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80–881 PDF 2013

EXAMINING THE SEC’S FAILURE TO 

IMPLEMENT TITLE II OF THE JOBS ACT 

AND ITS IMPACT ON ECONOMIC GROWTH 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

APRIL 17, 2013 

Printed for the use of the Committee on Financial Services 

Serial No. 113–15 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

PATRICK T. MCHENRY, North Carolina, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

PETER T. KING, New York 

MICHELE BACHMANN, Minnesota 

SEAN P. DUFFY, Wisconsin 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

AL GREEN, Texas, Ranking Member 

EMANUEL CLEAVER, Missouri 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

CAROLYN B. MALONEY, New York 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

April 17, 2013 ................................................................................................... 1 

Appendix: 

April 17, 2013 ................................................................................................... 41 

WITNESSES 

WEDNESDAY, APRIL 17, 2013 

Walter, Hon. Elisse B., Commissioner, U.S. Securities and Exchange Commission ........................................................................................................................ 7 

APPENDIX 

Prepared statements: 

Walter, Hon. Elisse B. ...................................................................................... 42 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

McHenry, Hon. Patrick: 

Chairman’s Exhibits for this hearing ............................................................. 48 

Section 619 of Public Law 111–203 regarding the implementation deadline for the Volcker Rule .............................................................................. 57 

Federal Reserve System press release entitled, ‘‘Volcker Rule Conformance Period Clarified,’’ dated April 19, 2012 .............................................. 60 

Green, Hon. Al: 

Letter to Fed Chairman Bernanke, FDIC Chairman Gruenberg, CFTC 

Chairman Gensler, SEC Chairman Schapiro, and Comptroller of the 

Currency Curry from Financial Services Committee Chairman Bachus 

and Vice Chairman Hensarling, dated November 29, 2012 ...................... 62 

(1) 

EXAMINING THE SEC’S FAILURE TO 

IMPLEMENT TITLE II OF THE JOBS ACT 

AND ITS IMPACT ON ECONOMIC GROWTH 

Wednesday, April 17, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:17 p.m., in room 

2128, Rayburn House Office Building, Hon. Patrick T. McHenry 

[chairman of the subcommittee] presiding. 

Members present: Representatives McHenry, Fitzpatrick, Duffy, 

Grimm, Fincher, Hultgren, Ross, Wagner, Barr; Green, Cleaver, 

Maloney, Sinema, Beatty, and Heck. 

Ex officio present: Representatives Hensarling and Waters. 

Also present: Representative Rothfus. 

Chairman MCHENRY. The subcommittee will come to order. 

This is the Subcommittee on Oversight and Investigations of the 

Financial Services Committee, and our hearing today is entitled, 

‘‘Examining the SEC’s Failure to Implement Title II of the JOBS 

Act and its Impact on Economic Growth.’’ 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. The Chair notes that Members have 

before them a packet of materials labeled the ‘‘Chairman’s Exhibits,’’ which some Members may wish to refer to when questioning 

the witness today. The packets containing Chairman’s Exhibits 1 

through 7 are labeled accordingly. Our witness, Commissioner Walter, has these exhibits in a binder before her. These, in essence, 

were what we provided the Commission last week. 

Without objection, members of the full Financial Services Committee who are not members of the subcommittee may sit on the 

dais and participate in today’s hearing. 

We will now turn to the subject matter of today’s hearing. We 

will have 10 minutes of opening statements per side. 

Commissioner Walter, I know you are well-versed at testifying 

before Congress, so I hope you enjoy the show here. 

But with that, I will recognize myself for 7 minutes. 

In April of last year, with overwhelming bipartisan support from 

Congress, the JOBS Act was signed into law by President Obama. 

I was at the Rose Garden that day. Recognizing the difficult economic times, the new law provided hope for an economic recovery. 

And now, 1 year later, unfortunately very little has been comVerDate Nov 24 2008 16:43 Jul 10, 2013 Jkt 080881 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 K:\DOCS\80881.TXT TERRI
2 

pleted, due to the SEC’s delay. In particular, the lifting of the ban 

on general solicitation under Title II, which would enable private 

issuers to advertise for investors, continues to linger as a proposed 

rule. 

In August of last year, I sought internal communication from the 

SEC to understand the delay to Title II of the JOBS Act. Emails 

provided to the Oversight Subcommittee revealed that the SEC disregarded the law in response to concerns expressed by a single lobbyist. An internal SEC email dated May 9, 2012, reveals that the 

Office of the General Counsel (OGC) advised the Division of Corporation Finance that due to the implementation deadline for Title 

II, the SEC should issue an interim final rule without notice and 

comment. The OGC was dubious that the SEC could enforce the 

ban on general solicitation against those that comply with Title II 

of the JOBS Act. 

The email indicates that in Rule 506, private issuers advertising 

for accredited investors, the Commission would likely lose a legal 

challenge. Specifically, Thomas Kim, Chief Counsel of the Division 

of Corporation Finance, wrote, ‘‘We met with Rich Levine and Aseel 

Rabie this morning to discuss OGC’s comments on the term sheet 

that we received yesterday. Their biggest comment, which they conveyed more fully at our meeting, is on process. As you know, they 

have been concerned about what happens on Day 91. Can the SEC 

enforce the ban on general solicitation in Rule 506 offerings after 

it fails to meet the deadline Congress has imposed for lifting the 

ban on general solicitation in Rule 506 offerings? I think they’re 

dubious as to whether we could.’’ That is an important phrase. 

Thus, Mr. Kim relayed OGC’s concerns to the then-Director of 

Corporation Finance, Meredith Cross. On May 23rd, Ms. Cross 

emailed a term sheet which recommended that the SEC proceed 

with the interim final rules to Commissioners on May 23rd. 

On August 7th, an email from a lobbyist with the Consumer Federation of America expressed strong reservations regarding the 

SEC’s plans to adopt an interim final rule without notice and comment. The email stated that the affected groups ‘‘are prepared to 

be quite aggressive in voicing our concerns.’’ 

Shortly thereafter, then-Chairman Mary Schapiro emailed Director Cross with the subject line, ‘‘Please don’t forward.’’ She certainly didn’t forward it, but we did get the documents as a matter 

of public record. 

The content said, ‘‘I have 2 worries—one is that if these guys 

(CFA, et al) feel this strongly, it seems like we should give them 

a comment period. Its not really asking for much. The other is that 

I don’t want to be tagged with an Anti-Investor legacy. In light of 

all that’s been accomplished, that wouldn’t be fair but it is what 

will be said given how high emotions run on anything related to 

the JOBS Act. Doesn’t seem worth it for an extra 45 days of process...’’ 

In August, Chairman Schapiro informed the remaining Commissioners of her decision to dispense with an interim final rule and 

proceed with a proposed rule. 

Consequently, on August 8th, Commissioner Gallagher emailed 

Chairman Schapiro with the subject line, ‘‘I am furious.’’ The email 

stated, ‘‘I just got word about the latest change to general solicitaVerDate Nov 24 2008 16:43 Jul 10, 2013 Jkt 080881 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\80881.TXT TERRI
3 

tion. It is not acceptable. I have been operating in good faith, reviewing the multiple proposals sent to me for consideration this 

month, and I continue to find shifting sands. A ‘proposal’ on general solicitation could have been done months ago, and indeed 

should have been done years ago. Meredith and Lona made it crystal clear to me on Monday that there is no need for a proposal because we know what the comments will be. And so, I spent hours 

working on how to accommodate your desire for a study within an 

interim final rule, and we did so—just to find out now that you 

have changed your mind again.’’ 

It is clear that Chairman Schapiro prioritized special interest 

groups over the law. This is entirely unacceptable. 

Commissioner Walter, Title II of the JOBS Act is clear in its purpose. There is no debate that Congress imposed this law precisely 

to eliminate the ban on general solicitation for Rule 506 private offerings to accredited investors. 

Applying the most basic Chevron analysis, the SEC’s current 

broad ban on general solicitation is not authorized by statute, specifically Title II of the JOBS Act. While the contents of Title II may 

not please some, that does not provide the SEC authority to deny 

the law nor deny the reality that the law was passed by a wide bipartisan majority. 

As of July 4, 2012, due to the expiration of the implementation 

deadline, Title II of the JOBS Act has changed the law. 

It would appear to me that with this change, the SEC lost the 

authority to enforce its ban on general solicitation against issuers 

which abide by Title II. I understand the SEC is under new leadership, and with new leadership comes changes, obviously, and you 

as a Commissioner are certainly working with the new Chairman 

to set that agenda and hopefully to work together to come to some 

accord. And I hope the SEC finalizes the rules under Title II of the 

JOBS Act as well as a few other provisions that I have talked to 

Commissioner Walter about over the last year or so. 

As promised in that Rose Garden ceremony 1 year ago this 

month, the JOBS Act can have a major impact and help get this 

economy moving again, and help small businesses, even large small 

businesses get access to the capital that they need. 

Commissioner Walter, I want to thank you for your service to our 

government. You have been a faithful public servant. As I said to 

you, I have high esteem for your intellectual capacity, and even 

though we at times may disagree on different ideas and different 

laws and different regulations, I certainly appreciate your willingness to be here today, and I want to thank you for your time. 

With that, I will recognize the ranking member of the subcommittee, Mr. Green, for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman, and I thank you for holding this hearing today. I would also like to thank Commissioner 

Walter for appearing today. I know that you have a very busy 

schedule, and there is much you are attending to. In fact, I have 

made some notes as to some of the things that you are doing. 

According to the information that I have, the SEC oversees approximately 35,000 entities, 11,000 investment advisers, 9,700 mutual fund and exchange trade funds, 4,600 broker dealers with 

more than 160,000 branch offices, approximately 9,500 reporting 

4 

companies, approximately 460 transfer agents, 17 national security 

exchanges, 8 active clearing agencies, 10 nationally recognized statistical rating organizations, and the list goes on, as we say. But 

I do want you to know that we appreciate the stellar job that the 

SEC does. 

As a matter of fact, we seem to think that the SEC can do a lot 

more with less. We have not funded the SEC at the levels that 

have been requested, and my hope is that we will be able to help 

you get fully funded so that you will have adequate resources to do 

all of the many things that we inundate you with. 

I would also like to take a moment and congratulate the new 

Chairman. I am told that this is a statutory title, and as such, I 

want to make sure that I honor what the law requires. But I want 

to congratulate Chairman White and I look forward to visiting with 

her. And I assure you that I will keep her in my prayers as well. 

I would like to also mention that Chairman McHenry and I have 

demonstrated some bipartisanship as it relates to the JOBS Act. 

While it is not in Title II of the JOBS Act, Chairman McHenry and 

I were able to accomplish something that I thought was significant. 

He led the effort to create a framework for crowdfunding and a reporting exemption in capital markets. I was honored to offer an 

amendment that would disqualify individuals convicted of securities fraud from participating in crowdfunding. And I am honored 

to say, Mr. Chairman, that I think that you and I are still working 

together well and I am looking forward to producing similar legislation with you in the future. 

I want to mention one more thing as I move through rather 

quickly, and I will probably give back some time to the chairman. 

We in Congress have demanded much from the SEC over the last 

3 years, all while asking you to meet goals with less money than 

you have asked for. We should not trivialize in any way the responsibility that you have in regulating our capital markets and protecting our investors. Not only do you regulate the markets, but 

you do have as a mandate protecting investors as well. 

More importantly, the SEC should not set aside its rulemaking 

responsibilities under the Dodd-Frank Act to implement some other 

legislation. I believe that you are trying to do both as expeditiously 

as you can, and I appreciate your hard work. 

Both of these pieces of legislation, Dodd-Frank and the JOBS 

Act, are important, and we would hope that as we move forward, 

we will get them all done as quickly and expeditiously as possible. 

Again, welcome to the committee. I look forward to hearing your 

testimony. I have had a chance to peruse it. I also look forward to 

presenting some questions about some of the things that I believe 

to be relevant. 

Thank you, Mr. Chairman, for the time, and I will yield back the 

balance of my time. 

Chairman MCHENRY. I thank the gentleman, and I certainly 

thank him for his willingness to work with me on that provision. 

And as a former judge, you know a lot of criminal law quite well. 

Mr. GREEN. Thank you, Mr. Chairman. 

Chairman MCHENRY. At this point, I will recognize the lead 

sponsor of the JOBS Act, which was signed just over a year ago 

5 

today, actually 13 months ago now, the gentleman from Tennessee, 

Mr. Fincher, for 11⁄2 minutes. 

Mr. FINCHER. Thank you very much, Mr. Chairman, for holding 

this hearing. As a lead sponsor of the JOBS Act, the gentleman 

from Delaware, Mr. Carney, and I believe that something had to 

be done to help small business and entrepreneurs create more jobs 

on Main Street. It is no surprise that Main Street continues to feel 

the brunt of a lagging economy. 

In my home State of Tennessee, the unemployment rate is 7.8 

percent, yet when you look at the individual counties in my district, the unemployment rates are a lot higher: A staggering 12.4 

percent in Obion County; 11.6 percent in my home County of 

Crockett; and 9.3 percent in Shelby County, our State’s most populous county of nearly 1 million people. 

These numbers are reflective of the frustrations I hear from my 

constituents all the time: ‘‘What are you doing to help create an environment where new ideas and companies can succeed, grow, and 

create more jobs?’’ 

While it has been nearly a year since the JOBS Act was enacted 

into law, not all sections of the bill have been implemented. Mr. 

Chairman, a car runs best when every component of the engine is 

in good working order and works together. In this case, if all sections are not enacted and working together, the full benefit of the 

JOBS Act to our economy won’t be realized. 

I look forward to hearing Commissioner Walter’s testimony about 

how she plans to support implementation of the remaining sections 

of the JOBS Act. And I yield back. 

Chairman MCHENRY. I thank the gentleman. 

Mrs. Maloney is recognized for 21⁄2 minutes. 

Mrs. MALONEY. Thank you, Mr. Chairman, and Mr. Ranking 

Member, and welcome, Commissioner, and thank you for your very 

hard work for all of us. 

I supported the JOBS Act and worked with the chairman of the 

subcommittee and others to strengthen the investor protections and 

the overcrowding title of the bill. And we also worked together on 

the—and I believe in the on-ramp that we created for small companies so that they can go public with less burden and so that these 

small companies can create capital, that they are more able to handle the compliance that larger companies to relieve it for the smaller ones. 

Part of it was to allow them to focus their growing businesses on 

raising private capital in the markets and to be able to go to the 

public markets. 

And that is why I believe that fully funding the SEC is so critically important. We put a great deal of burden on the SEC with 

the enactment of Dodd-Frank, covering whole areas which were not 

regulated, bringing them into regulation. Now, with the JOBS Act, 

that needs to be implemented, and they are a very important continuation of focusing on and working on investor protection. 

I strongly support the efforts of the ranking member of the full 

committee and the ranking member of this subcommittee, and he 

mentioned it in his opening statement, to have full funding for the 

SEC in the 2014 budget. 

6 

I don’t see how the SEC can take on these new burdens without 

the staff to implement it. So at the very least, we should give them 

full funding. 

I also support the work of the ranking member of the full Financial Services Committee and the ranking member of this subcommittee and the minority budget views which also urge full 

funding. I believe that the public and investors should have the opportunity to comment and present arguments and input on the 

rules that they will be implementing for the JOBS Act. And I believe the Commissioner was correct in allowing more time—not 

that you want to delay anything—but it is important to get the 

rules right, and if the public and others are demanding and wanting comment time, it is appropriate to allow their voices to be 

heard. 

So I look forward to hearing your testimony today, and I thank 

you again, Mr. Chairman and Mr. Ranking Member, for calling this 

hearing. Thank you. 

Chairman MCHENRY. I thank my colleague, and I thank her for 

working with me on the crowdfunding provision in the JOBS Act 

as well. 

With that, I will recognize Mrs. Wagner of Missouri for 11⁄2 minutes. 

Mrs. WAGNER. Thank you very much, Mr. Chairman. Ever since 

the JOBS Act was passed a little over a year ago, the mood 

amongst entrepreneurs and investors in the St. Louis area, an area 

which I am proud to represent, has gone from excitement and anticipation to one of frustration and bewilderment at the SEC’s inability to implement vital portions of the bill, in particular Title II. 

Adding insult to injury, it appears that the SEC’s inaction on 

Title II certainly is not due to the complexity of the issue itself. Indeed, it is both ironic and unfortunate that a bipartisan success 

such as the JOBS Act has been held up at the SEC for what appear to be political reasons. 

The JOBS Act was a success not just because of the policy it put 

in place, but because of the bill’s implicit recognition that it is entrepreneurs and risk takers and fresh ideas which power the American economy. 

The idea that one Federal agency would put all of this on hold 

for no valid reason is, quite frankly, part of the reason why so 

many people have lost faith in Washington. 

With this in mind, Mr. Chairman, I look forward to hearing 

today about when exactly we can expect the JOBS Act to be fully 

implemented. 

Thank you. I yield back. 

Chairman MCHENRY. I thank my colleague. I now recognize Mrs. 

Beatty for 21⁄2 minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Mr. Ranking Member, for holding this hearing. And certainly, Ms. Walters, I thank 

you for being here today, and of equal importance, I thank you for 

your service to the American people. 

We are eager to hear your comments about the SEC’s role in the 

implementation of Title II of the JOBS Act. So let me start with 

telling you what I hope to hear today. 

7 

I hope that this hearing sheds light on three important concerns 

of mine: one, making sure that the SEC has the necessary funds 

to achieve its mission in regulating markets; two, getting new rules 

right rather than simply getting them done; and three, ensuring 

that the investors are protected. 

We know that since the Great Recession, the SEC has been 

under intense pressure to increase its regulatory oversight of financial firms in an effort to combat both core risk management within 

financial markets and also to detect and prosecute investor fraud. 

And frankly, as we have heard from several of my colleagues, in 

this environment, the Commission has also been charged with implementing a number of additional rules and regulations under the 

comprehensive Dodd-Frank Wall Street Reform and Consumer Protection Act. And now, with the enactment of the JOBS Act last 

year, the SEC has been instructed to conduct further studies, rulemaking and oversight functions. 

