections and Examinations during Fiscal Year 

2020. See SEC, Office of Investor Education and 

Advocacy, Investor Alerts and Bulletins, https://www.

sec.gov/investor/alerts (last visited Nov. 25, 2020); 

see also SEC, Office of Compliance Inspections and 

Examinations, Risk Alerts, https://www.sec.gov/ocie

(last visited Nov. 25, 2020).

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

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

(last visited Nov. 25, 2020). 

171 This list of problematic products is based on the alerts 

and bulletins issued by FINRA for investors during FY 

2020. See FINRA, Investor Alerts, https://www.finra.

org/investors/alerts (last visited Nov. 25, 2020).

172 Report on Activities, Fiscal Year 2019, supra note 93, 

at 19-20.

173 Report on Activities, Fiscal Year 2019, supra note 93, 

at 20-21.

174 Report on Activities, Fiscal Year 2019, supra note 93, 

at 21-22.

175 SEC, Office of the Investor Advocate, Report on 

Activities, Fiscal Year 2018 (Dec. 20, 2018), at 17 

https://www.sec.gov/advocate/reportspubs/annualreports/sec-investor-advocate-report-on-activities-2018.

pdf. 

176 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.

177 Id. at 8-9. 

178 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. 

179 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. 

180 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. 

181 See John Lonski et al., Corporate Bond Issuance Boom 

May Steady Credit Quality, On Balance, Moody’s 

Analytics Weekly Market Outlook (Sept. 24, 2020), 

https://www.moodysanalytics.com/-/media/article/2020/

weekly-market-outlook-corporate-bond-issuanceboom-may-steady-credit-quality-on-balance.pdf

182 Id. at 2 (charting U.S. investment-grade debt issuance 

levels from 1995).
82 | OFFICE OF THE INVESTOR ADVOCATE

183 See “Corporate Bond Underwriting and Distribution 

Practices,” Presentation by The Credit Roundtable to 

the U.S. Securities and Exchange Commission (July 1, 

2015) [hereinafter “2015 CRT Presentation”]. From 

page 9: “We believe there is often inadequate time for 

analysts to thoroughly review issuer fundamentals, 

structural features, and covenant protections allowing 

them to make well-informed decisions and investment 

recommendations about new issues. This is a persistent 

problem even for institutional investors that have large 

staffs of experienced credit analysts.” In 2015, Chair 

Mary Jo White acknowledged these investors’ concerns 

generally in a speech on offering reform:

“This evidence is good news for investors generally, 

but there have also been some indications of potential 

issues. For example, there has been concern expressed 

by some fixed income investors that offerings off the 

‘shelf’ can frequently involve truncated time periods 

that do not give them sufficient time to assess all of the 

factors necessary to evaluate the issuer’s credit. These 

impacts cause our staff to ask whether any such issue 

could be addressed by increasing the speed and access 

by which investors obtain the necessary information 

or should we consider further adjustments to the 2005 

rules, such as ‘speed bumps’ like those introduced for 

certain asset-backed securities offerings last year?”

See Mary Jo White, Chair, SEC, Keynote Address at the 

47th Annual Securities Regulation Institute: “Building 

a Dynamic Framework for Offering Reform” (Oct. 

28, 2015), https://www.sec.gov/news/speech/buildingdynamic-framework-for-offering-reform.html. 

184 See Securities Offering Reform, Securities Act Rel. No. 

8591, 70 Fed. Reg. 44,721 (Aug. 3, 2005). See SEC, 

Form S-3, Registration Statement Under the Securities 

Act of 1933, Part I at 10, https://www.sec.gov/files/

forms-3.pdf.

185 See Securities Offering Reform, Securities Act Rel. No. 

8591, 70 Fed. Reg. 44,721, 44,726 (Aug. 3, 2005) 

(“Because an issuer’s Exchange Act reports and other 

publicly available information form the basis for the 

market’s evaluation of the issuer and the pricing of its 

securities, investors in the secondary market use that 

information in making their investment decisions. 

