Setting Forth Goals for 2015: Address to Practising Law Institute’s SEC Speaks in 2015 Program
Commissioner Luis A. Aguilar
Ronald Reagan Building and International Trade Center<br/> Washington, D.C.
Feb. 20, 2015
Good morning. I am honored to be here this morning for my seventh SEC Speaks as an SEC Commissioner. Before I begin, let me start by issuing the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views of the Securities and Exchange Commission, my fellow Commissioners, or members of the staff.
During the past seven years, the SEC has taken action on a significant number of issues. There is little doubt, that these years have been one of the most active periods in SEC history. For example, during this period, the Commission voted on almost 250 rulemaking releases, both proposing rules and adopting final rules. Many of these rulemakings have been ground-breaking.
Still, even with all that activity, the SEC has not finished its work on many ongoing issues, such as the need to improve disclosures related to target-date funds and municipal securities. The Commission also has not completed many of its outstanding statutory mandates. I plan to use my time with you today to lay out a few important priorities that the SEC should pursue in 2015 in order to move toward completing its outstanding work, to strengthen the Commission and do right by the public.
I. Complete the Work on Dodd-Frank Rulemaking
First, the Commission must complete the rulemakings required by the Dodd-Frank Act. Adopted after the worst financial crisis in recent memory, the Dodd-Frank Act was designed to address many of the regulatory gaps and loopholes exposed by the market crisis. With this law, Congress tasked the Commission with creating a regulatory regime to address these regulatory failures by, among other things, bringing greater transparency to the securities-based swaps market; giving investors a voice on executive compensation; improving the practices of credit rating agencies; correcting serious flaws in the asset-backed securities markets; and limiting the conflicts that arise when NRSROs rely on client payments to drive profits. In fact, the Dodd-Frank Act mandated the Commission to promulgate approximately 95 separate rulemakings. Unfortunately, according to a January 2015 report, the Commission had only finalized 56 of these rules. Clearly, there is more work that needs to be done, particularly the Commission needs to complete the rulemakings relating to derivatives regulation and corporate governance.
It is important that the Commission finalize these rules because they are vital to the protection of investors, the stability of our capital markets, and our overall economy. Finalizing these rules creates regulatory certainty. The Commission’s failure to finalize these rules creates a “regulatory limbo” that impedes many business decisions.
One area where I would like to see more action is in the derivatives rulemaking. There is little doubt that one of the most important mandates of the Dodd-Frank Act is for the Commission, along with the CFTC, to promulgate an effective regulatory framework to oversee the derivatives market. The significance of this market to the overall capital markets cannot be overstated; the derivatives market has been estimated to exceed $692 trillion worldwide, with more than $14 trillion representing transactions in security-based swaps regulated by the SEC.
Unfortunately, the most current data shows that the Commission has only finalized less than half of the required Title VII rulemakings under the Dodd-Frank Act. Although, the Commission has adopted some of the rules necessary to regulate the securities-based swaps market, the vast majority of these new rules will not be effective until the entire Title VII regulatory framework is put in place. With this delay, the Commission is failing to achieve the goal of increasing transparency and oversight of the derivatives market by bringing trading of security-based swaps onto regulated markets. This is crucial to ensuring that security-based swaps do not continue to be transacted in an opaque market with significant regulatory gaps.
Another important component of the Dodd-Frank Act is enhancing accountability by ensuring that shareholders have a voice in corporate governance matters. Unfortunately, the Commission has adopted some of the Dodd-Frank rules, it has yet to propose or finalize many of the corporate governance, such as rules on disclosures about pay-for-performance, the disclosure of the ratio between the CEO’s compensation and the median of all other company employees, disclosure by large investment managers of their “say-on-pay” votes, and prohibiting the exchange listing of securities of issuers that have not implemented claw-back policies. These and other rules are important to shareholders.
In order to complete its work and fulfill its mandates under the Dodd-Frank Act the Commission must redouble its efforts. It is important to provide certainty to businesses and regulatory entities and get beyond this constant state of living in a world of unfinished mandates. It has been five years since Congress passed the Dodd Frank Act, and, at the rate we’re going, it will be at least another five years before the Commission fully satisfies its statutory mandates.