So I would like to make it clear that there does seem to be some 

inconsistencies as to the expectation of the Commission with respect to its rulemaking authority. Specifically, given that there are 

a number of final rules yet to be issued under Dodd-Frank, which 

in large part is designed to increase investor protection, while the 

JOBS Act wasn’t signed into law until nearly 2 years later and is 

designed to relax security. So hopefully, we will be able to address 

some of these issues, and I just simply want to say thank you, and 

I yield back. 

Chairman MCHENRY. I thank the gentlelady. 

We will now recognize our distinguished witness. Ms. Elisse Walter is a Commissioner with the U.S. Securities and Exchange Commission. She served as the Acting Chairman of the SEC from December 2012 to April 2013, actually until last Friday. 

Before the SEC, the Commissioner held several positions, including with the CFTC and with FINRA. Commissioner Walter received a B.A. from Yale and her J.D. from Harvard Law School, a 

few small institutions which have more than a regional name. 

So thank you for your willingness to testify today. You will be 

recognized for 5 minutes to summarize your opening statement. 

And without objection, your written statement will be made a part 

of the record. With that, we will now recognize Commissioner Walter 

STATEMENT OF THE HONORABLE ELISSE B. WALTER, COMMISSIONER, U.S. SECURITIES AND EXCHANGE COMMISSION 

Ms. WALTER. Chairman McHenry, Ranking Member Green, and 

members of the subcommittee, thank you for the opportunity to testify today regarding our implementation of Title II of the 

Jumpstart Our Business Startups Act (JOBS Act). Implementing 

Title II and the other provisions of the JOBS Act is a top priority 

for the Commission. 

As you know, Title II requires the Commission to revise Rule 506 

of our Regulation D to allow general solicitation or general advertising for certain offers and sales of securities provided that all purchasers are accredited investors. The rules the Commission adopts 

must require issuers to take reasonable steps to verify that purVerDate Nov 24 2008 16:43 Jul 10, 2013 Jkt 080881 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\80881.TXT TERRI
8 

chasers of the securities are accredited investors using such methods as determined by the Commission. 

The Title II rulemaking was required to be completed within 90 

days of enactment of the JOBS Act, and I am committed to finalizing these rules and working closely with my colleagues to do so 

expeditiously. 

Prior to enactment, a rule-writing team was formed consisting of 

staff from across the Commission, including economists from the 

Division of Risk Strategy and Financial Innovation. And in August, 

the Commission issued for public comment proposed rules to implement Title II. 

Under the proposed rules, companies issuing securities in an offering conducted under Rule 506 of Regulation D would be permitted to use general solicitation or general advertising so long as 

the issuer takes reasonable steps to verify that the purchasers of 

the securities are accredited investors. 

The proposal explains that in determining such reasonableness, 

issuers should consider the facts and circumstances of the transaction. Meanwhile, the proposed rules would preserve the existing 

portions of Rule 506 as a separate exemption so that companies 

conducting Rule 506 offerings without the use of general solicitation or general advertising would not be subject to the new 

verification requirement. 

To aid the rulemaking process and to increase the opportunity 

for public comment, the Commission permitted interested parties to 

submit comments regarding this provision even prior to issuing its 

proposal. These pre-proposal commenters expressed a variety of 

views, including how the verification process should work. Some focused on the capital formation benefits they believed the rulemaking could provide, while others raised serious investor protection concerns that would arise if general solicitation was permitted 

without additional safeguards. 

The comment period for the proposal, which ended in October, resulted in more than 220 letters. Those letters have generated 

meaningful discussion regarding the issues and have been very 

useful in our consideration of how to implement Title II. 

As with the pre-proposal stage, commenters on a proposal were 

sharply divided in their views. On the one hand, a number of commenters expressed general support for the proposals, with many 

stating that eliminating the ban on general solicitation and general 

advertising would facilitate capital formation. 

In addition, several supporters recommended that the proposed 

framework for verifying accredited investor status be supplemented 

by including a nonexclusive list of specific verification methods that 

could be relied upon by issuers. 

On the other hand, a number of commenters expressed general 

opposition to the Commission’s proposal, with some stating that the 

proposed rules, if adopted, would result in an increase in fraudulent offerings. 

A number also recommended that the Commission consider additional safeguards such as those recommended in certain pre-proposing release comment letters. 

Currently, staff in the Divisions of Corporation Finance and Risk 

Strategy and Financial Innovation are developing recommendations 

9 

for the Commission’s consideration as to how best to move forward 

with the implementation of Title II. 

Although the Commission and the staff continue to work on implementing Title II, I fully recognize the need to move forward on 

this rule quickly, and I can assure you that I am committed to 

doing that. 

Implementing the JOBS Act is a top priority for the Commission, 

and getting this particular rulemaking done is a matter on which 

I believe we need to be acutely focused. 

Thank you again for inviting me to appear before you today. I 

would be pleased to answer any questions you may have. 

[The prepared statement of Commissioner Walter can be found 

on page 42 of the appendix.] 

Chairman MCHENRY. I thank the Commissioner, and I thank you 

for your service to your government. 

I will now recognize myself for 5 minutes. If you look at the first 

exhibit in the exhibit book, the last two sentences of the first paragraph, ‘‘Can the SEC enforce the ban on general solicitation in 

Rule 506 offerings after it fails to meet the deadline Congress has 

imposed for lifting the ban on general solicitation in Rule 506 offerings? I think they’re dubious as to whether we could.’’ 

So the sentence before those two, though, says that legal counsel 

‘‘have been concerned about what happens on Day 91.’’ What were 

the SEC lawyers concerned about on Day 91? 

Ms. WALTER. As the JOBS Act was written, the ban on general 

solicitation was not automatically lifted. There was a determination 

by Congress to mandate that the SEC conduct rulemaking to lift 

it. So on Day 91, the ban on general solicitation would remain in 

effect. However, there was an expression of congressional policy 

that on a going-forward basis, the Commission should lift the ban. 

So as I understand it, what they were concerned about is if we 

were to find a situation where general solicitation was being conducted and bring a case against that person for violating the law, 

in the absence of another exemption from registration, there was 

concern that a court or other tribunal might not be willing to impose relief because of the congressional policy determination. 

Chairman MCHENRY. So, the enforceability of said ban is questionable? 

Ms. WALTER. The question of enforceability in the sense of 

whether we would be able to obtain relief in that instance. 

Chairman MCHENRY. Okay. So you agree with the SEC lawyers’ 

approach here? 

Ms. WALTER. I agree that there was an issue. I personally was 

not that troubled by this issue. 

Chairman MCHENRY. Okay. The next exhibit is an email which 

states that, ‘‘Meredith supported going straight to a final rule...’’ In 

this context, and we provided these emails to you last week, is 

‘‘Meredith’’ in reference here to Meredith Cross? 

Ms. WALTER. Yes. 

Chairman MCHENRY. Okay. Do you concur with her assessment? 

Ms. WALTER. My preference was always to have notice and comment. The Division of Corporation Finance determined to recommend at one point that we go without notice and comment for 

the rule. 

10 

As I understood it, their primary reasoning was that they didn’t 

believe we would obtain very much information in the comments 

that were made given what we had heard already. I believe that 

the over 200 comment letters, which were quite substantive and interesting to me and my colleagues that we did receive, showed that 

in fact was not the case. 

Chairman MCHENRY. So if you look at Exhibit 3—we are just 

going to walk through this process—dated May 23, 2012, the implementation deadline was July 4th for this provision of the JOBS 

Act. That would have given you 90 days. So Exhibit 3 is dated before the implementation deadline. 

This is an email you are included on as a Commissioner, and it 

comes from Meredith Cross stating that, ‘‘As you will see, we are 

recommending that the Commission proceed with an interim final 

rule.’’ There are a number of other pieces of information there, obviously. 

So almost a year ago, you had a draft in good enough condition 

to circulate among all Commissioners, isn’t that right? 

Ms. WALTER. This was a draft term sheet, and let me explain a 

little bit about our term sheet process, which has been quite valuable for us. It is one of the earlier steps in rulemaking in that it 

outlines what the rule would do. It is not a draft of the actual text 

of the rule accompanied by the release which would be issued if a 

rule was proposed or adopted. 

Chairman MCHENRY. Okay. But you did have this term sheet? 

Ms. WALTER. We did. 

Chairman MCHENRY. Okay. How long does it normally take from 

that point to actually have a rule? 

Ms. WALTER. There really is no— 

Chairman MCHENRY. Apparently pretty long. 

Ms. WALTER. There really is no standard length of time. What 

the term sheet is meant to start is the discussion process and to 

get an initial feeling from each of the individual Commissioners of 

where they stand on the major issues in a rulemaking process. 

Chairman MCHENRY. Okay, not to interrupt, but I only have 20 

seconds left. 

But at that point, the Commission had intended to meet its statutory deadline? 

Ms. WALTER. Certainly, we always intended to try to meet the 

statutory deadline. 

Chairman MCHENRY. Apparently not very consistently, since we 

are now approaching almost 11 months after this email with the 

term sheet. 

So the question here is that the staff recommended a final rule, 

and yet there was a pullback. Did you think a pullback at that 

point was appropriate? 

Ms. WALTER. I would point out, too, before this, the staff had recommended a proposal. So this was a very fluid process. Staff first 

recommended a proposal, then recommended a final rule, and then 

it was changed back to a proposal. As I said, throughout that process my preference was to go with a proposed rule. 

Chairman MCHENRY. I now recognize Ranking Member Waters 

of the full Financial Services Committee for 5 minutes. 

11 

Ms. WATERS. Thank you very much, Mr. Chairman. I have a 

question about SEC resources and the agency’s ability to ferret out 

fraud given the expanded ability of securities issuers to use general 

advertising and solicitation under Title II of the JOBS Act. 

Will the SEC need to expand the number of enforcement staff 

looking for fraud under Rule 506 offerings, given the expansion of 

rule Rule 506 under the Act? 

Ms. WALTER. Thank you, Ranking Member Waters. It is imperative, and I have believed all along and worked with the staff very 

closely, that when this rule is enacted, as with many rules, but this 

rule in particular because we have received serious comments that 

this rule may increase the opportunity for fraud, that there be an 

intensive review program to determine what impact the rule has. 

Does it lead to offerings being sold to the wrong people? Does it 

lead to increased fraud, of course, compared to the situation with 

respect to other private placements? And I do believe that we will 

need to expend both examination and enforcement resources that 

we would not otherwise have to expend. 

Ms. WATERS. The JOBS Act removes certain investor protections 

for all offerings made under Rule 506 by eliminating the ban on 

general solicitation and advertising so long as only accredited investors are purchasers. Given the updates made under the JOBS 

Act, is it appropriate for the Commission to perhaps reexamine the 

definition of accredited investor? 

Ms. WALTER. Yes, I believe it is. I have often said in this process 

that I agree with both sides of this debate. I believe we should lift 

the ban on general solicitation and focus on those who purchase in 

private offerings, not those to whom the offer is made. But I also 

believe that we have to be careful about who those people are. It 

is my view that the accredited investor definition is outdated, at 

least the numerical standards need to be looked at, but in fact my 

preference would be to change the criteria entirely as to how we 

attempt to measure sophistication and access to information. And 

I think that would be a significant investor protection effort well 

worth undertaking. 

Ms. WATERS. Is the Commission applying the same standards to 

the rulemakings under the JOBS Act as what they have applied to 

rulemakings under the Wall Street Reform Act? For instance, 

under the general solicitation rulemaking, did the Commission consider the losses that might be sustained by allowing investors to 

purchase investments that are marketable under the newly expanded Rule 506 but would never have been so successful in a registered offering that required full disclosure? 

Ms. WALTER. As we were required to do, we did conduct an economic analysis which is contained in the proposal release. Of 

course, we have not yet issued an adopting release, and part of our 

responsibility in reviewing the comments is to determine what we 

have heard about the impact of the rule and to explain the economic impact of the decisions that we make when we adopt. 

Ms. WATERS. Thank you very much. 

I yield back the balance of my time. 

Chairman MCHENRY. We will now recognize the vice chair of the 

subcommittee, Mr. Fitzpatrick of Pennsylvania. 

12 

Mr. FITZPATRICK. Thank you, Mr. Chairman. Commissioner, 

thank you for your testimony and your time before the committee 

today. 

The JOBS Act passed the Congress over a year ago, passed the 

House of Representatives on March 8, 2012. The vote was 390–23, 

a pretty significant bipartisan effort. Two weeks later, it sailed 

through the Senate. The vote was 73–26, and it was signed, of 

course, by the President on April 5th. So the rules were supposed 

to be promulgated within 90 days, or by July 4th. 

I would ask you to refer to exhibits 2 and 3 if they could go up 

on the screen. Exhibit 2 is an email from Thomas Kim. In the first 

paragraph he said, ‘‘Meredith supported going straight to a final 

rule, as we could then have a pilot period where we could assess 

how issuers are verifying accredited investors and whether or not 

these investors are, in fact, accredited, after which point we could 

decide whether to adopt final final rules or amend the rule to address any concerns. She was more comfortable doing this as an interim final temporary rule, which means it would sunset at some 

future date.’’ 

Exhibit 3 is Meredith Cross’ email of May 23rd: ‘‘Attached for 

your review is a draft term sheet for the rulemaking to remove the 

ban on general solicitation...’’ 

It appears from the emails, Commissioner, contained in exhibits 

2 and 3 that Meredith Cross, the Director of the Division of Corporation Finance at the SEC, agreed that the best course of action 

was to go to a final rule. 

Do you recall her support for an interim final rule prior to implementing Section 201? 

Ms. WALTER. I am sorry, I couldn’t hear the last part of your 

question, her support for the rule. 

Mr. FITZPATRICK. Do you recall her support for an interim final 

rule to implement Section 201? 

Ms. WALTER. Yes, I do. 

Mr. FITZPATRICK. Was she the most knowledgeable person within 

the organization? 

Ms. WALTER. She was the head of the division in charge of implementing the rule as a matter of substance, and a very knowledgeable person. 

Mr. FITZPATRICK. Was her support based on concerns over the 

enforceability of the ban on general solicitation? 

Ms. WALTER. As I understand from talking to her at the time, 

her support was more based on the fact that she felt that there 

wasn’t a great deal of benefit to be gained from the comment process. And as I said earlier, I believe the comments that have come 

in have shown that there was a great deal of benefit to be gained. 

And my colleagues in the Division of Corporation Finance agree 

with that. 

Mr. FITZPATRICK. Commissioner, to what extent were you an active participant in the discussions and negotiations pertaining to 

the implementation of Title II of the JOBS Act? 

Ms. WALTER. I was an active participant in the sense that I was 

to vote as well as the other four Commissioners. 

Mr. FITZPATRICK. Do you agree that Title II of the JOBS Act is 

a relatively straightforward and simple set of provisions that proVerDate Nov 24 2008 16:43 Jul 10, 2013 Jkt 080881 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 K:\DOCS\80881.TXT TERRI
13 

vide only limited discretion to the SEC with regard to implementation? 

Ms. WALTER. I agree that the statute itself is straightforward, 

but it also raises serious investor protection concerns that do not 

impact necessarily whether one moves ahead. We have a congressional directive to move ahead with lifting the ban. I agree with 

lifting the ban. I also believe that as the Federal agency which is 

charged with protecting the markets, facilitating capital formation, 

and protecting investors, it is important that we look at those investor protection concerns as well. 

I also believe that although it is sometimes posed as a balance 

between investor protection and capital formation, the two go hand 

in hand, and they are really dependent on each other. If we don’t 

take care of investors they will have no confidence in the markets, 

they will not invest, entrepreneurs will not be able to build businesses, and we won’t be able to have sufficient capital formation. 

Mr. FITZPATRICK. So what was the problem in getting the rule 

implemented within 90 days as the law required? 

Ms. WALTER. First, I will say the rulemaking process—I don’t 

know that I have ever seen a rule proposed and adopted in 90 days. 

If I have, they are rare, few, and far between. The rulemaking 

process generally takes longer than that. There are of course exceptions where it takes less time than that. The answer here is that 

responsible people, and I will particularly cite which influenced me 

in the comment process, that our Investor Advisory Committee 

which if you look at the constituency of it is rather broad, wide and 

deep, people from all walks of life, from institutional investors, representing retail investors, from businesses as well, came unanimously to us with recommendations saying you should not move 

ahead with this without addressing the following investor protection problems. 

Our mandate is to lift the ban. Our mandate is also to consider 

investor protection. That made it more complicated than it seems 

on its face. 

Chairman MCHENRY. Mr. Cleaver is recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Madam Chairwoman, my concern is that the things that were 

principally intended or the ones that are not being implemented 

and the things that we probably didn’t think would happen are the 

ones getting the most attention. Would you agree that the one part 

of the JOBS Act which is being used more than anything else is 

the one which allows companies to avoid the executive pay rule? 

Ms. WALTER. The part of the JOBS Act that is now in effect is 

Title I, which basically is the IPO on-ramp, and it does create a 

category of smaller companies which among other things, do not 

have to comply with the executive pay rule. 

Mr. CLEAVER. So you are saying ‘‘yes?’’ 

Ms. WALTER. Yes. 

Mr. CLEAVER. Thank you. The SEC was created after the Great 

Depression in part as a reaction to all of the fraudulent practices 

that had gone on that probably contributed to the Great Depression. So if we begin to relax any of the regulations in the JOBS 

Act, do you think that it would lead to any additional jump in 

fraudulent activity? 

14 

Ms. WALTER. I don’t know the answer to that. And that is why 

from the beginning of consideration of Title II, I asked the staff to 

develop a review program so that we could monitor that. That 

doesn’t necessarily have to be the case. It doesn’t have to be true 

that lifting the ban would lead to greater fraud. If I had thought 

that was inevitable, I would not have been in favor of it. I still 

would have done it because Congress told me to. 

So I think the important thing to do here is to analyze the investor protection issues that are present, see if some of them can be 

addressed and they really do revolve mostly around who the investors are rather than how they are solicited, and then put in place 

a review program so that we can make sure that these offerings 

are not being sold to the wrong people and that there isn’t an increase in fraud. And if there is a notable increase in fraud, we 

should come back and tell you because this was a congressional determination. 

Mr. CLEAVER. Is there any kind of way in which you can detect 

the increase early on so that it would be brought back to Congress 

for us to hopefully make some immediate alterations? 