Similarly, during a securities offering in which an 

issuer uses a short-form registration statement, an 

issuer’s Exchange Act record is very often the most 

significant part of the information about the issuer in 

the registration statement.”).

186 See Katie Linsell, The Robots Are Coming for the Bond 

Market, Bloomberg News (Jan. 18, 2018), https

www.bloomberg.com/news/articles/2018-01-19/

machines-are-encroaching-on-bond-markets-last-lineof-resistance (describing the process and noting that 

“[s]elling new issues is a linchpin of investment banks’ 

profitability”).

187 See Buy-side fights back against primary market 

pressure, The Desk (Oct. 19, 2020), https://ww

fi-desk.com/buy-side-fights-back-against-primarymarket-pressure/.

188 For empirical evidence on underwriters’ allocation 

practices in the primary market for corporate bonds, 

see Stanislava Nikolova, Liying Wang, and Juan (Julie) 

Wu, Institutional Allocation in the Primary Market for 

Corporate Bonds (Aug. 9, 2019), Journal of Financial 

Economics (forthcoming), https://papers.ssrn.com/

sol3/papers.cfm?abstract_id=3181983. See also Katie 

Linsell, The Robots Are Coming for the Bond Market, 

Bloomberg News (Jan. 18, 2018), https://w

bloomberg.com/news/articles/2018-01-19/machinesare-encroaching-on-bond-markets-last-line-of-resistance

(“Getting allocations at the point of sale can make the 

difference between a good year and a bad one for a 

money manager.”).

189 See Molly Smith, Bond Buyers Push Wall Street to 

Modernize Underwriting Process, Bloomberg N

(Aug. 17, 2020), https://www.bloomberg.com/news/

articles/2020-08-17/bond-buyers-push-wall-street-tomodernize-underwriting-process.

190 See 2015 CRT Presentation, supra note 183, at 9.

191 See Dan Barnes, DirectBooks launches platform for 

issuance of US corporate bonds, The Desk (Nov. 19

2020), https://www.fi-desk.com/directbooks-launchesplatform-for-issuance-of-us-corporate-bonds-europeanexpansion-on-cards/ (“Efficient access to the primary 

market is essential to bond investors. It allows them 

to replace bonds that have reached maturity, and as 

bonds are often held to maturity, liquidity in secondary 

market trading is sporadic rather than continual.”).

192 See Investment Grade Primary Best Practices 

Framework, The Credit Roundtable (Aug. 17, 2020), 

https://cdn.ymaws.com/thecreditroundtable.org/

resource/resmgr/recent_news/2008_crt_investment_

grade_pr.pdf. See also Molly Smith, Bond Buyers 

Push Wall Street to Modernize Underwriting Process, 

Bloomberg News (Aug. 17, 2020), https://w

bloomberg.com/news/articles/2020-08-17/bond-buyerspush-wall-street-to-modernize-underwriting-process; 

Brian Chappata, Bond Traders Ought to Swap Myth 

for Modernity, Bloomberg Opinion (Aug. 18, 2020

(opining that “it’s hard to come up with a serious case 

against this modernization push”).

193 Many institutional investors have compliance 

procedures they must follow, such as demonstrating 

that accounts suitable to participate in the offering 

(according to explicit client guidelines) are identified 

at the start of the process, so that there is an audit 

trail showing that these same accounts are the ones 

ultimately allocated bonds.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 83

194 Improving Covenant Protections in the Investment 

Grade Bond Market, The Credit Roundtable 

(Dec. 17, 2007; updated July 2, 2008), https://

cdn.ymaws.com/thecreditroundtable.org/resource/

collection/003C92A4-87FF-4401-A9F3-96E5C704F962/_

CovenantWhitePaper_Covenant_White_Paper_revis.pdf.

195 See, e.g., The Fixed-Income Trading System 

Evolution: Creating Something Completely New, 

Greenwich Associates (2020) (describing technology 

developments). 