This is not a good state of affairs for industry participants, regulated entities, public companies, investors, the public, and the SEC itself. A well-regulated and transparent market instills investor trust and confidence, which is vital to protecting the continuing growth of our economy.
II. JOBS Act
Second, I would like to see the Commission continue its progress implementing the various provisions of the Jumpstart Our Business Startups Act (“JOBS Act”) that are intended to facilitate the ability of smaller businesses to access the capital markets. In particular, the Commission should adopt final rules to Regulation A-plus and Crowdfunding, and, importantly, amend Regulation D to mitigate the risks posed to investors involved in general solicitations.
The Commission has long recognized the importance of smaller businesses as the engine that powers the U.S. economy. However, it is also well-documented that investments in small or emerging businesses also carry heightened investment risks, including higher risks of small business failures, lower liquidity of issued securities, and, unfortunately, a higher incidence of outright fraud.
Consequently, the Commission must proceed carefully in implementing the JOBS Act provisions, and to do so in a manner that is consistent with the protection of investors and maintaining the integrity of the capital markets.
As the Commission works through implementing the various provisions of the JOBS Act, which include multiple registration exemptions with, at times, overlapping offering amounts, I believe that there are certain macro principles that should be kept in mind:
- First, we need to consider the nature and experience of the investor who will be putting their dollars at work in any particular offering. For example, we need to ask whether any particular offerings should be limited to investors who are able to fend for themselves, such as with private placements publicly offered to so-called “accredited investors” under Regulation D. And, if so, have we properly identified the characteristics and criteria that are likely to reasonably identify the investors that are able to fend for themselves? Or will offerings be available to investors that are likely to be less financially sophisticated, such as those anticipated with Crowdfunding transactions? And, in such cases, should investor purchases be limited, and what is the purpose and role of limiting the amounts that investors may make—either in the aggregate or individually? Ultimately, the nature, type, or experience of the targeted investor, among other things, should inform the applicable disclosures and any investment limits or other requirements.
- Second, once we have identified the nature and experience of the investor, we need to consider the type of information that is necessary to permit the targeted investors to make informed investment decisions. For example, what salient information makes the most sense under the circumstances? Should issuers be required to provide audited financial statements? Should we require ongoing disclosures, such as those contemplated in the proposed Regulation A-plus and Crowdfunding provisions?
- Third, we need to consider the overall regulatory environment, such as the role of state securities regulators, in protecting investors and promoting capital formation for smaller offerings. We should recognize that the states have long been at the forefront of combating securities fraud in smaller offerings, and should therefore carefully consider the extent to which state securities regulators will be involved—or not involved—in enhancing the SEC’s limited resources in overseeing the market for smaller offerings.
- Fourth, and something often overlooked, we need to consider the secondary trading environment that will exist, or not exist, as more and more companies distribute their shares to a wider group of investors—many of whom are expected to be less financially sophisticated. For example, several provisions of the JOBS Act, such as those under Regulation A-plus, Rule 506(c) of Regulation D, or Crowdfunding, permit wide distributions and also allow securities to be freely traded by security holders immediately upon issuance, or after a one-year holding period. These exemptions also provide—or are expected to provide—for lesser ongoing reporting requirements than is typically required for listed securities. Accordingly, we should ask whether investors will be able to subsequently sell the shares purchased in these offerings in a fair, liquid, and transparent market. Given the smaller offering size and/or reduced disclosures for these securities, these securities are expected to be highly illiquid. Thus, we should also ask whether the Commission has properly addressed the risks to investors that may result from such a secondary trading environment. Are wide swaths of investors going to own securities that they cannot sell when they need to? And, if so, what, if anything, should the Commission do? Are “venture exchanges” an answer to this looming problem, or will listing on such an exchange result in the stigma of second-class corporate citizenship?
Because exemptions by their nature strip investors of protections, it is incumbent upon the Commission to proceed in measured and thoughtful ways so as not to inappropriately weaken the regulatory environment.