Ms. WALTER. We will be able to monitor certain of the offerings 

fairly easily. There is a form that gets filed and that form, if it goes 

through as proposed, would have a box that would check whether 

people were using general solicitation. But although people are required to file the form, it is not a condition of the exemption, so 

not everyone does. So if those people don’t file, we are going to 

have to rely on other efforts such as surfing the Internet and the 

like to try to identify what offerings are going on. 

That is why one of the suggestions that was made in the course 

of the comment process was to make the form a condition. There 

are pros and cons to that which I would be happy to address if you 

like. 

Mr. CLEAVER. Thank you. Let me move over to another area. The 

whole IPOs, I think, giving ordinary citizens the opportunity to become investors, sounds good except that for the most part when we 

are talking about investors, we are talking about some very sophisticated people, people who understand, they are venture capitalists 

and so they understand it. 

Is there anything that the SEC can do or is there anything that 

we need to do to make sure that the start-up community understands and appreciates the risk involved? 

Ms. WALTER. I believe that some of that happens in the course 

of the process of doing a standard IPO, because they generally involve investment professionals who provide advice and counsel 

about that. It also involves filing a public document with the Commission, going through the Commission review process, responding 

to the Commission’s comments. There is less education about that, 

I believe, in the private offering market. People don’t really understand that. Certainly, there are educational efforts that could be 

launched. There are some that we are doing, and there are some 

that are done by the private sector as well, which would be quite 

helpful to businesses as well as to investors. 

Chairman MCHENRY. The gentleman’s time has expired. 

We will now recognize Mr. Ross for 5 minutes. 

Mr. ROSS. Thank you, Mr. Chairman. 

15 

Commissioner, thank you for being here. I appreciate your acknowledging in your opening statement the significance of the 

JOBS Act, specifically with regard to Title II in that you agree that 

it was intended to lift the ban on general solicitations for Regulation D, Rule 506 that seek only investment from accredited investors. That was pretty clear wasn’t it? That is fairly direct, straightforward, and unambiguous? 

Ms. WALTER. Absolutely. 

Mr. ROSS. And it was relatively clear and unambiguous also in 

the JOBS Act that this was to be done within 90 days, correct? 

Ms. WALTER. Yes. That is correct. 

Mr. ROSS. So my question is, in your opinion, what would cause 

a regulator to deviate from clear and unambiguous language mandated by Congress in the promulgation of a particular rule? 

Ms. WALTER. There are other statutes that we are compelled to 

comply with, including the Administrative Procedure Act. 

Mr. ROSS. I agree. The leading case of Chevron v. Natural Resources, the Supreme Court case in 1984, really set forth the only 

criteria in this two-step process by which there may be great deference given to a regulator in trying to interpret or otherwise implement a statutory requirement. 

And if I could just have Exhibit 4 up there for just a second, in 

Exhibit 4, which, I guess this was the interim rule that was being 

proposed, the interim final rule, and it says there that, and this 

was prepared by the lawyers, ‘‘First, we believe that the statutory 

language in Section 201(a) is clear and straightforward as to how 

to amend Rules 506 and 144A(d)(1), such that prior notice and 

comment are unnecessary.’’ 

It appears as though, and this is the theme I keep coming back 

to, it was clear and unambiguous what the requirement was for the 

SEC to do with regard to implementation of Title II. Do you disagree with that? 

Ms. WALTER. I believe I disagree with your interpretation of 

what the governing statutes are in terms of process. Yes, what 

Congress wanted us to do was clear. Congress’ determination that 

there be a 90-day deadline was clear. But in order to dispense with 

notice and comment, we had to have good cause, that is intended 

to be a narrow exemption— 

Mr. ROSS. And wouldn’t the good cause have been the final interim rule? In fact, in the exhibits here before us, it indicates on 

advice of counsel that if the SEC implemented the interim final 

rule, it would allow for this process to engage for a couple of years, 

so that you could then reevaluate and issue a final rule. 

Now, that was suggested in June of 2012, 29 days before the 

deadline of 90 days. 

What happened in the interim? Did it have to do with Ms. 

Roper? 

Ms. WALTER. What happened is that there were concerns—actually, I can’t speak for exactly what happened. 

Mr. ROSS. But something happened. 

Ms. WALTER. For what happened in my own mind, there were 

concerns expressed by others outside the agency about the process 

that was being followed. First I should make clear, we never got 

16 

legal advice from our lawyers that this was the way we had to go. 

We were told— 

Mr. ROSS. Who prepared the interim rule? 

Ms. WALTER. The Division of Corporation Finance. 

Mr. ROSS. Your Office of General Counsel had nothing to do with 

that? 

Ms. WALTER. They were consulted. They did not prepare it. 

Mr. ROSS. Okay, and you have no evidence or otherwise have any 

reason to believe that they objected to that? 

Ms. WALTER. They advised us that it would be possible to do an 

interim final rule, not that it would be without risk, but that it was 

one possible avenue. 

Our rulemaking division first recommended that it be done by 

proposal, then it recommended that it be done by interim final, and 

then a determination was made that it be done by proposal. We 

were never told that we had to do an interim final, and it is very 

difficult to conceive of an instance in which that would be true. 

Mr. ROSS. But you knew you had to do it within 90 days, and 

then in the interim Ms. Roper does an email to Ms. Schapiro and 

suddenly things change, the 90 days is expired. Do you not believe 

that even based on the recommendations or advice of your Office 

of General Counsel that this will lead to litigation unnecessary and 

totally unavoidable had it been promulgated within the 90 days? 

Ms. WALTER. I believed that it could have led to litigation if it 

had been promulgated within the 90 days. It may also lead— 

Mr. ROSS. Because it had ambiguities, because it wasn’t specific? 

Ms. WALTER. Because it didn’t— 

Mr. ROSS. The elimination of general solicitations. 

Ms. WALTER. Because an argument was likely to be made that 

we didn’t thoroughly analyze and consider alternatives to the rule, 

which is what we do in our economic analysis, and the implications 

of the rule. 

Mr. ROSS. And in light of the 90 days being expired, now there 

might not even be authority for the SEC to implement this particular requirement. 

Ms. WALTER. Oh, no. That authority does not cease simply because the deadline passes. We still have authority to implement 

the requirements. We believe it is our job to do so, and we are 

going to. 

Mr. ROSS. Even contrary to what your attorneys have advised 

you? 

Ms. WALTER. Our attorneys did not advise us that our authority 

expired after 90 days. They have never suggested that. 

Mr. ROSS. I yield back. 

Chairman MCHENRY. We will now recognize Ms. Beatty for 5 

minutes. 

Mrs. BEATTY. Thank you very much, Mr. Chairman, and thank 

you, Mr. Ranking Member. 

Again Commissioner, thank you for being here and taking your 

time to address our many questions. We have spent a lot of time 

in the last few minutes asking you about the processes that relate 

to rulemaking from the proposal to your last response to the question. 

17 

In that same light, but shifting it a little bit, can you please 

speak to how SEC’s funding and resource level impacts its ability 

to properly complete its rulemaking authority? 

Ms. WALTER. Of course, there are two questions. One was the 

fact that I think even before the Dodd-Frank Act was passed in 

2010, the SEC was underresourced. And I mean that both in terms 

of personnel, and in particular in terms of technology. There was 

a substantial gap in our capacity compared to the private sector 

that we regulated. 

When the Dodd-Frank Act was passed and followed by the JOBS 

Act, I will conflate them, we had serious additional responsibilities 

that were given to us, first, to promulgate a large number of rules, 

close to 100 new rules, to do a number of studies. That is work 

which is continuing. We have not finished our work under the 

Dodd-Frank Act, and we have not finished our work under the 

JOBS Act. 

Even more significant than that, however, when all of these rules 

are done and all of them go into effect, those rules will be meaningless unless they are administered and enforced, and we need the 

resources and again both on the people level and the technology to 

do that right, and that is why we have continued to ask for additional resources. 

Mrs. BEATTY. Mr. Chairman, Mr. Ranking Member, let me ask 

you another question. Does the SEC believe that the criteria for 

qualifications as an accredited investor, are they significantly restrictive as to protect unsophisticated investors with moderately 

high salaries from unregistered security or should there be a revision of the qualifying standards? 

Ms. WALTER. Of course, I cannot speak for all of my colleagues, 

but I believe very strongly that there should be a revision of the 

qualifying standards. I believe that the definition of ‘‘accredited investor’’ as it stands today does a poor job of screening out people 

who are unsophisticated and people who do not have the wherewithal to demand access to information, and includes many unsophisticated investors. 

Mrs. BEATTY. Thank you very much. I yield back. 

Chairman MCHENRY. We will now recognize Ms. Wagner for 5 

minutes. 

Mrs. WAGNER. Thank you, Mr. Chairman, and thank you, Commissioner Walter. 

I am as dismayed as anyone that the SEC has put what I consider a lid on innovation and investment in their inaction surrounding Title II. So I want to highlight some of the entrepreneurs, 

real life examples, you get out of the process weeds here perhaps, 

in the St. Louis region that are doing just great things and stand 

to help our economy even more if only the SEC would do what Congress has directed them to do regarding Title II. And these are just 

a couple of the companies, just a couple, looking for growth capital. 

Global Velocity, this company provides the world’s first data loss 

prevention solutions that have been built for the Cloud. They are 

the cutting edge of providing cybersecurity solutions which is absolutely critical in our economy today. And in 2011, the company was 

named a finalist for Forbes Magazine list of America’s most promising companies. 

18 

Next, would be Big Event Mobile. Big Event has developed a mobile app that allows trade show producers to build and better capitalize events that they have put on. 

Commissioner Walter, the bottom line here is that there are endless, I think, examples of companies such as this around the country that are innovating and looking to expand, looking to hire, and 

really it just seems unacceptable to me that the SEC continues to 

drag its feet here. There is, I think, a direct link between SEC inaction regarding Title II and decreased economic activity around 

the country. And I think it needs to be one of the key takeaways 

today. 

So Commissioner, I would ask that the SEC Title II rule proposal 

pointed out that the market for Reg D offerings, and this is of 

course pre-JOBS Act in 2010 and 2011, was larger than all other 

private offerings, public debt and public equity offerings combined. 

The same SEC analysis clearly has high expectations that lifting 

the solicitation ban could further increase such capital formation. 

Do you agree with the SEC’s analysis? 

Ms. WALTER. I believe that is likely. 

Mrs. WAGNER. Likely or—the analysis was very specific here in 

terms of post a trillion dollars, this is even pre that could be there. 

Ms. WALTER. Clearly, there is a large amount of money that is 

raised in the private offering market. And I am saying it is quite 

likely that when the general solicitation ban is lifted, that amount 

will go up significantly. 

Mrs. WAGNER. So then if the Reg D market pre-JOBS Act was 

nearly a trillion dollars, wouldn’t you agree that if the SEC finally 

implemented Title II to allow for solicitation, the economic benefits 

could just be enormous? 

Ms. WALTER. I don’t know what the impact will be. And the overall net economic benefits will depend in part, again, on how we implement it. For example, in the course of the comment process, 

even from supporters of the proposal, they did not like the way we 

decided to treat reasonable steps to verify. They wanted us to do 

something different. They wanted further comfort. So if in fact we 

had gone forward with an adoption, many of the supporters of this 

rule, many of the people who wanted to use it would not have been 

happy about how we had implemented one of the key provisions. 

Mrs. WAGNER. And why was that? 

Ms. WALTER. Because they felt they wanted more specific guidance. We put out a proposal that was extremely flexible about what 

reasonable steps to verify would be, and in fact we were surprised 

the supporters of the rule wanted a safe harbor in terms of specific 

things that they would be able to do. And we heard that. The impact of the rule will also vary depending on what happens, as we 

track it, to see whether in fact it ends up being used, perhaps not 

by the honorable and upright companies that you are citing, but 

other companies to use it as a vehicle for fraud. 

Mrs. WAGNER. Let me ask about that in terms of risk and risktaking. These are all accredited investors that would be involved in 

these kinds of offerings. Is that correct? 

Ms. WALTER. They are accredited investors. I, frankly, believe 

that the definition of accredited investor is too broad. In any 

event— 

19 

Mrs. WAGNER. And why is that? 

Ms. WALTER. Because it covers any number of people who neither 

have the wherewithal to lose the money that they could lose, the 

sophistication to evaluate the investment opportunities— 

Mrs. WAGNER. These are investors who can afford advice and 

who can, I think, better afford the kind of risk taking that is out 

there. And certainly— 

Ms. WALTER. Not necessarily, particularly not if an offering is 

done by general solicitation over the Internet. All it has to be is 

someone who has the right financial numbers who answers an 

Internet solicitation. And you don’t have to have an adviser at all. 

So there are risks there. That does not mean to me that we should 

not go forward with this. We should. But we have an obligation to 

look at the investor protection concerns as well. 

Mrs. WAGNER. I yield back. 

Chairman MCHENRY. I will now recognize Mr. Heck. 

Mr. HECK. Thank you, Mr. Chairman. 

Commissioner Walter, thank you very much for your presence 

and your testimony today. I want to follow up, as we keep butting 

up against this issue of the definition of an accredited investor. Am 

I correct that Dodd-Frank permitted the SEC to review that definition? And if so, is there one under way? 

Ms. WALTER. Dodd-Frank did several things in this area. It mandated that in determining net worth, you not consider your primary 

residence. And it said that the SEC could move forward in reviewing the definition, but was not permitted to change the net worth 

standard until the middle of 2014. 

Mr. HECK. Has a review been initiated? 

Ms. WALTER. We have started to look at those issues. 

Mr. HECK. And you have said several times that you don’t think 

that the definition is adequate. As I recall, and I could be mistaken, the principal pillars of the definition are a net worth threshold and an annual income level. So, obviously, you have a strength 

of conviction here, having heard you respond in that fashion 3 

times now. How would you change it? Or what kinds of things 

would you add to get at this objective of ensuring that an accredited investor was sufficiently capable of evaluating an investment 

opportunity above and beyond income and/or net worth? 

Ms. WALTER. Some of the things that we could consider, and I 

wouldn’t rule out others, would be of course raising the numbers 

that are in the definition. Alternatively, we could use a different 

criterion. I tend to think that if we were to look at the amount an 

individual had invested—and we are really talking about natural 

person accredited investors here, we are not talking about entities—but if we were to look at a standard of a person having so 

much already invested, that prior experience wouldn’t be perfect, 

but would be nonetheless an objective indicator that perhaps would 

be better. 

We could also look to criteria that are not specifically with respect to the definition. Borrowing from Title III of the JOBS Act, 

if you look at the crowdfunding provision, there is a provision in 

there that someone who is going to invest through a crowdfunding 

site has to go through a process of demonstrating that they understand basic concepts, essentially an online—it would end up being 

20 

probably an online learning module where you would have to keep 

going through until you got the answers right. So it would demonstrate a certain degree of knowledge. And we could perhaps consider something like that as well. 

Mr. HECK. In addition to requiring an accredited investor to meet 

some threshold of invested funds, would you personally favor increasing either or both the annual income level or the net worth 

level? 

Ms. WALTER. I would probably, sitting here today—and I don’t 

have a fixed judgment; I would like to go through the process—prefer to do away with the income and net worth levels and go to an 

amount invested, unless we can find a different objective criteria 

that will work. I do think it is important that this be relatively 

simple and objective so it is administerable. 

Mr. HECK. And what range of invested amount would you 

think—I am asking for a range, and I am obviously not asking for 

some kind of an enduring commitment here—but I am just trying 

to get a sense of at what level do you think people are demonstrating some level of sophistication sufficient to warrant this? 

Ms. WALTER. To me, it would have to be relatively high. We 

could either use one of our existing standards or we could do something like $500,000. I fear for hard-working people who haven’t 

made very much in their lives, who have accumulated money in a 

retirement account and are nearing retirement, so that they are at 

the high point of their asset accumulation level and are just rife 

targets for fraud, and that money is going to have to last them for 

the rest of their lives. So I would think it would have to be relatively high, but I don’t know the right number right now. 

Mr. HECK. Lastly, do you have the authority to in any way limit 

the manner in which the general solicitation and advertising is 

done, or does by definition, general solicitation preclude you from 

prohibiting certain kinds of venues or channels for appeal? 

Ms. WALTER. That has been a matter of some controversy. Some 

have said we do, and some have said we don’t. I believe that we 

do. We, of course, would have to propose that. 

Mr. HECK. Very good. 

Mr. Chairman, thank you. I yield back the balance of my time. 

Chairman MCHENRY. I certainly appreciate that. Very interesting line of questions and interesting comments as well. 

We will now go to Mr. Hultgren of Illinois for 5 minutes. 

Mr. HULTGREN. Thank you, Mr. Chairman. 

Thank you, Commissioner Walter. I appreciate you being here. I 

do apologize. There are several things going on at once. I have had 

to step out a little bit. So I know you have maybe brushed on some 

of these things, but I do want to—I have some questions I wanted 

to ask. The proposed rule to implement Title II, which proposes a 

solution to accredited investor verification, passed the Commission 

on August 29, 2012, and the comment period, as you know, ended 

on October 5, 2012. It is now April 17, 2013. I wondered if you 

could explain why during your tenure as Chairman, you haven’t 

voted on a final rule to implement Title II? 

Ms. WALTER. I believed that my job as Chairman was to try to 

chart a way forward that took into account the comments on both 

sides and tried to come out with a way to go forward in what I conVerDate Nov 24 2008 16:43 Jul 10, 2013 Jkt 080881 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\80881.TXT TERRI
21 

sidered to be a responsible fashion, and significantly a way to go 

forward that would garner three votes among the four Commissioners we had at that point in time. 

We didn’t reach that point. I didn’t reach an answer that I felt 

met that standard. I regret that it has taken longer than we had 

expected. We now have a new Chairman. We are at full strength 

as a Commission, so I am hopeful that we can move forward expeditiously. And I certainly am fully committed to doing that. It is 

one among many projects that have been pending that led me to 

decide to stay on as a Commissioner. 

Mr. HULTGREN. So there were discussions, but there wasn’t 

agreement on it. There was never a full vote on a proposal? Is that 

correct? 

Ms. WALTER. I never had the staff put a formal proposal back to 

the Commission. My fellow Commissioners came at this from very 

different points of view. And I was in the process of trying to figure 

out how to walk the line to come up with a proposal—I don’t mean 

a proposed rule—I mean a proposed solution to this problem that 

would satisfy my concerns and garner at least two additional votes. 