196 See Chetna Mistry, A Buy-Side View—What’s Wrong 

With Primary Markets?, Western Asset Research 

Blog (Mar. 30, 2020), https://www.westernasset.

com/us/en/research/blog/whats-wrong-with-primarymarkets-2020-03-30.cfm. 

197 See Big banks develop new platform for bond 

issuances, Financial Times (Mar. 25, 2018), https

www.ft.com/content/972bfd3a-2d84-11e8-9b4bbc4b9f08f381 (“Corporate bond issuance is a leading 

driver of bank revenues and has become increasingly 

important since the financial crisis, with low interest 

rates spurring a borrowing splurge.”).

198 See Paul Kilby, Buyside body wants changes in how 

US bonds are sold, International Finance R

(Aug. 21, 2020), https://www.ifre.com/story/2498707/

buyside-body-wants-changes-in-how-us-bonds-aresold-l8n2fn0el (describing DirectBooks and quoting a 

representative of the sell-side consortium, “DirectBooks 

will be a very helpful solution as are other technologies 

to create structured data dissemination. That will 

enable a lot more of this information to be readily 

available and easily accessible for the investor base.”). 

199 See Dan Barnes, DirectBooks launches platform for 

issuance of US corporate bonds, The Desk (Nov. 

19, 2020), https://www.fi-desk.com/directbookslaunches-platform-for-issuance-of-us-corporate-bondseuropean-expansion-on-cards/ (quoting DirectBooks 

CEO Rich Kerschner: “This does not replace the sales 

process— that is not the goal here. . . . There might be 

additional communications sent back and forth, and 

by phone, so they maintain their sales relationship.”). 

See also Katie Linsell, The Robots Are Coming for 

the Bond Market, Bloomberg News (Jan. 18, 2018

https://www.bloomberg.com/news/articles/2018-01-19/

machines-are-encroaching-on-bond-markets-last-lineof-resistance (describing the commercial incentives 

of various stakeholders); Buy-side fights back against 

primary market pressure, The Desk (Oct. 19, 2020)

https://www.fi-desk.com/buy-side-fights-back-againstprimary-market-pressure/ (same). 

200 See supra notes 42-47 and accompanying text.

201 See Derivatives Rule, supra note 31 at section II.G.2.

202 See Jay Clayton, Chairman, SEC, Dalia Blass, Director, 

SEC Division of Investment Management, William 

Hinman, Director, SEC Division of Corporation 

Finance, and Brett Redfearn, Director, SEC Division 

of Trading and Markets, Joint Statement Regarding 

Complex Financial Products and Retail Investors (Oct. 

28, 2020), https://www.sec.gov/news/public-statement/

clayton-blass-hinman-redfearn-complex-financialproducts-2020-10-28. 

203 See id.

204 See id.

205 See id.

206 See id.

207 The Commission has not approved exemptive relief for 

a new leveraged/inverse ETF sponsor since 2008. See

SEC Directory of Exemptive Orders Issued On or After 

January 1, 2007, https://www.sec.gov/rules/icreleases.

shtml#etf-leveraged. In addition, the Commission and 

its staff periodically issues alerts or bulletins to investors 

regarding the unique dangers of leveraged/inverse ETFs. 

See, e.g., SEC Staff and FINRA, Leveraged and Inverse 

ETFs: Specialized Products with Extra Risks for 

Buy-and-Hold Investors (Aug. 1, 2009), https://www.

sec.gov/investor/pubs/leveragedetfs-alert.htm (“The 

SEC staff and FINRA are issuing this Alert because 

we believe individual investors may be confused 

about the performance objectives of leveraged and 

inverse exchange-traded funds.”). The unique investor 

protection concerns associated with leveraged/inverse 

ETFs are also well-documented in media reports. See, 

e.g., Claire Ballentine, Bloomberg, Risky Corner of 

ETF Market Could See More Debuts After SEC Vote

(Oct. 26, 2020), https://www.bloomberg.com/news/

articles/2020-10-26/risky-corner-of-etf-market-couldsee-more-debuts-after-sec-vote (“Leveraged funds 

have a reputation as the ‘bad boys’ of the industry 

because their strategies can exacerbate losses, especially 

for less-experienced traders.”). Finally, numerous 

enforcement cases at the Commission and FINRA have 

shown that investment professionals themselves often 

lack a basic understanding of these complex products. 