Capital formation is crucial to our economy and the Commission should move swiftly in completing these JOBS Act-related rule makings. In doing so, however, we should keep the above macro principles at the front of our minds. Investors are the lifeblood that makes capital formation possible, and the Commission should act to make sure that the exemptions work from the perspective of the targeted investor, not just for the issuers.
III. The Enforcement Division Must Bring Cases That Send a Real Message of Deterrence
My next goal for 2015 is for the Commission to bring more enforcement cases that have real impact—and that send the strongest message of deterrence.
One of the primary reasons that the SEC has been referred to as the “crown jewel” of federal regulatory agencies is the work of the Commission’s Division of Enforcement. During my tenure, I have been a strong supporter of the SEC’s Enforcement program. I have advocated for an effective Enforcement program by focusing on individual accountability, effective sanctions that deter and punish egregious misconduct, and policies designed to eradicate recidivism. Many of the agency’s enforcement decisions serve to reinforce these goals and are to be commended.
The Commission has a number of tools available when it finds that fraudulent misconduct has occurred - it can seek to enjoin such activity, disgorge ill-gotten gains, and impose civil penalties against the wrongdoers. In addition, the Enforcement Division can use trading suspensions and asset freezes to achieve immediate impact and halt ongoing fraudulent activities. These are all important remedies.
In my view, however, one of the most potent remedies is for the Commission to prevent wrongdoers from being allowed to remain in a role that permits them to continue to hurt investors. To that end, the Commission needs to be more aggressive in seeking permanent industry bars and officer and director bars. These bars, not only serve to punish the wrongdoer, but also protect investors from future misconduct by such person. These bars send a clear message to the next potential fraudster.
An SEC enforcement action should not be viewed merely as a cost of doing business; rather, it should cause individuals and companies—whether or not they are part of the Commission’s specific action—to seriously reflect on their own conduct. This is particularly true in the case of recidivist violators. If our remedial sanctions were ineffective in reforming a fraudster, then we must seriously consider removing them from the industry—permanently. The SEC must do this to protect American investors.
During my time as a Commissioner, I have witnessed defendants fight charging decisions on all fronts, including fighting tooth-and-nail to avoid being prevented from serving as officers or directors of public companies or from being suspended from appearing or practicing before the Commission pursuant to Rule 102(e). They much rather have their company pay a sizable penalty to continue to do what they do, unaffected and undeterred. Recently, this was demonstrated in the Gupta matter, where a director convicted of insider trading and given a lifetime officer and director bar, tried to appeal that bar to the U.S. Supreme Court. As you may know, the Court rejected that appeal by denying cert. It is interesting to note that the $13.9 million civil fine imposed against Gupta was not appealed to the Supreme Court.
Defendants’ vigor to avoid being barred is to be expected, as those bars and suspensions take fraudsters out of the industry, and often have a far more lasting impact than the imposition of a monetary fine. Their fight is the best indicator that the Commission’s ability to bar wrongdoers is an effective tool that should be used whenever appropriate.
The importance of a strong and robust Enforcement program is vital to an effective capital market on which investors can rely. The Commission has to use all of the tools at its disposal, including imposing permanent industry bars and officer and director bars.
IV. Improving Diversity at the SEC
An additional goal for 2015 is for the SEC to improve its diversity. I strongly believe that a diverse workforce at the SEC is critical in order for the SEC to achieve its core missions; however, sadly, the SEC still has much to do in order for its workforce to reflect the communities we live in. Since becoming Commissioner, I have been very active in trying to improve diversity at the SEC, and it has never been easy.
The statistics show that, as of January 2015, 33% of the SEC’s workforce were persons of color, and just 13% were at the senior employee level. As of fiscal year 2013, the SEC’s senior officers were approximately 87% white, while only 5.6% were African-American, 4% Asian-American, and 2.4% Hispanic. The numbers did not change much at the mid- and first-level category of managers, which were approximately 80% white, but only 8.4% African-American, 7.5% Asian-American, and 3.8% Hispanic. In fact, as of January 2015, two of our operating divisions had no minority senior officers—zero. Two other divisions only had one minority senior officer each, while another division—and one of our largest divisions with more than 1,240 employees—only had three minority senior officers. These statistics cover all five of the SEC’s operating divisions. Clearly, these dismal numbers need to be improved.