Mr. HULTGREN. We are just past the 1-year anniversary of the 

passage of the JOBS Act, and are approaching the 1-year anniversary of the 90-day implementation deadline for Title II. Looking 

back during this time, I see that the SEC deployed resources to 

consider political contribution regulation, an area of law that the 

SEC has little expertise over and questionable jurisdiction. The 

SEC also found time to work on money market fund regulation despite no legislative mandate to do so. At the same time, the SEC 

failed to implement Title II of the JOBS Act, a two-page part of a 

highly bipartisan law with limited discretion. 

Based on the time the Commission found to pursue money market reform and political contribution regulation, is it reasonable to 

believe that the Commission could not manage to implement Title 

II, a two-page section of the JOBS Act, with limited discretion? 

Ms. WALTER. First, I should say very little time was spent on political contributions. And the question of whether or not there 

should be corporate disclosure of political contributions, I do think 

is in the Commission’s mandate. 

Second, with respect to money market reform, although there 

was no statute, there was quite a hue and cry from all aspects of 

the public and all around government for us to address that. And 

that is done by entirely different staff than the staff who are working on this. 

Mr. HULTGREN. It appears that there should have been plenty of 

time to get this done. 

Ms. WALTER. It is not a question of time. We did not come out 

with the resolution, and we were sitting with a four-member Commission. We now have a five-member Commission, and we will 

move forward on this as expeditiously as possible. We had Commissioners with decidedly different views on this. And a Chairman 

does not get to decide what the answer is. The Chairman is one 

vote. 

Mr. HULTGREN. I also believe a Chairman is given direction and 

needs to follow that direction. There clearly was congressional direction here. I wonder if you are aware of other cases where a reguVerDate Nov 24 2008 16:43 Jul 10, 2013 Jkt 080881 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\80881.TXT TERRI
22 

lator ignored a direct command of Congress through obvious delay 

tactics. At least, that is how it appears to us. 

Ms. WALTER. There were no delay tactics involved here. I can assure you of that. I have never in 1 second during this period of 

time engaged in any delay tactics. There certainly have been other 

instances in which congressional deadlines for rulemaking were not 

met. The rulemaking process is not as easy a one as it appears to 

be. Until you sit down and engage in it, it has a lot of complexities, 

and it takes time. But there were no delaying tactics here. 

Mr. HULTGREN. The appearance to us, again, and even you said 

in the previous question, that other things didn’t take that much 

time. This isn’t a matter of time. So you could take forever to get 

this done. And yet this is a clear command, basically a direction 

by Congress, a law that was passed, a bipartisan law, again, 

through the House and the Senate, agreed to by the President, 

signed by the President, and yet we have seen, from our perspective, no action on this. 

Again, I just see that as unacceptable. Even if there is action and 

not agreement, at least there is activity. And from our perspective, 

there is no activity. That is the frustration I think that many of 

us are feeling, and many of our constituents are feeling as well. 

With that, I see my time has expired. I yield back. 

Chairman MCHENRY. Thank you. 

I will now recognize the ranking member of the subcommittee for 

5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. And I thank the witness 

again for appearing today. 

I do want to give you an opportunity to restate your position with 

reference to moving expeditiously. You have been very clear that 

you are not refusing to do this, but I think that you should have 

the opportunity to make the record as clear as possible on this 

issue. 

Ms. WALTER. Thank you. I appreciate that. My position is twofold. One, I believe that Congress has given us a mandate. We need 

to fulfill it. I am committed to moving forward with it as expeditiously as we can. And two, I will say on the substance, since the 

1980s I have been in favor of lifting this ban. So this is not something that I personally oppose. I do think that there are other considerations that need to be taken into account, and we are looking 

at those. 

Mr. GREEN. There seems to be a good deal of consternation with 

reference to the comment period. Is it the norm to have a comment 

period or is it the exception to have a comment period? 

Ms. WALTER. It is absolutely the norm. The lack of a comment 

period is quite rare. And it is generally done either in exigent market circumstances or where some external event causes an obligation to kick in unexpectedly that people aren’t prepared for. And 

in our case, even in the midst of the market crisis, it happened on 

average 2 or 3 times a year. 

Mr. GREEN. And have you received comments on this piece of legislation? 

Ms. WALTER. Yes. We received over 220 comments, which were 

mixed. A little less than half of them were in support of the proVerDate Nov 24 2008 16:43 Jul 10, 2013 Jkt 080881 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 K:\DOCS\80881.TXT TERRI
23 

posal. A little more than half opposed the proposal as it was put 

out for comment. 

Mr. GREEN. Let’s talk for just a moment about your budget, because it has been mentioned—I mentioned it earlier, and I have 

heard other Members mention it as well. While I have your 2012 

numbers, I will focus on 2013. My evidence indicates that you requested $1.56 billion. The House passed $1.371 billion. And the actual budget was $1.321 billion, decidedly less than what you were 

asking for. Did you ask for that $1.56 billion because you actually 

needed the $1.56 billion to perform efficaciously? 

Ms. WALTER. Absolutely. As I mentioned before, even prior to the 

passage of these two major pieces of legislation, we had certain 

very pressing needs. In particular, I would highlight the fact that 

we don’t have sufficient resources to do a good enough job examining the investment adviser population. We examine 8 percent of 

the investment adviser population a year and that simply isn’t sufficient. So one of the things that we intend to do is to try to beef 

up that program. 

In addition to that, we are way behind the outside world we regulate in terms of the technological tools we use, both to examine 

the entities that we regulate, and in even as simple a case as when 

we litigate cases in court. And that is another area where we really 

need the funds to catch up. 

Mr. GREEN. You have 35,000 entities that you oversee, which is 

a huge number. 

Ms. WALTER. Yes, it is. 

Mr. GREEN. And 11,000 investment advisers. Can you in any way 

put these things aside to make sure that you get other things done, 

or do you have to try to do everything? 

Ms. WALTER. You have to try to do everything. And what you do 

is try to develop techniques to get to be as efficient as possible. For 

example, in our examination program we have taken many steps 

over the last few years to try to enhance our risk assessment and 

the analytics we use in determining which entities we examine. 

But in the end, when you have to do everything and you don’t have 

enough, you don’t do anything quite as well as you should. 

Mr. GREEN. Quickly, on the question of the money market fund, 

did FSOC have anything to do with the reason you endeavored to 

deal with the money market fund? 

Ms. WALTER. I think that answer might differ depending on who 

at the Commission you spoke with. If you may recall, before the 

FSOC got involved we had made some changes in money market 

fund regulation, in 2010, I believe, and we said at the time that 

there was going to be a second step where we were going to analyze whether further changes were needed. 

Our Chairman was working on that. There was opposition from 

other Commission members. And she decided not to present it to 

the Commission. At that point, the FSOC stepped in and made a 

request of us that we look at these issues. So they definitely have 

been playing a role. 

Mr. GREEN. Thank you, Mr. Chairman, for the extra time. I yield 

back. 

Chairman MCHENRY. We will now recognize Mr. Grimm for 5 

minutes. 

24 

Mr. GRIMM. Thank you, Mr. Chairman. 

And thank you, Commissioner. I appreciate you being here today. 

I want to just go back, the ranking member of the full committee 

and the ranking member of this subcommittee had mentioned the 

budgets and funding. You were asked basically if you had the resources to deal with an expansion in fraud that lifting this ban 

could lead to. But I want to ask a different question. Regardless 

of any potential increase in fraud, implementing this part of the 

JOBS Act, do you have the resources to do that? 

Ms. WALTER. Yes, we do. We obviously have to set priorities. And 

one of the things that happened with the passage of Dodd-Frank 

and the JOBS Act is those priorities took the place of other, more 

discretionary, voluntary initiatives that we would like to pursue. 

We do not have the resources to do everything we would like to do, 

but we obviously prioritize congressional mandates. 

Mr. GRIMM. Okay. Taking a step back, the ranking member just 

asked about those priorities, and you did I think just testify that 

you do try to do everything. And I understand that is hard, especially with 35,000 entities out there that you are regulating. 

Ms. WALTER. That is correct. There are certain things; certain 

types of rulemaking are discretionary. Most of our job is not discretionary. We have an examination program. When we review public 

company filings, we are under a mandate to do a third of the public 

companies every year. So it really depends on the particular aspect 

of the job, the manner in which it is discretionary or mandatory, 

but we have many things that we must do. 

Mr. GRIMM. How about enforcement of the existing rules prior to 

even Dodd-Frank changes? Would you say that you are capable of 

doing that? 

Ms. WALTER. We are. But again, we choose our cases. You probably could not give us enough resources so that we could bring 

every case that is out there. And that is appropriate. When you run 

an enforcement program you have to decide what to prioritize, 

what types of cases to look for, how to use your resources. And 

that, of course, is done. 

Mr. GRIMM. It is a little off the topic of today, but since I went 

down this road I would like to ask you, where would you say the 

priority of illegal shorting, the ban against naked shorting? I see 

that as a huge issue. Is that a priority? 

Ms. WALTER. I believe it is. We have set up over the last few 

years a tips and complaint system, a TCR system. And what we do 

is we gather in all of the complaints that we get from the outside 

world and we perform triage on them. We are able to determine 

who is complaining about what to try to decide what to pursue. 

Mr. GRIMM. Have you ever looked at the fall of Lehman Brothers? 

Ms. WALTER. Yes, our agency did do that. And I will say personally, I was recused from Lehman matters, so I can’t speak to it personally. 

Mr. GRIMM. The shorts were 17 times the actual float. There is 

only one way that could happen, and that is if they were illegally 

trading. It happened with Lehman Brothers; it happened with Bear 

Stearns; and Overstock.com always has this issue. It just seems 

25 

from what I have seen, the SEC turns a blind eye to naked shorting. 

Ms. WALTER. I believe that we do enforce the rules we have on 

the books. 

Mr. GRIMM. Lehman Brothers would disagree. Well, they can’t 

disagree any more. 

Okay. With that, I will yield back. 

Chairman MCHENRY. Will the gentleman yield to the— 

Mr. GRIMM. I will yield to the chairman. 

Chairman MCHENRY. Thank you. 

Commissioner Walter, you stated that you wanted to open up the 

proposal to comments. Is that correct? On lifting the ban on general solicitation? 

Ms. WALTER. Yes. That is correct. I have found— 

Chairman MCHENRY. Okay. And as a matter of policy and procedure at the SEC, when you go to an interim final rule, is that a 

rule that is final, or can it then be adjusted after it is up and running? 

Ms. WALTER. Both interim final rules and normal final rules can 

be adjusted. 

Chairman MCHENRY. So, people can comment on interim final 

rules as a matter of process? 

Ms. WALTER. However— 

Chairman MCHENRY. Is that correct? 

Ms. WALTER. Yes, that is correct. 

Chairman MCHENRY. Yes, okay. Now, you wanted to answer. Go 

right ahead. 

Ms. WALTER. Thank you. I appreciate that. One thing I have 

learned in many years of doing rulemaking is, first of all, comments are more robust—our post-proposal comments were more 

helpful than the pre-proposal comments because there was a specific proposal out there. 

Second, it is often difficult to go ahead and adopt a rule, have 

people set up systems, for example systems for verification in this 

particular case, and then accept comment and then modify them. 

It can subject people to undue costs. It is better, if you can, to have 

a system set up the way you want it to be in the first instance. 

Chairman MCHENRY. Yes, counter to the law existent, though. 

That is the reason why we are having this hearing. 

So with that, we will now recognize Mr. Duffy for 5 minutes. 

Mr. DUFFY. Thank you, Mr. Chairman. 

I missed a little bit of this hearing, so I hope I am not repetitive. 

But again, I want to bring up my concern about the chain of emails 

that has been reviewed today and the fact that the SEC had come 

out with an agreement, an internal agreement that you were going 

to introduce an interim final rule. And when the Chairman got an 

email notice from an outside lobby group expressing a concern, she 

was willing to change course from an interim final rule to go to a 

proposed rule. 

And to think that this institution which has had, frankly, a pretty rough couple of years, and that you were able to get Democrats 

and Republicans, House Members and Senators, to agree to the 

JOBS Act, and to get the President to sign that bill, and then to 

see these emails from an outside lobby group which was able to 

26 

prevent the implementation, or a portion of the implementation of 

the JOBS Act is outrageous. I guess I would like to hear your comment on why an outside lobby group can impact the SEC more 

than this institution. 

Ms. WALTER. I don’t believe that is the case. And I will say 

that— 

Mr. DUFFY. Did you read the emails, by chance? 

Ms. WALTER. Yes, I have read the emails. 

Mr. DUFFY. And you come to a different conclusion from these 

emails? 

Ms. WALTER. Yes, I do. 

Mr. DUFFY. And what is that? 

Ms. WALTER. First of all, there was no agreement reached that 

it was the proper way to proceed. The staff who were working on 

the rulemaking switched from recommending a proposed rule at 

one point to recommending an interim final rule at another point. 

One thing that is true in rulemaking is that nothing is final until 

the vote is taken, and the vote had not been taken. Throughout 

this process, we heard from investor groups, we heard from industry groups, and we meet with everyone who comes in. 

Mr. DUFFY. And you heard from an outside lobby group. And it 

was after that email that the Chairman expressed her concern 

about the pressure that was going to be put on the agency. And it 

was after that that you then went to a proposed rule from an interim rule. How could the conclusion be any different? 

Ms. WALTER. We always talk to all sides of the issue, and we listen to their views. And frequently, very frequently in the course of 

a rulemaking project, we change our minds about basic issues, peripheral issues, the approach which we are going to take. This 

was— 

Mr. DUFFY. Reclaiming my time, we don’t always have email 

chains from the Chairman expressing concern about comments 

made by an outside lobby group. We have that. And it was after 

that concern was expressed, that the course changed within the 

SEC to go from an interim rule to a proposed rule. And that doesn’t 

concern you? 

Ms. WALTER. It doesn’t concern me because I believe—I cannot 

speak for Chairman Schapiro, but quite frankly, as I have said several times during the course of this hearing, I always thought the 

better course of action was to propose a rule from the beginning. 

And I thought that was the better way to go. We also are always 

concerned when we are told by outside groups, in essence, that if 

you go a different way, we will sue you. We don’t want to adopt 

rules— 

Mr. DUFFY. I want to reclaim my time. 

Ms. WALTER. —and then have them invalidated or stayed. 

Mr. DUFFY. If I could direct your attention to the screen, it is an 

email from Chairman Schapiro. And it says, ‘‘I have 2 worries—one 

is that if these guys (CFA, et al) feel this strongly, it seems like 

we should give them a comment period. Its not really asking for 

much.’’ So that means she is saying they have asked for a comment 

period, which means they have asked for a proposed rule instead 

of the interim final rule. And she says they have asked for it, so 

we should give it to them. Isn’t that what she is saying? 

27 

Ms. WALTER. Yes. And you have to keep in mind that a comment 

period is the norm. It is the way rulemaking is traditionally and 

overwhelmingly done. The question here was— 

Mr. DUFFY. Then how did you ever get to the point where you 

were going to go with an interim final rule? 

Ms. WALTER. The suggestion was made that in this case, there 

was an adequate basis to do an interim final rule. The suggestion 

was never made that giving a comment period, which is a more informed way to do rulemaking— 

Mr. DUFFY. I want to reclaim my time. This lobby group, the 

Consumer Federation of America, who sent this email which persuaded the Chairman to change direction, how many of those lobbyists are Members of Congress or Senators? How many? 

Ms. WALTER. I would assume none. 

Mr. DUFFY. Not one. That is right. But it was their influence that 

changed the course and will of this institution. 

I yield back. 

Chairman MCHENRY. We will now go to Mr. Barr of Kentucky. 

Mr. BARR. Thank you, Mr. Chairman. 

Commissioner, thank you for your testimony today. Is it your position that Section 201(a) is in conflict with the notice and comment requirement of the Administrative Procedure Act? 

Ms. WALTER. No, it is not. 

Mr. BARR. Okay. What is your position with respect to the interface between notice and comment requirements under the APA and 

the JOBS Act 90-day provision? 

Ms. WALTER. You have to look—we were required, if at all possible, to comply with both. We did not make the deadline. But in 

order to dispense with the notice and comment provision, we would 

have to have a justification and just cause. Our General Counsel’s 

Office suggested that might be possible here and was one way of 

dealing with the risk of our perhaps not being able to obtain relief 

in the general solicitation case. But the fact that there is a congressional deadline does not in and of itself change the obligations 

under the APA. 

Mr. BARR. And you said in addition to that, agencies never meet 

congressional deadlines, or rarely meet the 90-day deadline. 

Ms. WALTER. No— 

Mr. BARR. Was that your testimony? 

Ms. WALTER. No. I said that 90 days is a very short deadline for 

rulemaking. 

Mr. BARR. Is it your opinion— 

Ms. WALTER. What I said, if I may, is that rarely, if ever, have 

I seen a rule, mandated or not, go through the process in that short 

a period of time. 

Mr. BARR. I understand that. And I understand your testimony 

with Mr. Duffy that notice and comment on a longer period of time 

is traditionally done. The question here, though, is the 90-day directive from the Congress under the JOBS Act. And my follow-on 

question would be, is it your opinion that it is impossible for administrative agencies to meet a 90-day deadline on rulemaking 

such as was dictated in this case? 

Ms. WALTER. It would have been extraordinarily difficult. 

28 

Mr. BARR. Okay. Does the Administrative Procedure Act (APA) 

permit rulemaking within a 90-day window? 

Ms. WALTER. Yes, it does. 

Mr. BARR. Okay. Do you agree that an interim final rulemaking 

would enable compliance with a 90-day deadline? 

Ms. WALTER. Assuming that the standard was met, and I wasn’t 

convinced that the standard was met, I think that is a litigable 

question. 

Mr. BARR. Okay. So why was a proposed rule decided upon in 

lieu of an interim rule, an interim final rule, in light of the fact 

that only an interim final rule would have been consistent with the 

90-day statutory deadline? 