See, e.g., supra note 40.

208 See Derivatives Rule, supra note 31 at sections II.D 

(allowing ETFs to seek leverage or inverse leverage 

up to 200% without obtaining previously-required 

individualized exemptive relief), II.F.5 (exempting 

currently operational ETFs with leverage or inverse 

leverage exceeding 200% from the Derivatives Rule 

VaR test generally applicable to other funds), and II.F.6 

(amending the ETF Rule’s scope to allow leveraged and 

inverse ETFs to form and operate pursuant to the rule 

(which originally encompassed only traditional, “plainvanilla” ETFs)).
84 | OFFICE OF THE INVESTOR ADVOCATE

209 See, e.g., Letter from Richard Herber (Mar. 17, 2020), 

SEC File No. S7-24-15, https://www.sec.gov/comments/

s7-24-15/s72415-213095.htm (“I placed a significant 

amount of money into [a leveraged inverse] ETF in 

2011. I really did not understand it at the time and 

there was limited information on the ETF. I lost over 

$400,000 of my retirement money.”).

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

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

212 As used in this report, the term “Ombudsman” may 

refer to the Ombudsman, or to the Ombudsman and 

Office of the Investor Advocate staff and contractors 

directly supporting the ombudsman function.

213 See Staff Guidance for Conducting Shareholder 

Meetings in Light of COVID-19 Concerns, https://

www.sec.gov/ocr/staff-guidance-conducting-annualmeetings-light-covid-19-concerns.

214 See Reporting Threshold for Institutional Investment 

Managers, Exchange Act Release No. 89290, 85 Fed. 

Reg. 46,016 (Jul. 31, 2020).

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

what-we-do (Oct. 15, 2020).

216 BrokerCheck is a free tool that enables investors to 

research the professional backgrounds of brokers and 

brokerage firms. About BrokerCheck, http://www.

finra.org/investors/about-brokercheck (last visited Dec. 

4, 2020).

217 When an investor opens an account at a brokerage 

firm, the agreement typically includes a mandatory 

pre-dispute arbitration clause that specifies that any 

legal dispute between the investor and the broker will 

be resolved by arbitration or mediation in the FINRA 

dispute resolution forum. As a result, most investors 

have some general knowledge of the FINRA dispute 

resolution forum and the arbitration and mediation 

processes.

218 See SEC Coronavirus (COVID-19) Response, https://

www.sec.gov/sec-coronavirus-covid-19-response.

219 Rule 10a-1 provided that, subject to certain exceptions, 

a listed security could be sold short (i) at a price above 

the price at which the immediately preceding sale was 

effected (plus tick), or (ii) at the last sale price if it was 

higher than the last different price (zero plus tick). See

17 CFR § 240.10a-1.

220 See, e.g., Jay Clayton, Chairman, SEC, Speech: 

An Update on FY 2020 Results (Oct. 8, 2020), 

https://www.sec.gov/news/speech/clayton-secspeaks-2020-10-08 (“I am pleased to report that while 

the pandemic significantly impacted how we do our 

work, it did not negatively impact the work itself.”).

221 See Andrew Welsh, FINRA postpones arbitration 

hearings as pandemic disrupts wealth management, 

Financial Planning (Mar, 17, 2020), https://www.

financial-planning.com/news/finra-postponesarbitration-hearings-as-pandemic-disrupts-wealthmanagement.

222 See FINRA, Coronavirus Impact on Arbitration 

Hearings, https://www.finra.org/rules-guidance/

key-topics/covid-19/arb-hearings.