Although our lack of diversity is well-known and has been publicly discussed many times, the SEC’s recent hiring activity has not resulted in much improvement in our numbers. For example, as of fiscal year 2013, only about 19% of attorneys at the SEC were persons of color. That percentage, however, is likely to go down if the SEC hires fewer minority attorneys in the coming years. Indeed, in fiscal year 2013, only 15.8% of attorneys hired were persons of color. When you combine reduced rates of hiring with expected attrition, the numbers will only get worse. The latest data for 2014 is already showing a decrease in hiring for women, an increase in separations for African-Americans, and a decrease in promotions for Hispanics, Asian-Americans, and women. We can, and must, do better.
The SEC can also do more to retain minority and women employees. In fact, a November 2014 report by the SEC’s Office of Inspector General made the disturbing finding that, “some minority groups and women: (1) were underrepresented in the SEC workforce; (2) received relatively fewer and smaller cash awards and bonuses; (3) experienced statistically significant lower performance management and recognition scores; and (4) filed equal employment opportunity complaints at rates higher than their percentage of the workforce.” Moreover, according to the report, the SEC had not taken required initial steps to determine whether internal barriers operated to exclude certain minority groups, and lacked a methodology for evaluating the effectiveness of its diversity programs.
Unfortunately, it is not surprising that today’s event also speaks to the SEC’s lack of diversity. Every panelist who is scheduled to speak at the 2015 SEC Speaks is a member of the SEC staff. I am pleased to see that about 37 of the 95 SEC representatives serving as panelists at this conference are women. However, I was struck by the lack of racial and ethnic diversity. During this two-day conference, there are and will be, at most, only about 11 SEC panelists who are persons of color, out of a total of 95 panelists.
The SEC senior staff making the hiring decisions must understand that the continuing lack of diversity is a problem, and they must undertake to break down the barriers to finding the best and the brightest by conducting a more comprehensive search for qualified candidates. To achieve a workforce at the SEC that reflects America, we need to establish internal processes to ensure that diverse individuals are recruited, hired, trained, mentored, compensated fairly, and promoted. Attracting diverse candidates is an opportunity not only to add high quality and skilled employees to the SEC, but also to change the face of the SEC so that it reflects what our country looks like today.
There are two relatively recent changes at the SEC that I hope will result in policies and processes that promote diversity and inclusion. First, pursuant to Section 342 of the Dodd-Frank Act, the SEC has established an Office of Minority and Women Inclusion (“OMWI”) to promote diversity at the agency, and bring qualified minorities and women to the SEC, and to foster an environment where they can be successful.
Second, the SEC has now established a new Diversity Council to have oversight over all matters relating to the SEC’s diversity efforts and to ensure that there is full transparency and progress in, among other things, hiring, retention, and promotion of employees. I am honored to serve as the inaugural Chair of the Diversity Council, and I expect it to be a positive force that makes the SEC more diverse and inclusive.
Only time will tell, however, if OMWI and the Diversity Council will be successful. I am optimistic enough to think that they will—but I am a realist, and I know it will take focused attention to achieve the goals of diversity and inclusion.
I want to end my remarks by acknowledging that none of what the Commission has accomplished—or will ever accomplish—would be possible without the work of the most committed and hardest working men and women you will ever meet. The SEC’s staff work tirelessly and passionately each and every day to fulfill the Commission’s mission and to make our country’s capital markets the envy of the world. I thank them for all their efforts to strengthen the SEC and to serve the American public.
Thank you and enjoy the rest of SEC Speaks.
 These numbers are based on information received from the Commission’s Office of the Secretary through January 10, 2015.