Ms. WALTER. I can only speak for why I favored a proposed rule 

and preferred one. It was the only proposal that was put before the 

Commission for a vote. And I favored a proposed rule because I 

wanted to hear what people said both about how the ban should 

be implemented in terms of verification and— 

Mr. BARR. To reclaim my time, I understand your preference 

from your previous testimony. But my question to you really is, did 

Congress speak directly to the precise question, which is the 90-day 

deadline? 

Ms. WALTER. Congress spoke directly to the 90-day deadline. It 

did not speak to the Administrative Procedure Act. 

Mr. BARR. Is the JOBS Act Section 201(a) more specific in its directive to Congress than the more general notice and comment of 

rulemaking direction under the Administrative Procedure Act? 

Ms. WALTER. I believe that they are both specific directives, and 

that if we don’t meet the standards of the APA, we have an invalid 

rule. 

Mr. BARR. Is the intent of Congress on 90 days clear to you? 

Ms. WALTER. Yes, it is. 

Mr. BARR. Is the expressed intent of Congress on the 90-day 

deadline in any way ambiguous to you? 

Ms. WALTER. No, it is not. 

Mr. BARR. Okay. Then under Chevron, and you comply with the 

Administrative Procedure Act regularly, you understand the requirements of the Supreme Court’s interpretation of the law under 

Chevron, and under step one of Chevron, it is pretty clear what an 

administrative agency’s obligations are. Always when Congress has 

spoken directly to the precise question at issue, if the intent of 

Congress is clear, that is the end of the matter for the court, as 

well as the agency must give effect to the unambiguously expressed 

intent of Congress. You just testified that you agreed that the unambiguous expressed intent of Congress was 90 days. Why did you 

not comply with that directive under the Chevron mandate? 

Chairman MCHENRY. The gentleman’s time has expired, but the 

witness may answer. 

Ms. WALTER. Thank you. Because I do not believe it overrides 

the Administrative Procedure Act, nor do I believe it overrides our 

job. We also have an obligation to consider the economic analysis, 

and we have an obligation to consider how it impacts the protection 

of investors and our mission. And I think we are supposed to do 

all of those things. We did not meet the 90-day deadline, as I have 

said. We regret that. I am committed to moving forward with the 

29 

rule. And I do believe that what we are talking about in terms of 

the unambiguity really relates to the substance of the statute, not 

the timing. 

Mr. FITZPATRICK [presiding]. The Chair will recognize himself for 

5 minutes. 

Commissioner, I just want to go back over those lines of questions we had about Meredith Cross. She was proposing a scenario 

where you were going to be able to comply with the 90-day requirement. She wanted to go to interim rule or interim final rule. And 

you indicated that she was the staff person with the most knowledge with respect to the rule, correct? 

Ms. WALTER. That is correct. 

Mr. FITZPATRICK. And there were other staff members at SEC 

who were concerned that there might be a number of comments 

that she was unaware of, and so they decided to overrule her? Is 

that what happened? 

Ms. WALTER. No, she didn’t have the decision-making authority. 

Understand that the divisions work on recommendations to the 

Commission. Those recommendations are presented to the Commission. And it is the five voting Commissioners who have the decision-making authority. 

Mr. FITZPATRICK. But she, the person with the most knowledge 

within the agency, had actually provided a mechanism or a path 

where the Commission could both comply with the law, the 90-day 

requirement, and consider comments or suggestions or revisions 

going forward. I just refer to Exhibit 2, if we could put that up on 

the screen. That is the email from Thomas Kim. It says, ‘‘Meredith 

supported going straight to a final rule, as we could then have a 

pilot period where we could assess how issuers are verifying...’’ He 

goes on to say, ‘‘She was more comfortable doing this as an interim 

final temporary rule, which means it would sunset at some future 

date. Two years was tossed around as a possible sunset date.’’ 

So didn’t she provide a mechanism where you could both comply 

with the 90-day time period, comply with the law as passed by 

Congress, the House and the Senate, and signed by the President, 

be able to comply with the law, and consider suggestions going forward? 

Ms. WALTER. She provided a possible way to go forward. She 

never said she was opposed to doing a proposal. 

Mr. FITZPATRICK. But it was possible to comply with the law. 

Correct? 

Ms. WALTER. It was possible to meet the deadline. 

Mr. FITZPATRICK. I want to refer to Chairman’s Exhibit 6, which 

is the email from Chairman Schapiro, the third sentence, which 

states, ‘‘Its not really asking for much. The other is that I don’t 

want to be tagged with an Anti-Investor legacy.’’ Do you agree that 

asking for a comment period was not asking for much? 

Ms. WALTER. Yes, I do, because I think the law generally provides for it. It is a right. It is the essence of rulemaking. And you 

have to have an exceedingly good reason to dispense with it. So, 

yes, I do agree with that statement. 

Mr. FITZPATRICK. Is breaking the law not asking for much? The 

law did require that this occur within 90 days, correct? 

30 

Ms. WALTER. Congress set that deadline. We tried to meet it. We 

did not meet it. There have been other instances in which we have 

not met deadlines. There are deadlines that we meet. We always 

try to meet them. We don’t always meet them. I don’t think, and 

I will repeat, I never felt comfortable with dispensing with the comment period, because you look at the 220 comment letters we have 

gotten and tell me that they are not valuable in determining how 

to go forward with this rule. 

We have an obligation to do this and to do it right. This is a rule 

you told us to do. You told us to go and do the rulemaking. We 

have to do it in accordance with our responsibilities. I wish that we 

had been able to do it while meeting the 90-day comment period, 

but we did not. 

Mr. FITZPATRICK. But there was a way to do it within the 90 

days and consider the comments. Correct? 

Ms. WALTER. There was a way to adopt a rule. Would it have 

been the right rule? Would it have been a responsible rule? I am 

not so certain of that. 

Mr. FITZPATRICK. I recognize Mr. Cleaver for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

Ms. Walter, I served as the mayor of Kansas City for 8 years, 

and as I was leaving office, I was asked to support various members of the city council and even people running to succeed me. One 

of the things I said to them was that I have been able to recreate 

two projects: one, Union Station; and two, the 18th and Vine Jazz 

District. And I said, that is my legacy. My concern is that you support my legacy. 

Now, everybody wants to be remembered. But the other part of 

it is we had invested about $250 million. So I wanted that legacy 

protected. And I am not sure that there was anything sinister in 

asking that my legacy be protected because it also had something 

to do with the city and the investment of the city. So if somebody 

wants their legacy to protect investors protected, what is wrong 

with that? 

Ms. WALTER. There certainly is nothing wrong with it. I hope 

that in my short term as Chairman, I will be remembered as someone who protected investors. 

Mr. CLEAVER. I yield back my time to the ranking member. 

Mr. GREEN. Thank you, Mr. Cleaver. 

I am assuming the remainder of Mr. Cleaver’s time. Okay, thank 

you. 

First, let me compliment you for being such a person with great 

dignity and composure. Much has been said about the 90-day window. You have never refused to come to Congress to give testimony 

when required or requested, have you? 

Ms. WALTER. Of course not. 

Mr. GREEN. And did you receive any request from Congress as 

to your appearing and giving testimony as to whether or not 90 

days was the appropriate amount of time to perform this task? 

Ms. WALTER. I was asked to come up to speak about Title II and 

how the process ran and why it wasn’t done. 

Mr. GREEN. And has Congress ever made an inquiry of you as 

to whether or not 90 days was a sufficient amount of time prior to 

today? 

31 

Ms. WALTER. Not that I am aware of. 

Mr. GREEN. And are you aware that other persons do come and 

testify, I am sure, but do you have any knowledge of Congress performing any due diligence to come to a conclusion that surely 90 

days is the amount of time that is needed to get this done? 

Ms. WALTER. No, I don’t know of any such due diligence being 

performed. 

Mr. GREEN. The 90-day window, did Congress mandate that you 

do it in 90 days, and that in doing it, you avoid the comment period? 

Ms. WALTER. No. 

Mr. GREEN. So the comment period is something that is codified 

in the law? 

Ms. WALTER. That is correct. 

Mr. GREEN. And the comment period is what is generally done 

so that you will do things that are reasonable, that are prudent, 

and that will protect investors in the process. 

Ms. WALTER. Absolutely. 

Mr. GREEN. Have comment periods been beneficial in the past? 

Ms. WALTER. In my experience, I always learn things through 

the comment period. 

Mr. GREEN. So we have a circumstance now where Congress gave 

you 90 days, did not indicate that you should avoid the comment 

period, and what you have done thus far is what would typically 

be done under normal circumstances, and we did not indicate that 

these circumstances were so exigent that you should avoid the comment period. Correct? 

Ms. WALTER. Correct. 

Mr. GREEN. With the use of the comment period, you indicated 

that you received more than 200 comments. I don’t remember the 

exact number. What was that number again? 

Ms. WALTER. Two hundred and twenty, I believe. 

Mr. GREEN. Two hundred and twenty. And within what period 

of time, if you recall, did you receive the 220 comments? 

Ms. WALTER. My recollection is, and I may need to be corrected, 

that the comment period expired in October. Generally speaking, 

comments come in through the comment period, a little bit after 

the comment period. I think in this particular case, given the 

amount of interest in it and the decidedly different views, we have 

continued to receive information from time to time. We always try 

to consider what comes in even if it is after the deadline. 

Mr. GREEN. And were these comments beneficial in this process? 

Ms. WALTER. Yes, they have been very beneficial. 

Mr. GREEN. Have you acquired intelligence by way of the comment period that you would not have acquired but for the comment 

period? 

Ms. WALTER. Yes. I believe we have. 

Mr. GREEN. Finally, this: Do you know of any rule or law that 

mandates that you have a certain amount of time to act on a given 

mandate from Congress with reference to developing a rule? 

Ms. WALTER. No, I am not aware of any. 

Mr. GREEN. So Congress could have selected 60 days? 

Ms. WALTER. Yes, I believe that is correct. 

32 

Mr. GREEN. We could have selected 30 days. And we chose 90 

days. I won’t say that is arbitrary and capricious, but I don’t see 

a record that indicates that 90 days was the prudent thing to do. 

I yield back, Mr. Chairman. 

Mr. FITZPATRICK. Ms. Wagner is recognized for 5 minutes. 

Mrs. WAGNER. Thank you. Mr. Chairman, I am also reminded 

that we are well beyond the 90-day enactment period. 

Commissioner Walter, the SEC has recently lost a series of highprofile cases in which it was determined that the SEC had acted 

beyond its authority. I am reminded of the Business Roundtable 

proxy access, I am reminded of Gabelli. You have acknowledged, 

Commissioner, that the enforcement concerns associated with the 

ban, you have acknowledged the clarity of Title II and its clear purpose. We have also heard repeatedly about the SEC’s scarce resources. Additionally, the Commission has had a poor track record, 

I think obviously, as I stated, in court as of late. And given all of 

this, would the SEC use its scarce resources to enforce the ban 

against those that abide by Title II? 

Ms. WALTER. I don’t know that it would. That would have to be 

made in an individual case, and we would have to look at the facts 

surrounding it and seeing what the other circumstances were. For 

example, many times when there is a registration violation, there 

is also a fraud violation. They sometimes go hand in glove. 

Mrs. WAGNER. Let me go back, if I can. I am a little troubled, 

going back to the accredited investors discussion here and your 

wanting to somehow change the way that it is determined. Explain 

that in a little broader sense, if you could. How is it that you would 

like to change the way that it is determined? 

Ms. WALTER. The theory behind the private placement exemption, and these are all forms of private placement exemptions that 

we are talking about, is that there are categories of investors who 

don’t need the protections that the law ordinarily brings in a registered offering. It is my concern that as accredited investors are 

defined today, and that same definition has been on our books, and 

it is a rule, not a statute, that hasn’t been changed in decades, that 

it includes people who do need the protections of the securities 

laws. 

Mrs. WAGNER. I am looking at this, and the rule, $200,000 minimum income, $1 million in assets. Are you suggesting that only 

the wealthier and the wealthier should have access to these kinds 

of investments and capital markets? 

Ms. WALTER. The theory of having a registration system is that 

there are protections given to investors by having information be 

made publicly available and subject to review by a government 

agency. 

Mrs. WAGNER. But what specifically is the determination of an 

accredited investor? I think I just laid out what that is. 

Ms. WALTER. That is what we decided it was in the early 1980s. 

It is now 2013. And it is— 

Mrs. WAGNER. You don’t think hard-working families and middle-class families, my goodness, a $200,000 minimum income, a 

million dollars in assets, excluding their home. Why should only 

the wealthier and wealthier have access to this? 

33 

Ms. WALTER. The determination in the Federal securities laws 

enacted by Congress was the presumption that when you make an 

offering of securities to the public, it should be registered, and it 

should be subject to these protections. The private offering exemptions, the safe harbor included in Rule 506, are for those people 

who don’t need the protections the law applies. Congress could decide it doesn’t like the registration system. That is not the determination Congress made. It said there would be a registration system, offerings would be made with these protections. And they are 

particularly concerned about protections against fraud. 

And we go through a comment process when we get a public offering, and we have a back-and-forth with an issuer to try to make 

sure that their disclosures are robust and full. That process is 

missing in the private offering process. So the theory is that there 

are certain people—and it is not really so much wealth, it is sophistication. What we are looking for is sophistication and the ability, 

the wherewithal to look at the issuer and say, I want to know more 

about your financial condition, tell me, there is not enough on this 

piece of paper. We now have these offerings being made to people 

who don’t have the ability to demand that information and don’t 

have the sophistication to make those decisions— 

Mrs. WAGNER. And why is that? Why do they not have that ability? 

Ms. WALTER. Because financial literacy in this country, even 

among people who are quite well-educated and who have a fair 

amount of money, is not what it should be. But there are lots of 

unsophisticated people. 

But I think your analysis really, if I may, stands the law on its 

head. The private placement is the exception. Your question suggests that the private placement should be the rule and one should 

have to justify needing the protections of the registration system. 

That is not the way the law is written. And that is the predicate 

on which the securities laws have been built since the 1930s. 

Mr. FITZPATRICK. The gentlelady’s time has expired. Mr. Heck is 

recognized for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. With your permission, I 

would like to yield my time to the ranking member of the subcommittee. 

Mr. FITZPATRICK. Without objection, it is so ordered. 

Mr. GREEN. Thank you very much, Mr. Chairman. 

Madam Commissioner, let’s talk for a moment about the Volcker 

Rule. You are familiar with the Volcker Rule? 

Ms. WALTER. I am. 

Mr. GREEN. Is it true that this rule was to be perfected by July 

2012 or thereabouts? 

Ms. WALTER. Yes, that is correct. 

Mr. GREEN. And I think it is safe to say that we have exceeded 

July 2012. 

Ms. WALTER. I believe that is true. 

Mr. GREEN. We are approaching July 2013. The Volcker Rule 

was to be implemented around the same time as the JOBS Act. Is 

that a fair statement? 

Ms. WALTER. I believe that is true. 

34 

Mr. GREEN. Do you have any indication as to why the Volcker 

Rule has not been implemented? Have you been quizzed as to why 

you haven’t implemented the Volcker Rule? Have we had a hearing 

comparable to this to ascertain why you haven’t implemented the 

Volcker Rule? 

Ms. WALTER. We have not. We have had correspondence, both 

from people who wanted to see it implemented faster and people 

on the Hill who don’t want to see it implemented for quite a long 

time. 

Mr. GREEN. I am going to take just a moment to read a paragraph from a letter. This letter is addressed to the Honorable Ben 

Bernanke, Chairman, Board of Governors, Federal Reserve, and a 

host of other persons, including the Honorable Mary Schapiro, 

Chairman, U.S. Securities and Exchange Commission. It is a rather lengthy letter. 

So as to not exceed the time, permit me to read the next to the 

last paragraph. It reads, ‘‘Given the time that it will take for you 

to agree on one version of the Volcker Rule as well as the tremendous uncertainty that market participants face in trying to anticipate what the final rule will look like, we respectfully suggest that 

the Federal Reserve Board delay the Volcker Rule’’—some things 

bear repeating—‘‘we respectfully suggest that the Federal Reserve 

Board delay the Volcker Rule’s effective date until two years after 

the date on which the final rule is promulgated.’’ 

Now, I don’t think that the persons who made this request are 

asking you to break the law. Listening to some of the comments 

today, I might conclude that some people think that what you have 

done has been a breach of the law because you have exceeded the 

90-day window that Congress accorded you. But I, quite frankly, 

don’t think that this is a breach of the law, and I certainly don’t 

think that the persons who codified this letter and sent this letter 

to the Honorable Mary Schapiro and the Honorable Ben Bernanke, 

among others, I don’t think that these persons broke the law, and 

I am going to stand up for them today. Because I have great respect for both of these persons who asked that you delay what was 

mandated by Congress. That is the way I read this letter, that you 

delay what was mandated by Congress. And I find that this letter 

has been signed by two people that I highly respect, and they are 

both friends of mine. 

I only introduce it because I want to make the point—I think it 

has to be made—that you are doing the best that you can under 

the circumstances existing, and that you are not doing this with 

malice aforethought, and that this is not the first time that we 

have exceeded a timeline that has been accorded you, that, in fact, 

Congress will ask that you take your time and make sure you get 

it right, which is not an unreasonable thing for Congress to ask. 

So, Mr. Chairman, I ask unanimous consent that I be allowed to 

place in the record this letter from my very good friend, the Honorable Spencer Bachus, and my very good friend, the Honorable Jeb 

Hensarling: Mr. Bachus as chairman; and Mr. Hensarling as vice 

chairman. 

Chairman MCHENRY. Without objection, it will be entered into 

the record. 

35 

I ask unanimous consent that it also be noted in the record that 

the Volcker Rule did not have an implementation deadline of 90 

days, as did Section 2 of the JOBS Act. Without objection, it is so 

ordered. 

With that, we will now recognize Mr. Grimm for 5—I am sorry, 

Mr. Duffy. I guess the two handsome men at the end of the dais 

get confused here. Sorry. Mr. Duffy is recognized for 5 minutes. 

Mr. DUFFY. Thank you, Mr. Chairman. 

Ms. Walter, I would like to direct your attention to an email that 

was sent from Chairman Schapiro on August 7th. It is an email 

that you were CC’d on. And in that email, the first line from Chairman Schapiro says, ‘‘I know we spent an hour discussing this yesterday but they are making me very worried.’’ And when she is 

saying ‘‘they,’’ there is an attached email from the lobby group we 

discussed in the last 5 minutes I had with you. 