223 Id.

224 See Securities Arbitration Alert blog, (Oct. 

30, 2020), https://www.secarbalert.com/blog/

finra-drs-posts-stats-thru-third-quarter-still-nocovid-crash-surge-in-customer-arbitration-claims-butindustry-new-case-filings-have-for-the-first-time-wethink-eclipsed-custome/.

225 See FINRA, Dispute Resolutions Statistics https://www.

finra.org/arbitration-mediation/dispute-resolutionstatistics#virtual.

226 See Tracey Longo, FINRA Suspends In-Person 

Hearings Until December, Financial Advisor (Sep. 1

2020), https://www.fa-mag.com/news/finra-suspendsin-person-hearings-until-december-57937.html.

227 See FINRA, Coronavirus Impact on Arbitration 

and Mediation Hearings, https://www.finra.org/

rules-guidance/key-topics/covid-19/hearings/impacton-arbitration-mediation. In addition to its webpage 

resources for investors representing themselves, FINRA 

Dispute Resolution Services developed a resource 

guide and training videos for arbitrators conducting 

virtual hearings. See FINRA, Resources for Investors 

Representing Themselves, https://www.finra.org/

arbitration-mediation/resources-investors-representingthemselves, FINRA, Arbitrator Resource Guide for 

Virtual Hearings, https://www.finra.org/arbitrationmediation/case-guidance-resources/arbitrator-resourceguide-virtual-hearings and FINRA, Arbitrator Training 

Videos for Virtual Hearings, https://www.finra.org/

arbitration-mediation/case-guidance-resources/virtualhearings-videos.

228 SR-FINRA-2020-020, Proposed Rule Change to Adopt 

FINRA Rule 3241 (Registered Person Being Names 

a Customer’s Beneficiary or Holding a Position of 

Trust for a Customer), Rel. No. 34-89218; File No. 

SR-FINRA-2020-020 (Jul. 2, 2020), https://www.sec.

gov/rules/sro/finra/2020/34-89218.pdf. 

229 Id.

230 See Stephen Deane, SEC Office of the Investor 

Advocate, Elder Financial Exploitation: Why it is 

a concern, what regulators are doing about it, and 

looking ahead (June 2018) for a discussion of elder 

financial abuse concerns facing regulators, https://www.

sec.gov/files/elder-financial-exploitation.pdf.
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 85

231 The comment letters are available on the Commission’s 

website at https://www.sec.gov/comments/sr-finra2020-020/srfinra2020020.htm.

232 See Letter from Lisa Bleier, Managing Director, 

Securities Industry and Financial Markets Association 

(Jul. 30, 2020), https://www.sec.gov/comments/sr-finra2020-020/srfinra2020020-7502024-221895.pdf, and 

Letter from Samuel B. Edwards, President, Public 

Investors Advocate Bar Association (June 30, 2020), 

https://www.sec.gov/comments/sr-finra-2020-020/

srfinra2020020-7502074-221919.pdf. 

233 See Letter from Christopher Gerold, President, North 

American Securities Administrators Association, Inc. 

(Jul. 30, 2020), https://www.sec.gov/comments/sr-finra2020-020/srfinra2020020-7502037-221898.pdf. 

234 Id.

235 FINRA submitted a letter in response to the letters 

submitted by SIFMA, PIABA, and NASAA. See Letter 

from Jeanette Wingler, FINRA Associate General 

Counsel (Oct. 6, 2020), https://www.sec.gov/comments/

sr-finra-2020-020/srfinra2020020-7877659-224128.pdf. 

236 Id.

237 See Self-Regulatory Organizations; Financial Industry 

Regulatory Authority, Inc.; Order Approving a 

Proposed Rule Change To Adopt FINRA Rule 

3241 (Registered Person Being Named a Customer’s 

Beneficiary or Holding a Position of Trust for 

a Customer), Release No. 34-90116; File No. 

SR-FINRA-2020-020 (Oct. 7, 2020), 85 Fed Reg. 

199 (Oct. 14, 2020), https://www.sec.gov/rules/sro/

finra/2020/34-90116.pdf.