 For example, during that time, the Commission adopted or substantially amended a number of significant regulatory and disclosure rules—including, to name just a few examples: rules enhancing the custody practices of investment advisers; and significant amendments to the rules governing nationally recognized statistical rating organizations. See Custody of Funds or Securities of Clients by Investment Advisers, SEC Release No. IA-2968 (Dec. 30, 2009), available at http://www.sec.gov/rules/final/2009/ia-2968.pdf;; Amendments to Rules for Nationally Recognized Statistical Rating Organizations, SEC Release No. 34-59342 (Feb. 2, 2009), available at http://www.sec.gov/rules/final/2009/34-59342.pdf;, and Amendments to Rules for Nationally Recognized Statistical Rating Organizations, SEC Release No. 34-61050 (Nov. 23, 2009), available at http://www.sec.gov/rules/final/2009/34-61050.pdf. More recently, the SEC has passed amendments to the: rules governing money market mutual funds; rule amendments to strengthen the custody practices of broker-dealers; rules to prohibit pay-to-play activity in the investment advisory industry; improvements to the short-selling rules; and rules to enhance municipal securities disclosure. See Money Market Fund Reform; Amendments to Form PF, SEC Release No. 33-9616 (July 23, 2014), available at http://www.sec.gov/rules/final/2014/33-9616.pdf); Broker-Dealer Reports, SEC Release No. 34-70073 (July 30, 2013), available at http://www.sec.gov/rules/final/2013/34-70073.pdf); Political Contributions by Certain Investment Advisers, SEC Release No. IA-3043 (July 1, 2010), available at http://www.sec.gov/rules/final/2010/ia-3043.pdf); Amendments to Regulation SHO, SEC Release No. 34-60388 (July 27, 2009), available at http://www.sec.gov/rules/final/2009/34-60388.pdf; Amendments to Regulation SHO, SEC Release No. 34-61595 (Feb. 26, 2010), available at http://www.sec.gov/rules/final/2010/34-61595.pdf; and Amendment to Municipal Securities Disclosure, SEC Release No. 34-62184A (May 27, 2010), available at http://www.sec.gov/rules/final/2010/34-62184a.pdf.
In the wake of the financial crisis, the Commission also made a number of internal changes. For example, we substantially restructured the Division of Enforcement and created specialized teams of lawyers and market experts to focus in the areas of Asset Management, Market Abuse, Complex Financial Instruments, Foreign Corrupt Practices, and Municipal Securities and Public Pensions. See, SEC Press Release No. 2010-5, SEC Names New Specialized Unit Chiefs and Head of New Office of Market Intelligence (Jan. 13, 2010), available at http://www.sec.gov/news/press/2010/2010-5.htm. In addition, the Office of Market Intelligence was created to better manage and assess tips, complaints, and referrals. See id. Moreover, we created the Division of Economic and Risk Analysis, or “DERA” (formerly known as the Division of Risk, Strategy, and Financial Innovation), to provide economic and statistical analysis to support the SEC’s rulemakings, and to assist with our examination and enforcement programs. See, SEC Press Release No. 2009-199, SEC Announces New Division of Risk, Strategy, and Financial Innovation (Sept. 16, 2009), available at http://www.sec.gov/news/press/2009/2009-199.htm.; and SEC Press Release No. 2013-104, SEC Renames Division Focusing On Economic and Risk Analysis (June 6, 2013), available at http://www.sec.gov/News/PressRelease/Detail/PressRelease/1365171575272).
 The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).
 See Sections 951-957 of the Dodd-Frank Act.
 See Nationally Recognized Statistical Rating Organizations, SEC Rel. No. 34-72936 (Aug. 27, 2014), available at http://www.sec.gov/rules/final/2014/34-72936.pdf.
 For example, the Dodd-Frank Act required the Commission to promulgate: rules requiring sponsors of asset-backed securities to retain a financial interest and maintain “skin in the game,” see Sec. 941 of the Dodd-Frank Act, and Credit Risk Retention, SEC Rel. No. 34-73407 (Oct. 22, 2014), available at http://www.sec.gov/rules/final/2014/34-73407.pdf; rules requiring loan-level disclosure of the underlying assets of asset-backed securities, see Sec. 942 of the Dodd-Frank Act, and Asset-Backed Securities Disclosure and Registration, SEC Rel. No. 33-9638 (Sept. 4, 2014) available at http://www.sec.gov/rules/final/2014/33-9638.pdf.