I am a bit concerned that Chairman Schapiro or the SEC is worried about a lobby group and their opinion; they are not worried 

about the law set forth by this institution. But that is not my question. You were CC’d on that email. Obviously, it is clear that Ms. 

Schapiro was expressing her worries about the position of a lobby 

group, so much so that she changed—or the SEC changed their position from going from an interim final rule to a proposed rule. 

What did you do to push back on Ms. Schapiro and others in the 

analysis that was being used in changing course and using the 

input from a lobby group and not the internal conversation of the 

SEC? Did you push back on that? Did you send emails out pushing 

back on this email from Ms. Schapiro? 

Ms. WALTER. First, I will say I think it is entirely appropriate 

for public servants to consider views that are expressed both externally and internally within the agency in making their decisions. 

Second, I will say I have always said that I was not comfortable 

with dispensing with the comment period. And so, when she started to express more concern about dispensing with the comment period, that was closer to my views than vice versa. 

Mr. DUFFY. And how about if the lobby group is expressing a position that is contrary to the will of the American people as spoken 

through Congress? Then do you have a concern? 

Ms. WALTER. I do not believe that was the case. As I have said, 

I think there are a number of statutes that we need to comply 

with. And we need to do our rulemaking responsibly. Frankly, it 

would not save a rule— 

Chairman MCHENRY. If our witness would pull the microphone 

closer. It is hard to hear. 

Ms. WALTER. I am sorry. I am height-challenged. 

Chairman MCHENRY. I can relate. 

Ms. WALTER. It would not save our rule from scrutiny and perhaps being overturned by a court. 

Mr. DUFFY. So you did nothing to push back on the comments 

made by Ms. Schapiro to say that she was worried about the comments made by this lobby group on the course of the— 

Ms. WALTER. I, too, was worried about dispensing with notice 

and comment. So, no, I did not push back. 

Mr. DUFFY. Okay. Changing course a little bit, would you agree 

that the purpose of the JOBS Act and the purpose of Title II was 

36 

to actually expand and grow the economy, create more jobs within 

our communities? That was the purpose of this Act, right, including 

Title II, yes? 

Ms. WALTER. Yes, that is correct. 

Mr. DUFFY. Why didn’t you have then the rule completed within 

90 days? 

Ms. WALTER. As I have said, we determined that we would put 

a rule out for comment and see what the commenters had to say, 

because we were given an obligation to lift the ban, we thought we 

also needed to explore how that was going to be done, the alternatives to different ways to do it, and whether there were additional issues that needed to be considered. 

Mr. DUFFY. Okay. I am going to reclaim my time. You admit that 

this is a law that will create jobs within our society. 

Ms. WALTER. No, I said I believe that is the intent. I hope when 

this law is implemented, either this law or other laws will create 

jobs. It is not my job to analyze whether it will carry out its purpose or not. 

Mr. DUFFY. That is right. But it is your job to follow the will and 

intent of Congress, which is to get a rule out within 90 days. And 

so you have come in and testified and said, listen, 90 days wasn’t 

enough time for us. I will accept that. I think that is a good point. 

I am willing to accept that. I am concerned about these emails. I 

have expressed that to you. 

But we are well beyond 90 days. We are over a year and we are 

not done. Are you telling this institution that a year is not enough 

time for you to have this issue resolved and to have a rule out? 

Ms. WALTER. The only thing I can say to you, Congressman, is 

that I regret we did not meet the deadline. I regret— 

Mr. DUFFY. Is a year not enough time? 

Ms. WALTER. It has turned out that we have not gotten it done. 

Could we have gotten it done? 

Mr. DUFFY. Did you need more time than a year? 

Ms. WALTER. We had rules that take far longer than a year to 

do. I am committed to trying to get this one done— 

Mr. DUFFY. Is this one of them? 

Ms. WALTER. —as expeditiously as possible. Yes, this was highly 

controversial, and we heard a lot of heavy comment from a lot of 

different people on both sides. 

Mr. DUFFY. Can I ask one question? You took a little of my time 

with your height comment. Can I ask just one quick question? It 

is not on this, but on— 

Chairman MCHENRY. I ask unanimous consent that the gentleman has an additional minute. 

Mr. DUFFY. Thank you. I am going to change topics on you quickly. There has been some conversation about a pilot program to increase tick sizes. It was discussed in the JOBS Act. There are quite 

a few people who support it. Ms. White has expressed some interest, I think. I don’t know if in a pilot program. She has indicated 

that she agrees that a one-size strategy doesn’t fit all. Is that something that you would agree with, exploring some modification to 

tick sizes for small companies? 

Ms. WALTER. I don’t yet have a formed position on that, but I do 

agree that it is a serious issue, and we should explore it. 

37 

Mr. DUFFY. Thank you. I yield back. 

Chairman MCHENRY. And with that, I will now recognize the 

ranking member of the subcommittee for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. 

My assumption is that you don’t get letters from industry. We 

have talked about a letter today. You don’t get letters from industry, do you? 

Ms. WALTER. We certainly do. 

Mr. GREEN. Is it unusual to get letters from industry? 

Ms. WALTER. Not at all. We get letters and visits from industry 

all the time on a very wide range of subjects. And I believe that 

as public servants it is my duty and my pleasure to meet with 

these people, read the letters no matter who is sending them, no 

matter who is coming in to meet with me. 

Mr. GREEN. Do you assume that because you get a letter from 

industry that somehow industry is doing something that is inappropriate and somehow exerting undue influence? 

Ms. WALTER. No, I do not. 

Mr. GREEN. Do you find that it is helpful to have industry’s point 

of view when you are promulgating rules? 

Ms. WALTER. Yes, I do. 

Mr. GREEN. Have you, in fact, because you have received requests from industry, specific requests, have you honored some of 

those requests in the orderly rulemaking fashion? 

Ms. WALTER. Yes. 

Mr. GREEN. Is it unusual to take seriously what industry ask of 

you? 

Ms. WALTER. Not at all. 

Mr. GREEN. Do you find it unusual that persons who represent 

investors will ask that you give consideration to certain aspects of 

your rulemaking parameters? 

Ms. WALTER. It is not unusual, but it happens with less frequency than it does with industry. 

Mr. GREEN. Some things bear repeating. Are you saying that you 

get more input by way of request from industry, which is not bad, 

but more from industry than you do from consumer entities? 

Ms. WALTER. Yes. That is correct. 

Mr. GREEN. Are you offended by this? 

Ms. WALTER. I am not offended by it, but I do wish that we had 

better means of communicating with the investing public, whom I 

consider to be our primary constituency, and we have been working 

on improving that. 

Mr. GREEN. Let’s go back to the Volcker Rule for just a moment. 

You have now gone beyond the timeline to implement it, which was 

July of 2012, I believe, and we are beyond July 2012. 

Ms. WALTER. Yes. 

Mr. GREEN. Probably about the same amount of time as before 

the JOBS Act. 

And it is true, for clarity purposes, that you have not been called 

before Congress to explain why you have gone beyond the timeline 

for the Volcker Rule; is this true? 

Ms. WALTER. I have not. 

Mr. GREEN. And the Volcker Rule is designed to protect investors, is it not? 

38 

Ms. WALTER. Yes, it is. 

Mr. GREEN. Under the Volcker Rule, my suspicion is that you 

have received some letters from investors or people representing investors as well as from industry; is this a fair statement? 

Ms. WALTER. I believe it is. 

Mr. GREEN. And would you give those your considered thought 

before you implement your new rule? 

Ms. WALTER. Absolutely. 

Mr. GREEN. So with the Volcker Rule, as with the JOBS Act, we 

find ourselves being reasonable, prudent, and judicious as we move 

forward. I say ‘‘we’’ because quite frankly, we have a lot of input 

into what you do. But is that a fair statement? 

Ms. WALTER. Yes, it is. 

Mr. GREEN. And you are not giving one less attention than the 

other? 

Ms. WALTER. No. 

Mr. GREEN. You believe them both to be important? 

Ms. WALTER. Yes. 

Mr. GREEN. Now, let’s do something else. Let’s talk about sequestration for just a moment. We talked about your budget earlier and 

we have talked about how you have been underfunded. Sequestration is going to have an impact on a good many agencies. Is your 

agency one of the agencies that will be impacted by sequestration? 

Ms. WALTER. Yes, it is. 

Mr. GREEN. Do you have any sense of how this impact will have 

an effect on what you will be doing? 

Ms. WALTER. For one thing, it is going to curtail our hiring. And 

we are going to have to parcel out those people who get to refill 

positions when people leave. It is also going to affect how much we 

are able to spend on technology and how much we are going to be 

able to progress on our second technological plans. Those are the 

two main issues but those are—our budget is largely a people 

budget given the nature of what we do, not surprisingly, so it will 

have an impact in both of those areas. 

Mr. GREEN. And you are expected to be the cop on the beat to 

make sure that the streets are safe for investors, is that correct? 

Ms. WALTER. Yes, that is correct. 

Mr. GREEN. And it appears to me that you are also expected to 

do a lot more with a lot less. 

I yield back. 

Chairman MCHENRY. The gentleman yields back, and I will recognize myself for the final round, for the final question, I should 

say. This will be the last question of the day. 

I will put up Exhibit 6 on the board just to reiterate my opening 

statement. 

It is an email from Mary Schapiro, then the Chairman of the 

SEC, to Meredith Cross. The subject line is, ‘‘Please don’t forward.’’ 

And the email states, ‘‘I look forward to talking tomorrow. I have 

2 worries—one is that if these guys (CFA, et al) feel this strongly, 

it seems like we should give them a comment period. Its not really 

asking for much. The other is that I don’t want to be tagged with 

an Anti-Investor legacy. In light of all that’s been accomplished,’’ 

blah, blah, blah. 

So, not asking for much, anti-investor legacy. 

39 

It is this email that should raise concern for you and for your 

agency, and it seems like this should be in some way upsetting and 

in some way a concern, right? 

And I don’t see any outrage, any concern in your testimony, your 

comments today. 

Now, there was concern expressed and we will go to Exhibit 7 

on this, and Mary Schapiro forwarded an email to Meredith Cross 

and two others entitled, in the forward, ‘‘I am furious.’’ It comes 

from Dan Gallagher, a fellow Commissioner of yours. And he says, 

‘‘I just got word about the latest change to general solicitation. It 

is not acceptable. I have been operating in good faith, reviewing the 

multiple proposals sent to me for consideration this month, and I 

continue to find shifting sands. A ‘proposal’ on general solicitation 

could have been done months ago, and indeed should have been 

done years ago. Meredith and Lona made it crystal clear to me on 

Monday that there is no need for a proposal because we know what 

the comments will be. And so, I spent hours working on how to accommodate your desire for a study within an interim final rule, 

and we did so—just to find out now that you have changed your 

mind again.’’ 

Now, Mary Schapiro forwards this on to others and says, ‘‘This 

did not go well.’’ That was her only comment. 

So that is a concern, and that is why we have hearings, when 

we see an agency which has that type of disorder. 

I am hopeful that with a new Chairman, we can actually right 

this ship. And I certainly believe, as I said in the beginning, in 

your capacity, in your intellectual capacity and your understanding 

of securities laws to take this on. 

If you wish to respond, go right ahead. 

Ms. WALTER. I would say that I don’t see in these emails an 

agency that is in disarray. I see in these emails—I can’t speak for 

what Mary Schapiro was seeing at the time—a concern that there 

is a constituency interested in our rulemaking, and as the ranking 

member points out, in this case it is an investor group, someone 

speaking for investors, it could have been industry saying we want 

a comment period so that we have a chance to see a specific proposal and to make comments on it, which is the essence of the rulemaking process, and I see a Chairman being concerned about that. 

I do not think that is a cause for outrage. 

Chairman MCHENRY. Yes. But the comment I am concerned 

about is ‘‘an Anti-Investor legacy’’ as she is leaving the agency. 

That is a concern I see. 

And so, why I bring this up is I am hopeful that we can take this 

on, that your agency can take on the JOBS Act implementation, 

and I would hope, I think the takeaways from this hearing is that 

the agency put those concerns over actually letting capital flow. 

And that is the reason why the JOBS Act even occurs as we see 

the SEC stifling the flow of capital and at the same time not protecting investors as well as they should. 

And so my concern is that you have prioritized that inaction over 

the will of Congress and the law. 

We have a two-page bill, the discretion is very limited, within 3 

weeks you had a proposed rule at the staff level, we don’t want any 

40 

further excuses, and I am very hopeful that in the future, we will 

have some movement on this. 

I certainly appreciate your willingness to testify before Congress. 

The origin of this hearing was a request for a member of the staff, 

and you offered yourself when you were Acting Chairman. That 

was very kind of you, and I certainly appreciate your willingness 

to engage in the discussion today. 

The Chair notes that some Members may have additional questions for this witness, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to this witness 

and to place her responses in the record. Also, without objection, 

Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

And without objection, this hearing is adjourned. 

[Whereupon, at 4:25 p.m., the hearing was adjourned.] 

(41) 

A P P E N D I X 

April 17, 2013 

42 


80881.001

Testimony on the Implementation of Title II of the JOBS Act 

by 

Commissioner Elisse B. Walter 

U.S. Securities and Exchange Commission 

before the 

Subcommittee on Oversight and Investigations 

Committee on Financial Services 

U.S. House of Representatives 

April 17, 2013 

Chainnan McHenry, Ranking Member Green, and Members of the Subcommittee: 

I appreciate the opportunity to testify today regarding the implementation of Title II of 

the Jumpstart Our Business Startups Act (JOBS Act or the Act) by the Commission and its staff. I 

Implementing the JOBS Act, including Title II, is one of the Commission's top priorities. 

Title 11 requires the Commission to revise the Rule 506 safe harbor of Regulation D2 

from registration to allow general solicitation or general advertising for offers and sales of 

securities made under Rule 506, provided that all purchasers of securities are accredited 

investors 3 The rules the Commission adopts pursuant to Title II must require issuers to take 

This testimony is my own and does not necessarily reflect the views of the U.S. Sccurities and Exchange 

Commission, my fellow Commissioners, or the Commission staff. 

17 CFR 230.506. Rule 506 of Regulation D under the Securities Act is a non-exclusive safe harbor under 

Section 4(a)(2) (formerly Section 4(2)) of the Securities Act, which exempts transactions by an issuer "not 

involving any public offering" from the registration requirements of Section 5 of the Securities Act. Under 

Rule 506, an issuer may offer and sell securities, without any limitation on the offering amount, to an unlimited 

number of "accredited investors," as defined in Rule 501(a) of Regulation D. and to no more than 35 nonaccredited investors who meet certain "sophistication" requirements. The availability ofthe existing safe 

harbor is subject to a number of requirements and is conditioned on the issuer, or any person acting on its 

behalf, not offering or selling securities through any form of "general solicitation or general advertising." 

Title II also amends Section 4 of the Securities Act to provide a narrow exemption from the requirement to 

register with the Commission as a broker-dealer in connection with certain limited activities related to 

Regulation D offerings. In February 2013, the Commission's Division of Trading and Markets posted on the 

Commission's website answers to frequently asked questions about these provisions, including confinnation 

that the exemption does not require the Commission to issue or adopt any rules. See 

http://\vww.sec.gov/divisions/marketre2!cxcmption-broker-dcaler-registration-jobs-act-fag.htm. 
43 


80881.002

"reasonable steps to verify that purchasers of the securities are accredited investors, using such 

methods as determined by the Commission." The Commission also is required to revise 

Securities Act Rule l44A 4 to provide that securities sold under this rule may be offered to 

persons other than qualified institutional buyers, including by means of general solicitation or 

general advertising, provided that the securities are sold only to persons reasonably believed to 

be qualified institutional buyers. 

The Title II rulemaking was required to be completed within 90 days of enactment of the 

.lOBS Act. Prior to enactment, a rulewriting team was formed consisting of staff from across the 

Commission, including economists from the Division of Risk, Strategy, and Financial 

Innovation. In August 2012, the Commission issued for public comment proposed rules to 

implement Title I1.s Under the proposed rules, companies issuing securities in an offering 

conducted under Rule 506 of Regulation D would be permitted to use general solicitation or 

general advertising to offer securities, provided that the issuer takes reasonable steps to verify 

that the purchasers of the securities are accredited investors. The Proposing Release explains 

that, in determining the reasonableness of the steps that an issuer has taken to verify that a 

purchaser is an accredited investor, issuers should consider the facts and circumstances of the 

transaction, such as the type of purchaser and the type of accredited investor that the purchaser 

17 CPR 230.144A. Rule 144A is a non-exclusive safe harbor exemption from the registration requirements of 

the Securities Act for resales of certain "restricted securities" to qualified institutional buyers. Although Rule 

144A does not include an express prohibition against general solicitation or general advertising, offers of 

securities under Rule 144A currently must be limited to qualified institutional buyers, which has the same 

practical effect. A qualified institutional buyer is defined in Rule 144A and includes specified institutions that, 

in the aggregate, own and invest on a discretionary basis at least $]00 million in securities of issuers that are not 

affiliated with such institutions. Banks and other specified financial institutions also must have a net worth of at 

least S25 million. A rcgistered broker-dealer is a qualified institutional buyer if it, in the aggregate, owns and 

invests on a discretionary basis at least $10 million in securities of issuers that are not affiliated with the brokerdealer. 

Securities Act Release No. 33-9354 (Proposing Release), 77 Fed. Reg. 54464 (August 29, 2012), available at 

!'-ttnilwWW.S~,ggyfiules/proposed/20 12!lBJ1.:Llliil. 

2 
44 


80881.003

claims to be, the amount and type of infonnation that the issuer has about the purchaser, and the 

nature of the offering. The proposed rules would preserve the existing portions of Rule 506 as a 

separate exemption so that companies conducting Rule 506 offerings without the use of general 

solicitation or general advertising would not be subject to the new verification requirement. 

The Commission also proposed that securities sold pursuant to Rule 144A could be 

offered to persons other than qualified institutional buyers, including by means of general 

solicitation or general advertising, provided that the securities are sold only to persons whom the 

seller and any person acting on behalf of the seller reasonably believe are qualified institutional 

buyers. 