238 Id.

239 See FINRA Regulatory Notice 20-38, FINRA Adopts 

Rule to Limit a Registered Person From Being Named 

a Customer’s Beneficiary or Holding a Position of Trust 

for or on Behalf of a Customer, https://www.finra.org/

rules-guidance/notices/20-38.

240 FINRA Rule 2165 (Financial Exploitation of Specified 

Adults) (https://www.finra.org/rules-guidance/

rulebooks/finra-rules/2165) permits FINRA members 

to place temporary holds on disbursements of funds 

or securities from the accounts of specified customers 

where there is a reasonable belief of financial 

exploitation of these customers, and FINRA Rule 4512 

(Customer Account Information) (https://www.finra.

org/rules-guidance/rulebooks/finra-rules/4512) requires 

FINRA members to make reasonable efforts to obtain 

the name of and contact information for a trusted 

contact person for a customer’s account. See FINRA 

Investor Insights, Protecting Seniors From Financial 

Exploitation, (Apr. 25, 2018), https://www.finra.org/

investors/insights/senior-financial-exploitation. See also

Stephen Deane, SEC Office of the Investor Advocate, 

How the SEC Works to Protect Senior Investors (May 

2019), https://www.sec.gov/about/offices/investorad/

how-the-sec-works-to-protect-senior-investors.pdf.

241 As discussed in our prior reports, we launched the 

OIAD Law School Clinic Outreach Program (LSCOP) 

to complement our statutory mandate and core 

functions. A primary goal of LSCOP remains the 

exchange of information and ideas between the investor 

advocacy clinics and SEC staff. In their unique role as 

counsel to retail investors with small claims or limited 

incomes, clinics are uniquely poised to examine issues 

faced by retail investors from a perspective unavailable 

to SEC staff.

242 See Report on Objectives, Fiscal Year 2021, supra note 

105.

243 Clinic directors and law student clinicians from the 

following law schools were confirmed to attend the 

March 2020 SEC Investor Advocacy Clinic Summit: 

Benjamin N. Cardozo School of Law, Cornell Law 

School, Howard University School of Law, New York 

Law School, Pace University School of Law, St. John’s 

University School of Law, University of Miami School 

of Law, University of Nevada Las Vegas School of Law, 

and University of Pittsburgh School of Law.

244 See John Bowden, SEC becomes first federal agency 

to tell employees to stay home amid coronavirus 

outbreak, The Hill (Mar. 9, 2020), https://thehill.co

policy/healthcare/486742-sec-becomes-first-federalagency-to-tell-employees-to-stay-home-amid.

245 This chapter relies heavily on concepts developed 

in ongoing research on capacity in the public sector, 

including: 

Scholl, Brian, Ann Keller, Ken Taymor, and Margaret 

Taylor “Agency Capacity and the Public Mission: 

Toward Theory and Measurement of Absorptive 

Capacity in Public Sector Institutions,” manuscript, 

presented at Association for Public Policy Analysis 

and Management (APPAM) Fall Research Conference 

(2019). 

Scholl, Brian “The Government Capacity Challenge: 

A Theory of Capacity in Public Sector Entities,” 

manuscript, (2019). 
86 | OFFICE OF THE INVESTOR ADVOCATE

246 Annamaria Lusardi, Financial literacy and the need 

for financial education: evidence and implications, 

155 Swiss Journal of Econ. & Statistics 1, (2

Van Rooij, Maarten CJ, Annamaria Lusardi, and Rob 

JM Alessie. “Financial literacy, retirement planning 

and household wealth.” The Economic Journal 1

no. 560, 449. (2012); Annamaria Lusardi, & Olivia 

S. Mitchell. “The economic importance of financial 

literacy: Theory and evidence.” Journal of econom

literature 52, no. 1, 5. (2014); Annamaria Lusardi, 

& Olivia S. Mitchell, & Vilsa Curto. “Financial 

literacy and financial sophistication in the older 

population.” Journal of pension economics 

finance 13, no. 4, 347. (2014); Van Rooij, Maarten,

Annamaria Lusardi, and Rob Alessie. “Financial 

literacy and stock market participation.” Journal

of Financial Economics 101, no. 2, 449. (20

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-for-investmentadvice.pdf. 