 See Davis Polk Dodd-Frank Progress Report, p. 5 (Jan. 1, 2015), available at http://www.davispolk.com/Dodd-Frank-Rulemaking-Progress-Report/.
 The Commodity Futures Trading Commission (CFTC).
 See, e.g., Bank for International Settlements, Semiannual OTC Derivatives Statistics at end of June 2014, Table 19: amounts outstanding of over-the-counter (OTC) derivatives, BIS Quarterly Review (Dec. 2014), available at http://www.bis.org/statistics/dt1920a.pdf. The security-based swap market was estimated to be more than $14 trillion worldwide. See id. (According to data published by the Bank for International Settlements, the global notional amounts outstanding in equity forwards and swaps and single-name name credit default swaps as of June 2014 were approximately $2.43 trillion and $10.85 trillion, respectively. This analysis assumes that all equity forwards and swaps and single-name credit default swaps are security-based swaps, and single-name credit default swaps constitute approximately 80% of the security-based swap market.).
 See Davis Polk Dodd-Frank Progress Report, p. 6 (Dec. 1, 2014), available at http://www.davispolk.com/Dodd-Frank-Rulemaking-Progress-Report/. On February 11, 2015, the Commission adopted two additional final rules under Title VII of the Dodd-Frank Act, and re-proposed a portion of one of those two final rules. See Security-Based Data Repository Registration, Duties, and Core Principles, SEC Release No. 34-74246 (Feb. 11, 2015), available at http://www.sec.gov/rules/final/2015/34-74246.pdf; Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, SEC Release No. 34-74244 (Feb. 11, 2015), available at http://www.sec.gov/rules/final/2015/34-74244.pdf; and Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, SEC Release No. 34-74245 (Feb. 11, 2015), available at http://www.sec.gov/rules/proposed/2015/34-74245.pdf.
 For example, we have adopted joint rules with the CFTC on product and entity definitions; rules that establish the procedure by which clearing agencies submit security-based swaps for purposes of mandatory clearing; rules that establish standards for registered clearing agencies; rules on the application of the definitions of “security-based swap dealer” and “major security-based swap participant” in the cross-border context; rules governs the registration process for security-based swap data repositories; and rules for the reporting of security-based swap information to registered data repositories and public dissemination of security-based swap transactions. See, Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant” and “Eligible Contract Participant,” SEC Release No. 34-66868 (Apr. 27, 2012), available at http://www.sec.gov/rules/final/2012/34-66868.pdf; Section 15F of the Exchange Act; see, Process for Submissions for Review of Security-Based Swaps for Mandatory Clearing and Notice Filing Requirements for Clearing Agencies; Technical Amendments to Rule 19b-4 and Form 19b-4 Applicable to All Self-Regulatory Organizations, SEC Release No. 34-67286 (June 28, 2012), available at http://www.sec.gov/rules/final/2012/34-67286.pdf.; Clearing Agency Standards, Release No. 34-68080 (Oct. 22, 2012), available at http://www.sec.gov/rules/final/2012/34-68080.pdf; Application of “Security-Based Swap Dealer” and “Major Security-Based Swap Participant” Definitions to Cross-Border Security-Based Swap Activities, SEC Release No.72472 (June 25, 2014), available at http://www.sec.gov/rules/final/2014/34-72472.pdf; Security-Based Data Repository Registration, Duties, and Core Principles, SEC Release No. 34-74246 (Feb. 11, 2015), available at http://www.sec.gov/rules/final/2015/34-74246.pdf; Regulation SBSR—Reporting and Dissemination of Security-Based Swap Information, SEC Release No. 34-74244 (Feb. 11, 2015), available at http://www.sec.gov/rules/final/2015/34-74244.pdf.