Prior to issuing the Proposing Release, to aid the rulcmaking process and to increase the 

opportunity for public comment, the Commission permitted interested parties to submit 

comments regarding this provision of the JOBS Act. 6 These pre-proposing release eommenters 

expressed a variety of views on how the Commission should implement Title JI, in particular, 

how the rules relating to the requirement to verify accredited investor status should be 

implemented. Some focused on the capital formation benefits they believed thc rulemaking 

could provide, highlighting the enhanced ability of accredited investors and qualified 

institutional buyers to learn about, and participate in, offerings made under the revised rules. 7 

Others asserted that pennitting general solicitation without additional safeguards would 

create serious investor protection concerns, with some commenting on other areas that they 

believed should be considered as part of this rulemaking. For examplc, several recommended 

See http://www.sec,rrov/spotlight/jobsactcomments.shtml. The Commission received more than 65 comment 

letters regarding Title II prior to issuing its rule proposal. See http://www.sec.rrov!commenl>Li2ll.s-title-iiijob->:: 

title-iishtml. 

See, e.g., letter ITom federal Regulation of Securities Committee, Business Law Section of the American Bar 

Association (April 30, 2012). 

3 
45 


80881.004

that the Commission amend the dctinition of "accredited investor" as it relates to natural persons. 

Others recommended that the Commission amend the Form D tiling requirement, including 

conditioning the ,availability of the revised Rule 506 on the filing of a Form D, requiring the 

Form D to be tiled in advance of any general solicitation, or adding to the information 

requirements of Form D. In addition, some commenters suggested that the Commission propose 

rules governing the content and manner of advertising and solicitations used in offerings 

conducted under the revised rule. 8 

In the Proposing Release, the Commission proposed only those rule and form 

amendments that a majority of the Commission members believed were necessary to implement 

the mandate in Title II. The Proposing Release did not propose other amendments to Regulation 

D, Form D, or the definition of"accredited investor," such as those suggested in pre-proposing 

release comment letters. The Commission requested that commenters address the Commission's 

specific proposed approach to implementing Title II. The Proposing Release did not request 

comment on other potential rule changes, nor did it address any such recommendations as 

potential reasonable alternatives to the approach in the proposed rule. 9 

Prior to the issuance of the rule proposal, a number of commenters expressed concerns 

about the possibility that the Commission might proceed to a tinal rule without allowing the 

See, e.g., letters from Investment Company Institute (May 21. 2012); AFL-CIO, Americans for Financial 

Reform, Consumer Federation of America, Consumer Action, and Fund Democracy (May 24, 2012); 

Massachusetts Securities Division (July 2, 2012); North American Securities Administrators Association (July 

3,2012); Ohio Division of Securities (July 3, 2012). 

Commissioner Luis Aguilar dissented from the Commission's action, stating his view that the Proposing 

Release presented a framework that was not balanced and did not consider the alternatives suggested by preproposing release commenters. See Commissioner Luis A. Aguilar, Statement at SEC Open Meeting. August 

29,2012, available at https:/lwww.sec.gov/news!speech/2012!spch082912Iaa.htm. 

4 
46 


80881.005

public an 0PPOliunity to comment on a specific Commission proposal. 10 The Administrative 

Procedure Act, which governs all Commission rulemakings, requires such a notice and comment 

process, with certain narrow exceptions. 1 1 

The comment period for the proposal cndcd in October 2012. Following the proposal, 

commenters have submitted more than 220 letters. 12 Those letters have generated meaningful 

discussion regarding the issues and been very useful in our consideration of how to implement 

Title II. 

Commenters on the proposal were sharply divided in their views. Sixty-one commenters, 

including the majority of professional and trade associations/organizations, law firms and legal 

associations that submitted letters, expressed general support for the proposal, with many stating 

generally that the elimination of the prohibition on general solicitation or general advertising 

would facilitate capital formation. 13 In addition, several supporters recommended that the 

proposed framework for verifying accredited investor status be supplemented in the final rule by 

including a non-exclusive list of specific verification methods that could be relied upon by 

issuers seeking greater certainty that they arc satisfying the verification requirement. 14 Eighty10 

II 

12 

13 

See. e.g., letters from the Investment Company Institute (August 17,2012); Fund Democracy, Consumer 

Federation of America, Americans for Financial Reform and Lynn E. Turner (August 16,2012); Council of 

Institutional Investors (August 16, 2012)~ and North American Securities Administrators Association (August 

15,2012). 

See 5 U.s.C. 553. 

See http://www.secJlQ.Y{comments/s7·07-12/s70712.shtml. Commissioners and the staff also have participated 

in numerous meetings with a wide variety of interested individuals and groups regarding the rulemaking. The 

comment file relating to Title II provides information about the meetings in which the Commissioners and the 

staff partici pated. See hrt p :i/www.sec.gov I comments/iobs~ title-ii/jobs-title-i i.shtm I. 

See. e.g., letters from the Federal Regulation of See uri ties Committee, Business Law Section oflhe American 

Bar Association (October 5, 2012); Angel Capital Association (September 27, 2012); Center for Capital 

Markets Competitiveness of the U.S. Chamber of Commercc (October 5, 2012); and Securities Industry and 

Financial Markets Association (October 5, 2012). 

14 See. e.g., letters from Angel Capital Association (September 27, 2012); Biotechnology Industry Organi,.ation 

(October 5, 2012); and Managed Funds Association (September 28, 2012). 

5 
47 


80881.006

one commenters expressed general opposition to the Commission's proposal, including the 

Investor Advisory Committee fonned by the Commission as required by the Dodd-Frank Wall 

Street Reform and Consumer Protection Act, 15 all of the investor organizations, and all but one 

of the federal and state officials who submitted letters. Some of these commenters stated that the 

proposed rules, if adopted, would result in an increase in fraudulent securities offerings, with a 

number recommending that the Commission consider additional safeguards, such as those 

recommended in certain pre-proposing release comment letters. 16 Currently, staff in the 

Divisions of Corporation Finance and Risk, Strategy, and Financial Innovation are developing 

recommendations for the Commission's consideration as to how best to move forward with 

implementation of Title II. 

In conclusion, the Commission and the staff continue to work on implementing Title II of 

the JOBS Act. Although our work on this important provision is still ongoing, the Commission 

needs to complete this rulemaking promptly and it is a priority for the agency. 

Thank you again for inviting me to appear before you today. I would be pleased to 

answer any questions you may have. 

15 The Investor Advisory Committee was established in April 2012 pursuant to Section 911 ofthe Dodd-Frank 

Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) 10 advise the Commission on regulatory 

priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, 

and on initiatives to protect investor interests and to promote investor confidence and the integrity of the 

securities marketplace. Members of the Investor Advisory Committee were nominated by all five of the sitting 

Commissioners at the time of its formation and represent a wide variety of interests, induding senior citizens 

and other individual investors, mutual funds, pension funds and state securities regulators. The Dodd-Frank Act 

authorizes the Investor Advisory Committee to submit findings and recommendations for review and 

consideration by the Commission. See Recommendations of the Investor Advisory Committee Regarding SEC 

Rulemaking to Lift the Ban on General Solicitation and Advertising in Rule 506 Offerings: Efficiently 

Balancing Investor Protection, available at http://vvww.sec.gov/spotlight/investor-advisory~committee- 20 12/iacgcneral-solicitation-advertising-recommcndatiol1s.pdf 

16 See, e.g., letters from AARP (October 5, 2012); Council oflnstitutionallnvestors (September 27,2012); 

Consumer Federation of America (October 3,2012); Investment Company Institute (October 5, 2012); 

Massachusetts Securities Division (September 20,2012); and North American Securities Administrators 

Association (October 3, 2012). 

6 
48 


80881.009

CHAIRMAN'S 

EXHIBITS 

4/17/13 

OVERSIGHT AND 

INVESTIGATIONS 

SUBCOMMITTEE 

HEARING ON "EXAMINING THE 

SEC'S FAILURE TO IMPLEMENT 

TITLE II OF THE JOBS ACT AND ITS 

IMPACT ON ECONOMIC GROWTH" 
49 


80881.010

From: 

Sent: 

To: 

cc: 

Subject: 

Hi: 

Kim, Thomas 

Wednesday, May 09, 2012 1:20 PM GMT -04:00 

Cross, Meredith; Nallengara, Lana 

Ingram, Jonathan; Yu, Ted; Kwon, Charles 

FW: Revised Draft Rule 506 Rule 144A Term Sheet 

We met w/ Rich Leline and Aseel Rabie this morning to discuss OGC's comments on the term sheet that 

we recei\€d yesterday. (See below, which includes a summary of what we discussed wlr/t each point.) 

Their biggest comment, which they con\€yed more fully at our meeting, is on process. As you may know, 

they ha\€ been concerned about what happens on Day 91. Can the SEC enforce the ban on general 

solicitation in Rule 506 offerings after it fails to meet the deadline Congress has imposed for lifting the ban 

on general solicitation in Rule 506 offerings? I think they're dubious as to whether we could. 

OGe's idea is that, instead of following the typical proposing release/adopting release process, we consider 

going straight to an interim final rule within the 90 days. This interim final rule would contain language that 

largely tracks the statute. In the release text, we would explain our interpretation of what "\€rily" means and 

what "reasonable steps" means, and prolide examples of what "methods" could be used. What would 

suffice would be based on a facts-and-circumstanceslreasonableness standard. We could e\€n ha\€ an 

instruction that says, self-certification, in and of itself, would be not be sufficient. 

The interim final rule would sunset at some point in the future, such as one year or, belter yet, two years 

later. Between now and then. we would inlite comment on the interim final rule. We antiCipate that these 

comments would be belter and more useful than they would be if we didn't ha\€ an interim final rule in place 

because, presumably, the comments would be informed by real-life experience with the new rule. Similarty, 

our final final rule would also presumably be belter for the same reason, as it would be informed by the 

comments and by the Staffs own experience with interpreting and administering and enforcing (and bringing 

enforcement actions with respect to) the interim final rule. 

We told them that if this is the way they think we should go, we would probably all need to meet one more 

time, and also im,ol\€ 1M as well. 

Thoughts? 

Thx. Tom 

From: Fredrickson, David R. 

Sent: Monday, May 07, 2012 2: 57 PM 

To: Kim, Thomas; Zepralka, Jennifer; Brown, Ullian; Brightwell, Tamara 

Cc: Levine, Richard A.; Rabie, Aseel 

Subject: RE: Revised Draft Rule 506 Rule 144A Term Sheet 

Tom, etal., 

Thanks forthe revised Rule 506/144A term sheet. We'd still like to discuss some ofthe issues we 

raised on the prior draft, and to understand whetherthe term sheet orthe proposing release will 

address these issues. We also have questions about some of the newly added language. 

Our comments are as follows: 

1. The term sheet suggests in a couple of places (pp. 6 and 13-14 of the redline) that the 

Chairman's Exhibit 1 SEC000415 
50 


80881.011

From: 

Sent: 

To: 

Subject: 

Hi Lona: 

Kim, Thomas 

Friday, May 11, 2012 3: 18 PM GMT -04:00 

Nallengara, Lona 

Rule 506 update 

Yesterday, the working group met wI Meredith in the afternoon (I sent you the meeting inlhte) to discuss 

whether the Rule 506 amendments should be implemented wlo notice and comment, either as an interim 

final rule or as an interim final temporary rule. Meredith supported going straight to a final rule, as we could 

then ha"" a pilot period where we could assess how issuers are ""rilYing accredited in""stors and whether 

or not these in""stors are, in fact, accredited, after which point we could decide whether to adopt final final 

rules or amend the rule to address any concerns. She was more comfortable doing this as an interim final 

temporary rule, which means that it would sunset at some future date. Two years was tossed around as a 

possible sunset date. 

We are relhsing the term sheet accordingly, and focusing on making the rule principles-based, with the 

emphasis being on "reasonable" steps in light offacts and circumstances. Basically, GC's comments on 

the old term sheet. Correspondingly, we're going to de-emphasize the word '\€rilY" and so we're going to 

delete the discussion about the legislati"" history and the other federal rules that use that tenm and require 

3d party documentation. 

Just wanted to gi"" you this update so you know what the status is. 

(Bts, I did the mid-Atlantic ENF conference yesterday morning. It was actually enjoyable. About 40 

regulators from the mid-Atlantic area, including our Philadelphia regional office. No members from the 

public. State securities regulators, the IRS, various US Ally offices.) 

Ha"" a great weekend! 

Tom 

Chairman's Exhibit 2 SEC000466 
51 


80881.012

From: 

Sent: 

To: 

cc: 

Subject: 

Attachments: 

Cross, Meredith 

Wednesday, May 23,20123:07 PM GMT -04:00 

Schapiro, Mary L.; Walter, Elisse; Aguilar, Luis A. (Commissioner); Paredes, Troy 

A.; Gallagher, Daniel; Nisanci, [)idem A.; Williams, Erica Y.; Sheppard, Lesli; Leaf, 

Marc A.; Kimpel, Scott H.; Devine, Stephen W. 

JOBS Act rulemaking -- Oraft Term Sheet for Rule S06/Rule 144A rulemaknig 

Draft Rule 506 Rule 144A Term Sheet, Final.docx 

Dear Commissioners and CO\ll1Sels, 

Attached for your review is a dmft term sheet for the rulemaking (0 rCIIDve the ban on gencml 

solicitation inRcg D Rule 506 offerings and to allow offurs to non-QIBs in Rule l44A offerings. It also 

requires issuers to take reasonable steps to verilY accredited investor status in generally solicited Reg D 

Rule 506 offerings. This rulemaking i'i required by Title II ofthe JOBS Act. As you will see, we are 

recommending that the Commission proceed with an interim fmal rule. 

The JOBS Act calls fur these rule amcndmcnts to be finali7..cd by 90 days afrer enactment of the JOBS 

Act (July 4,2012). In the interest oftimc, we are dmfring a release based the draft teml sheet. We 

look forward to discussing your qucstions and commcnts. 

·Dunks, Meredith 

Draft Rule 

506 Rule 

144A Term 

Sheet, 

Final.docx 

(55kB) 

Chairman'S Exhibit 3 SEC000871 
52 


80881.013

From: 

Sent: 

To: 

cc: 

Subject: 

Aseel, 

Kwon, Charles 

Tuesday, June OS, 2012 10:45 AM GMT -04:00 

Rabie, Aseel 

Yu, Ted; Kim, Thomas; Ingram, Jonathan; Fredrickson, David R. 

506 release "good cause" exception under the APA 

As I mentioned overthe phone, the following is a draft discussion of the "good cause" exception 

under the APA for the 506 release. 

Please let me know if you have any questions. Your feedback would be much appreciated. 

Thanks, 

Charles 

OTIIER MATfERS 

The Administrative Procedure Act generally requires an agency to publish notice of a proposed 

rulcmaking in the Federal Register. [J] This requirement does not apply, however, if the agency "for 

good cause finds ... that notice and public procedure are impracticable, unnecessary, or contrary to the 

public interest.,I2] The Commission, fur good cause, finds that the notice and public comment 

procedures in advance of effectiveness of the interim final rules arc impracticable, unnecessary and 

contrary to the public interest for the following reasons. First, we believe that (he statutory language in 

Section 201 (a) is clear and straightforward as (0 how to amend Rules 506 and 1 44A( d)(l), such that 

prior notice and comment are unnecessary. Second, thc Commission finds that it would be 

impracticable to comply with the notice and comment procedures lIDder the Administrative Procedure 

Act in light ofthe 90-day period lIDder Sectinn 201(a) ofthc JOBS Act to revise these rules. TI1ird, in 

view of the clear statutory language as well as the anticipated major impact on capital-raising by i<;suers, 

we believe that it would be consistent with the public interest to use an expedited rulemaking procedure 

to adopt these amendments, which would, 3rmng other things, allow the Commission to begin 

rmnitoring and studying the operation and impact of these amendments. 3 

The COmml%ion is requesting comments on the interim final rules and will consider any 

Chairman's Exhibit 4 SEC000939 
53 


80881.014

comrrents that we receive in dctemlining whether we should revise, or take any other actions with 

respect to, the interim final rules. The interim final nllcs will remain in effect until the compliance date for 

final rules that we may adopt further establishing the methods that issuers may use in taking "reasonable 

steps" to vcrifY that purchasers of securities in a Rule 506 offering are accredited investors. 

1 See 5 U.S.c. 553(b). 

2 Id. 

3 Adopting tbe amendments to Rules 506 and 144A as interim fuml rules wouk! also permit the 

Commission to coordinate its final rule making efforts in implementing Section 201 (a) with any Commission 

rulemaking efforts to amend the defmition of "accredited investor" following the GAO's study and report 

on the appropriate criteria needed to qualify for accredited investor status, as required by Section 415 of 

the Dodd-Frank Act. 

[IJ See 5 U.S.c. 553(b). 

[21 Id. 

Chairman's Exhibit 4 (continued) SEC000940 
54 


80881.015

ft'om: Schapiro, Mary l. 

Sent: Tuesday, August 07,2012 4:32 PM GMT -04:00 

To: Nisanci, Didem A.; Williams, Erica Y.; McHugh, Jennifer B.; Cross, Meredith; Marlin, 

Myron l. 

cc: Walter, Elisse 

Subject: Re: general solicitation ban rulemaking 

I know we spent an hour discussing this yesterday but they are making me very worried. Is there 

really a problem with a short comment period? I know, i know we went through all of that. 

ft'om: Nisanci, Didem A. 

Sent: Tuesday, August 07, 2012 04: 10 PM 

To: Schapiro, Mary l.; Williams, Erica Y.; McHugh, Jennifer 8.; Cross, Meredith; Marlin, Myron L. 

Subject: Fw: general solicitation ban rulemaking 

ft'om: Barbara Roper' ••• ' •••••• Sent: Tuesday, August 07, 201203:23 PM 

To: Nisanci, Didem A. 

Subject: general solicitation ban rule making 

Didem, 

By now I imagine you have heard from SEC staff who attended last week's JOBS Act Implementation 

roundtable at the Treasury Department about how strongly investor representatives at that meeting 

opposed the reported plan to adopt the rule eliminating the general solicitation ban in private 

offerings as an interim final or temporary rule. We have strong objections to this approach based on 

both substance and process, which we will detail in a forthcoming letter to the Commission. (A letter 

is currently being drafted and is likely to be finalized by early next week at the latest.) It will call on 

the Commission to subject this and all future JOBS Act rule makings to the full public proposal-andcomment process required underthe Administrative Procedures Act. I wanted to give you a heads up 

that this is coming, that it is a very important issue for a numberof investor groups induding CFA, and 

that groups who were present at last week's meeting are prepared to be quite aggressive in voicing 

our concerns. 