247 Lin, Judy, Christopher Bumcrot, Tippy Ulicny, Gary 

Mottola, Gerri Walsh, Robert Ganem, Christine Kieffer, 

and Annamaria Lusardi. “The State of US Financial 

Capability: The 2018 National Financial Capability 

Study.” FINRA Investor Education Foundation (2019).

248 Daniel Fernandes, John G. Lynch Jr, & Richard G. 

Netemeyer. “Financial literacy, financial education, 

and downstream financial behaviors.” Managemen

Science 60, no. 8, 1861. (20

249 Alycia Chin & Alanna K. Williams, Take-Up of 

Financial Education: Demographic Characteristics 

and Prior Knowledge, 39 Journal of Public Poli

Marketing 319 (2020

250 Annamaria Lusardi, & Olivia S. Mitchell. “Planning 

and financial literacy: How do women fare?” Americ

Economic Review 98, no. 2, 413. (2008); Annam

Lusardi & Olivia S. Mitchell. Financial literacy around 

the world: an overview. No. w17107. National Bureau 

of Economic Research (2011); Annamaria Lusardi 

& Olivia S. Mitchell. “The economic importance of 

financial literacy: Theory and evidence.” Journal of

economic literature 52, no. 1, 5. (2014

251 Annamaria Lusardi. Financial literacy: an essential tool 

for informed consumer choice?. No. w14084. National 

Bureau of Economic Research, 2008; Lin, Judy, 

Christopher Bumcrot, Tippy Ulicny, Gary Mottola, 

Gerri Walsh, Robert Ganem, Christine Kieffer, and 

Annamaria Lusardi. “The State of US Financial 

Capability: The 2018 National Financial Capability 

Study.” FINRA Investor Education Foundation (2019).

252 SEC Investor Advisory Committee, “Recommendation 

of the Investor as Purchaser Subcommittee Regarding 

Mutual Fund Cost Disclosure”, (2016), https://www.

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

iac-041416-recommendation-investor-as-purchaser.pdf. 

253 For example, Alexander, Gordon J., Jonathan D. 

Jones, and Peter J. Nigro. “Mutual fund shareholders: 

Characteristics, investor knowledge, and sources of 

information.” Financial Services Review 7.4 (

254 See Scholl & Fontes, “Adding Depth to Financial 

Literacy: What Does the Public Know About Mutual 

Funds? Toward a New Index of Investor Knowledge” 

(2019); Scholl & Fontes, “Adding Depth to Financial 

Literacy: Toward a New Index of Mutual Fund 

Literacy” (2020); available upon request. 

255 “Just as the Black-Scholes model is a commonplace 

when it comes to compliance with the stock option 

compensation rules, we may soon be looking to the 

Gunning-Fog and Flesch-Kincaid models to judge the 

level of compliance with the plain English rules.” SEC 

Chairman Christopher Cox, speech at USC Marshall 

School of Business, March 23, 2007, https://www.sec.

gov/news/speech/2007/spch032307cc.htm. Originally 

referenced in Loughran, Tim, and Bill McDonald. 

“Measuring readability in financial disclosures.” Th

Journal of Finance 69.4 (2014) at 1643-167

256 America Counts Staff, “Number Of People With 

Masters And Phd Degrees Double Since 2000” Census.

gov (Feb 21, 2019), https://www.census.gov/library/

stories/2019/02/number-of-people-with-masters-andphd-degrees-double-since-2000.html; Saida Mamedova 

& Emily Pawlowski, “Adult Literacy in the United 

States”, National Center for Education Statistics (July 

2019), https://nces.ed.gov/datapoints/2019179.asp.

257 SEC Disclosure Effectiveness Testing Act, H.R.1815, 

(116th Congress 2019-2020), https://www.congress.

gov/bill/116th-congress/house-bill/1815. 