Barb 

Barbara Roper 

Director of Investor Protection 

Consumer Federation of Americo 

Chairman's Exhibit 5 SEC002660 
55 


80881.016

fi-om: 

Sent: 

To: 

Subject: 

Schapiro, Mary L. 

Tuesday, August 07, 2012 5:05 PM GMT -04:00 

Cross, Meredith 

Please don't forward 

I look forward to talking tomorrow. I have 2 worries - one is that if these guys (CFA, et al) feel this strongly, it seem' 

like we should give them a COllllllent period. Its not really asking for much". The other is that I don't want to be 

tagged with an Anti-Investor legacy. In light of all that's been accomplished, that wouldn't be fair but it is what will 

be said given how high emotions mn on anything related to the JOBS Act. Doesn't seem worth it for an extm 45 days 

of process .... 

Chairman'S Exhibit 6 SEC002678 
56 


80881.017

From: 

Sent: 

To: 

Subject: 

This did not go well. 

Schapiro, Mary L. 

Wednesday, August 08,20127:40 PM GMT -04:00 

Cross, Meredith; Williams, Erica Y.; Cahn, Mark D. 

Fw: I am furious 

----- Original Message ---

From: C.allagher, Daniel 

Sent: Wednesday, August 08, 2012 07:19 PM 

To: Schapiro, Mary L. 

Subject: I am furious 

I just got word about the latcst change to general solicitation. It is not acceptable. I have been operating in good 

faith, reviewing the multiple proposals sent to me for consideration this month, and I continue to fmd shifting sands. 

A "proposal" on general solicitation could have been done rrxmths ago, and indeed should have been done years 

ago. Meredith and Lona made it crystal clear to me on Monday that there is no need for a proposal because we know 

what the comments will be. And so, I spent hours working on how to accorrnmdate your desire for a study within an 

interim final rule, and we did so -- just to find out now that you have changed your mind again. 

Against the backdrop of a potential open meeting on money market funds that may be just an exercise of you 

"getting us on the record" as you told me two weeks ago and as was reported in the WSJ today, I can only assume 

that you have no desire to proceed in food faith as we consider critically important rules in an unreasonable schedule 

you have set for this month. I will proceed accordingly. 

Chairman's Exhibit 7 SEC002694 
57 


80881.018

124 STAT. 1620 PUBLIC LAW 111-203-JULY 21,2010 

Effective date. 

12 USC 1851. 

and State and local governments, ande as a source of 

liquidity for the financial system; and 

(G) the nature, scope, and mix of the activities of 

the supervised securities holding company. 

(4) NOTICE.-A capital requirement imposed under this 

subsection may not take effect earlier than 180 days after 

the date on which a supervised securities holding company 

is provided notice of the capital requirement. 

(e) OTHER PROVISIONS OF LAW APPLICABLE TO SUPERVISED 

SECURITIES HOLDING COMPANIES.-

(1) FEDERAL DEPOSIT INSURANCE ACT.-Subsections (b), (c) 

through (s), and (u) of section 8 of the Federal Deposit Insurance 

Act (12 U.S.C. 1818) shall apply to any supervised securities 

holding company, and to any subsidiary (other than a bank or an institution described in subparagraph (D), (F), or (H) 

of section 2(c)(2) of the Bank Holding Company Act of 1956 

(12 U.S.C. 1841(c)(2») of a supervised securities holding com- pany, in the same manner as such subsections apply to a bank holding company for which the Board of Governors is 

the appropriate Federal banking agency. For purposes of 

applying such subsections to a supervised securities holding 

company or a subsidiary (other than a bank or an institution 

described in subparagraph CD), (F), or (H) of section 2(c)(2) 

of the Bank Holding Company Act of 1956 (12 U.S.C. 

1841(c)(2») of a supervised securities holding company, the 

Board of Governors shall be deemed the appropriate Federal 

banking agency for the supervised securities holding company or subsidiary. 

(2) BANK HOLDING COMPANY ACT OF 1956.-Except as the 

Board of Governors may otherwise provide by regulation or order, a supervised securities holding company shall be subject 

to the provisions of the Bank Holding Company Act of 1956 

(12 U.S.C. 1841 et seq.) in the same manner and to the same extent a bank holding company is subject to such provisions, 

except that a supervised securities holding company may not, 

by reason of this paragraph, be deemed to be a bank holding 

company for purposes of section 4 of the Bank Holding Company 

Act of 1956 (12 U.S.C. 1843). 

SEC. 619. PROHIBITIONS ON PROPRIETARY TRADING AND CERTAIN 

RELATIONSIDPS WITH HEDGE FUNDS AND PRIVATE 

EQUITY FUNDS. 

The Bank Holding Company Act of 1956 (12 U.S.C. 1841 et 

seq.) is amended by adding at the end the following; 

"SEC. 13. PROHIBITIONS ON PROPRIETARY TRADING AND CERTAIN 

RELATIONSHIPS WITH HEDGE FUNDS AND PRIVATE EQUITY 

FUNDS. 

"(a) IN GENERAL.-

"(1) PROHIBITION.-Unless otherwise provided in this. sec- tion, a banking entity shall not-

"(A) engage in proprietary trading; or "(B) acquire or retain any equity, partnership, or other 

ownership interest in or sponsor a hedge fund or a private 

equity fund. 

"(2) NONBANK FINANCIAL COMPANIES SUPERVISED BY THE 

BOARD.-Any nonbank financial company supervised by the 

Board that engages in proprietary trading or takes or retains 
58 


80881.019

PUBLIC LAW 111-203-JULY 21, 2010 124 STAT. 1621 

any equity, partnership, or other ownership interest in or spon- sors a hedge fund or a private equity fund shall be subject, by rule, as provided in subsection (b)(2), to additional capita! 

requirements for and additional quantitative limits with 

regards to such proprietary trading and taking or retaining 

any equity, partnership, or other ownership interest in or sponsorship of a hedge fund or a private equity fund, except that permltted activities as described in subsection (d) shall 

not be subject to the additional capital and additional quan- titative limits except as provided in subsection (d)(3), as if 

the nonbank financial company supervised by the Board were a banking entity. "(b) STUDY AND RULEMAKING.-

"(1) STUDY.-Not later than 6 months after the date of 

enactment of this section, the Financial Stability Oversight 

Council shall study and make recommendations on imple- menting the provisions of this section so as to-

"(A) promote and enhance the safety and soundness 

of banking entities; 

"(B) protect taxpayers and consumers and enhance 

f'manda! stability by minimizing the risk that insured 

depository institutions and the affiliates of insured depository institutions will engage in unsafe and unsound activities; 

"(C) limit the inappropriate transfer of Federal subsidies from institutions that benefit from deposit insurance 

and liquidity facilities of the Federal Government to 

unregulated entities; 

"(D) reduce conflicts of interest between the selfinterest of banking entities and nonbank financial companies supervised by the Board, and the interests of the 

customers of such entities and companies; 

"(E) limit activities that have caused undue risk or loss in banking entities and nonbank financial companies 

supervised by the Board, or that might reasonably be 

expected to create undue risk or loss in such banking entities and nonbank financial companies supervised by 

the Board; 

"(F) appropriately accommodate the business of insur- ance within an insurance company, subject to regulation in accordance with the relevant insurance company investment laws, while protecting the safety and soundness of 

any banking entity with which such insurance company is affiliated and of the United States financial system; 

and 

"(G) appropriately time the divestiture of illiquid assets 

that are affected by the implementation of the prohibitions 

under subsection (a). 

"(2) RULEMAKING.-

"(A) IN GENERAL.-Unless otherwise provided in this 

section, not later than 9 months after the completion of 

the study under paragraph (1), the appropriate Federal 

banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, 

shall consider the findings of the study under paragraph 

(1) and adopt rules to carry out this section, as provided in subparagraph (B). 

Deadline. 

Recommendations. 

Deadline. 
59 


80881.020

124 STAT. 1622 PUBLIC LAW 111-203-JULY 21,2010 

"(B) COORDINATED RULEMAKING.-

"(i) REGULATORY AUTHORITY.-The regulations 

issued under this paragraph shall he issued hy-

"(I) the appropriate Federal banking agencies, jointly, with respect to insured depository institutions; 

"(II) the Board, with respect to any company that controls an insured depository institution, or that is treated as a bank holding company for 

purposes of section 8 of the International Banking Act, any nonbank financial company supervised 

by the Board, and any subsidiary of any of the 

foregoing (other than a subsidiary for which an agency described in subclause (1), (III), or (IV) 

is the primary financial regulatory agency); 

"(III) the Commodity Futures Trading 

Commission, with respect to any entity for which 

the Commodity Futures Trading Commission is 

the primary financial regulatory agency, as defined 

in section 2 of the Dodd-Frank Wall Street Reform 

and Consumer Protection Act; and 

"(IV) the Securities and Exchange Commission, with respect to any entity for which the Securities and Exchange Commission is the primary 

financial regulatory agency, as defined in section 

2 of the Dodd-Frank Wall Street Reform and Con- sumer Protection Act. 

"Cii) COORDINATION, CONSISTENCY, AND COMConsultation. PARABILITY.-In developing and issuing regulations 

pursuant to this section, the appropriate Federal 

banking agencies, the Securities and Exchange 

Commission, and the Commodity Futures Trading Commission shall consult and coordinate with each 

other, as appropriate, for the purposes of assuring, 

to the extent possible, that such regulations are com- parable and provide for consistent application and 

implementation of the applicable provisions of this sec- tion to avoid providing advantages or impOSing disadvantages to the companies affected by this subsection 

and to protect the safety and soundness of banking 

entities and nonbank financial companies supervised 

by the Board. 

"(iii) COUNCIL ROLE.-The Chairperson of the 

Financial Stability Oversight Council shall be respon- sible for coordination of the regulations issued under 

this section. 

"(c) EFFECTIVE DA'l'E.-

"(1) IN GENERAL.-Except as provided in paragraphs (2) 

and (3), this section shall take effect on the earlier of-

"(A) 12 months after the date of the issuance of final 

rules under subsection (b); or "CB) 2 years after the date of enactment of this section. 

Deadline. "(2) CONFORMANCE PERIOD FOR DIVESTITURE.-A banking 

entity or nonbank fmanciaI company supervised by the Board 

shall bring its activities and investments into compliance with 

the requirements of this section not later than 2 years after 

the date on which the requirements become effective pursuant 
60 


80881.021

Printer Version - Board of Governors of the Federal Reserve System 

Joint Press Release 

For immediate release 

Board ofGo\"ernors of the Federal Reserve System 

Commodity Futures Trading Commis\ion 

Fedcnll Dt'posit Insurance Corporation 

ornee of the Comptroller of the Current';': 

Securities and Exchange Commission 

April 19,2012 

Vo!cker Rule Confomlance Period Clarified 

The Federal Reserve Board on Thursday announced its approval of a statement clarifying that an 

entity covered by section 619 of the Dodd-Frank Wall Street Refonn and Consumer Protection Act, 

or the so-called Voleker Rule, has the full two-year period provided by the statute to fully confonn 

its activities and investments, unless the Board extends the conformance period. Section 619 

generally requires banking entities to confonn their activities and investments to the prohibitions 

and restrictions included in the statute on proprietary trading activities and on hedge fund and 

private equity fund activities and investments. 

Section 619 required the Board to adopt rules governing the conformance periods for activities and 

investments restricted by that section, whieh the Board did on February 9, 2011. Subsequently, the 

Board received a number of requests for clarification ofthe manner in which this confonnancc 

period would apply and how the prohibitions will be enforced. The Board is issuing this statement to 

address this question. 

The Board's confonnance rule provides entities covered by section 619 of the Dodd-Frank Act a 

period of two years after the statutory effective date, which would be until July 21, 2014, to fully 

conform their activities and investments to the requirements of section 619 of the Dodd-Frank Act 

and any implementing rules adopted in final under that section~ unless that period is extended by the 

Board. 

The Board, the Oftiee of the Comptroller of the Currency, the Federal Deposit Insurance 

Corporation, the Securities and Exchange Commission, and the Commodity Futures Trading 

Commission (the agencies) plan to administer their oversight of banking entities under their 

respective jurisdictions in accordance with the Board's confonnance rule and the attached 

statement. The agencies have invited public comment on a proposal to implement the Volcker rule, 

but have not adopted a final rule, 

The statement is included in the attached Federal Register notice, pubJ ication of which is expected 

shortly. 

Federal Register notice: TEXT I PDF 

Board Voting Record 

Media Contacts: 

Federal Reserve Board 

CfTC 

Barbara llagenhaugh 

David Gary 

202-452-2955 

202-418-5085 

http://www,federalreserve,gov/newsevents/press/bcreg/20 120419aJ1tm 

Page 1 01'2 

4/25/2013 
61 


80881.022

Printer Version - Board of Governors of the Federal Reserve System 

FDIC 

ace 

SEC 

David Barr 

Bryan Hubbard 

John Nester 

202-898-6992 

202-874-5770 

202-551-4120 

hltp:llwww.federalreserve.gov/newsevcnts/prcsslbcreg/201 2041 9a.htm 

o 

Page 20f2 

4/25/2013 
62 


80881.007

SPENCER BACHUS, Al. CHAIRMAN 1'lnitrd ,j3tgtes l'loust or Rr~rmnmtib(5 

Q:ommitm on jfimmrial cS:5uoiccs 

BARNEY fRANK, MA, RANKING MEMBFR 

Ulashington. rut. 20515 

November 29,2012 

The Honorable Ben Bernankc 

Chairman 

Board of Governors of the Federal Reserve 

System 

20th Street and Constitution Avenue, N.W. 

Washington, DC 20551 

The Honorable Martin Gruenberg 

Chairman 

Federal Deposit Insurance Corporation 

550 17th Street, N.W. 

Washington, DC 20429 

The Honorable Gary Gensler 

Chairman 

U.S. Commodity Futures Trading 

Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

Dear Sirs and Madam: 

The Honorable Mary Schapiro 

Chairman 

US. Securities and Exchange Commission 

100 F Street, NE 

Washington, DC 20549 

The Honorable Thomas Curry 

Comptroller of the Currency 

Office of the Comptroller of the Currency 

250 E Street, S.W. 

Washington, DC 20219 

As you know, Section 619 of the Dodd-];':rank Wall Street Reform and Consumer Protection 

Act (p.L. 111-203), popularly known as the "Volcker Rule," prohibits banks from engaging in 

proprietary trading. Hearings in the Committee on the Financial Services have demonstrated 

that the Voleker Rule will have significant effects on capital formation and liquidity in the 

financial system as well as the availability of credit to businesses and consumers and the ability 

of individuals to save for their retirements and their children's education. Moreover, because no 

other country has imposed a similar prohibition on proprietary trading, the Vo1cker Rule may 

well put U.S. financial institutions at a competitive disadvantage against their foreign 

counterparts. 

Given that the costs that the Volcker Rule will impose on the u.s. financial system will 

more than likely outweigh any benefits the rule has to offer, it is absolutely essential that you 

carefully consider how you will implement it and that your agencies be transparent about the 

process by which you issue the final rule. Unfortunately, you have been less than transparent 

about how you intend to implement the Volcker Rule, and the resulting confusion has only made 

it that much more likely that whatever final rule you issue will compound the regulatory 

uncertainty that continues to plague our economy. 

In October 2011 and in January 2012, your agencies released proposed rules pursuant to 

Section 619, and solicited comments on more than one thousand separate questiollS. Five months 

lat.er, in April 2012, amid considerable confusion about how financial institutions would comply 

with rules that have yet to be finalized and a looming July 2012 deadline, the Federal Reserve 
63 


80881.008

Page 2 

November 29, 2011 

Board directed banking entities to engage in good-faith efforts to try to conform their activities to 

a yet-to-be-defined rule, with full compliance mandated by July 2014. 

The media now report that your agencies may be preparing to issue as many as three 

different versions of the Voleker Rule. Even if proprietary trading played a role in bringing about 

the financial crisis and even if banning proprietary trading would make the financial system 

safer-propositions that are simply not supported by the evidence-the prospect that regulators 

have been unable to agree on one version of the Voleker Rule is extremely troubling. As we are 

sure you can appreciate, competing versions of the Volcker Rule will make it all the more difficult 

for market participants to know what their obligations are and how to comply with them, 

particularly if they find themselves subject to competing obligations enforced by different 

regulators. While the Volcker Rule promises little if any benefit, what little benefit it does 

promise will not be realized if regulators further fragment financial markets and ratchet up the 

costs of compliance for market participants by issuing multiple versions ofthe Volcker Rule. 

Section 619 charged the five regulatory agencies with jointly promulgating one Voleker Rule; it 

did not grant each one the discretion to issue its own version of the same rule. To comply with 

the mandate set forth in the Dodd-Frank Act, you must speak with one voice and jointly issue 

one rule. 

As part of your efforts to jointly issue one Volcker Rule rather than several, the agencies 

should conduct a robust cost-benefit analysis of the Volcker Rule and its effects on investors, 

borrowers, capital markets, the financial system, and the U.S. economy. Market participants 

deserve to know whether the Volcker Rule will in fact make the financial system safer and they 

deserve to know at what cost. Perhaps more important, Congress should have the benefit of that 

analysis in considering whether Section 619 should be amended or repealed. 

Given the time that it will take for you to agree on one version of the Volcker Rule as well 

as the tremendous uncertainty that market participants face in trying to anticipate what the 

final r;!Ie will look like, we respectfully suggest that the Federal Reserve Board delay the Volcker 

Rule's effective date until two years after the date on which the final rule is promulgated. Doing 

so would replicate the two-year conformance period mandated by Section 619, and it would grant 

institutions the time Congress intended to give them to begin their efforts to comply with this 

far-reaching, complex rule. 

We look forward to your response and your description of how you plan to proceed with 

this crucial rule that will profoundly affect U.S. financial markets and all those who rely upon 

them. 

£1L 

SP~RBACHUS Chairman 

Sincerely,