258 Lu, D. and Singhvi, A., Government Shutdown 

Timeline: See How The Effects Are Piling Up

[online] Nytimes.com (2019), https://www.nytimes.

com/interactive/2019/01/08/us/politics/governmentshutdown-calendar.html; Government Accountability 

Office, “Budget Uncertainty and Disruptions Affect 

Timing of Agency Spending,” GAO Highlights: Budget 

Issues, September 20, 2017, GAO-17-807T, https://

www.gao.gov/assets/690/687264.pdf. 

259 Ciara O’Rourke, “Reducing the Junk-Mail Footprint”, 

NY times (Mar. 16, 2009 7:45 AM), https://green.

blogs.nytimes.com./2009/03/16/reducing-the-junk-mailfootprint/?mtrref=undefined&assetType=REGIWALL.

260 Senge, P. M., The Fifth Discipline. The art and p

of the learning organization, (1990).

261 https://oes.gsa.gov/projectprocess/
REPORT ON ACTIVITIES: FISCAL YEAR 2020 | 87

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

263 Id. 

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

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

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

267 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.”

268 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). 

269 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. 

270 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. 

271 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. 

272 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.

273 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. 

274 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. 

275 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).

276 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-advisorsandshareholder-proposals.pdf. 

277 See Proxy Voting Advice Adopting Release, supra note 

16. See also Proxy Voting Advice Proposing Release, 

supra note 16.

278 See Rule 14a-8 Amendments Proposing Release and 

Rule 14a-8 Amendments Adopting Release, supra note 

8.

279 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. 

280 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. 

281 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.

282 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.

283 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. 

284 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).

285 SEC, Recommendation of the Investor Advisory 

Committee in Support of the Transaction Fee Pilot 

for NMS Stocks (Sept. 13, 2018), https://www.sec.

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

recommendation-transaction-fee-pilot-for-nms-stocks.

pdf.

286 SEC, Transaction Fee Pilot for NMS Stock, Release No. 

34-84875 (Dec. 19, 2018), https://www.sec.gov/rules/

final/2018/34-84875.pdf
88 | OFFICE OF THE INVESTOR ADVOCATE

287 See NYSE LLC v. Securities and Exchange 

Commission, 962 F.3d 541 (D.C. Cir. 2020).

288 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.

289 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.

290 SEC, Recommendation of the Investor Advisory 

Committee Regarding Mutual Fund Cost Disclosure 

(Apr. 14, 2016), https://www.sec.gov/spotlight/investoradvisory-committee-2012/recommendation-mf-feedisclosure-041916.pdf. 

291 See Request for Comment on Fund Retail Investor 

Experience and Disclosure, Securities Act Release No. 

10503, Exchange Act Release No. 83376, Investment 

Company Act Release No. 33113, 83 Fed. Reg. 26,891 

(June 11, 2018).

292 See Updated Disclosure Requirements and Summary 

Prospectus for Variable Annuity and Variable Life 

Insurance Contracts, Securities Act Release No. 

10569, Exchange Act Release No. 84508, Investment 

Company Act Release No. 33286, 83 Fed. Reg. 61,730 

(Nov. 30, 2018).

293 See Updated Disclosure Requirements and Summary 

Prospectus for Variable Annuity and Variable Life 

Insurance Contracts, Securities Act Rel. No. 10765, 

Exchange Act Rel. No. 88,358, Investment Company 

Act Rel. No. 33,814, 85 Fed. Reg. 25,964 (Mar. 11, 

2020).

294 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. 

295 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).

296 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. 

297 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. 

298 See Universal Proxy, Exchange Act Release No. 79164, 

Investment Company Act Release No. 32339, 81 Fed. 

Reg. 79,122 (Nov. 10, 2016).

OFFICE OF THE 

INVESTOR ADVOCATE

U.S. Securities and 

Exchange Commission

100 F Street NE

Washington, DC 20549

202.551.3302