 Specifically, the Commission issued a sequencing policy statement in June 2012 describing the order in which it expects to require compliance by market participants with the final Title VII rules. See Statement of General Policy on the Sequencing of the Compliance Dates for Rules Applicable to Security-Based Swaps, SEC Release No. 34-37177 (June 11, 2012), available at http://www.sec.gov/rules/policy/2012/34-67177.pdf.
 See, Public Law 111-203, Preamble.
 Frank Partnoy and David A. Skeel Jr., The Promise and Perils of Credit Derivatives, 75 U. Cin. L. Rev. 1019, 1036 (Spring 2007).
 James E. Kelly, Transparency and Bank Supervision, 73 Alb. L. Rev. 421, 424 (2010).
 SEC Website, Corporate Governance Issues, Including Executive Compensation Disclosure and Related SRO Rules, available at http://www.sec.gov/spotlight/dodd-frank/corporategovernance.shtml (last visited January 21, 2015) (discussing Sections 951, 953, and 955 of the Dodd-Frank Act).
 See Jumpstart Our Business Startups Act, Pub. L. No. 112-106, 126 Stat. 306 (Apr. 5, 2012).
 The proposed Regulation D amendments would seek to protect investors by, among other things, requiring the filing of a Form D in Rule 506(c) offerings before the issuer engages in general solicitation and requiring that written general solicitation materials be submitted, on a temporary basis, to the Commission. See Amendments to Regulation D, Form D and Rule 156, SEC Release No. 33-9416 (July 10, 2013), available at http://www.sec.gov/rules/proposed/2013/33-9416.pdf.
 See U.S. Small Business Administration, Starting and Managing, Starting a Business, Explore Loans, Grants and Funding, Venture Capital, available at https://www.sba.gov/content/venture-capital (“Investing in new or very early companies inherently carries a high degree of risk.”) See also State of Iowa Insurance Division, Consumer Guide to Small Business Investments, available at http://www.iid.state.ia.us/guide_small_business (“A basic principle of investing in a small business is: Never make a small business investment that you cannot afford to lose entirely”); Washington State Department of Financial Institutions, Small Business Investments, available at http://www.dfi.wa.gov/financial-education/information/small-business-investments#.VOYCWjZOm70 (“Small business investments are generally highly illiquid even though the securities may technically be freely transferable. Thus, you will usually be unable to sell your securities if the company takes a turn for the worse.”).
 According to the U.S. Small Business Administration, over 50% of small businesses fail within the first five years. See Robert Longley, Why Small Businesses Fail: SBA (2014), available at http://usgovinfo.about.com/od/smallbusiness/a/whybusfail.htm. Separately, according to a Bloomberg study cited by Forbes magazine, eight out of ten entrepreneurs who start businesses fail within the first 18 months. See Eric T. Wagner, Five Reasons 8 Out Of 10 Businesses Fail (Sept. 12, 2013), available at http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/.
 See comment letter from Andrea L. Seidt, Commissioner, Ohio Division of Securities (Jan. 9, 2013), available at http://www.sec.gov/comments/jobs-title-iii/jobstitleiii-199.pdf (noting that “[s]tatistics repeatedly demonstrate that most new businesses fail” crowdfunding provides investors with “almost no bargaining power and little information”); see also SEC Website, Microcap Stock: A Guide for Investors, available at https://www.sec.gov/investor/pubs/microcapstock.htm (“accurate information about ‘microcap stocks’ – low-priced stocks issued by the smallest of companies – may be difficult to find . . . when publicly-available information is scarce, fraudsters can easily spread false information about microcap companies, making profits while creating losses for unsuspecting investors.”) (Website last visited February 19, 2015).
 See Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, SEC Release No. 33-9415 (July 10, 2013), available at http://www.sec.gov/rules/final/2013/33-9415.pdf.
 See Crowdfunding, SEC Release No. 33-9470 (Oct. 23, 2013), available at http://www.sec.gov/rules/proposed/2013/33-9470.pdf; See also Lori Schock, Director, Office of Investor Education and Advocacy, Outline of Dodd-Frank Act and JOBS Act, available at https://www.sec.gov/News/Speech/Detail/Speech/1365171490596.
 See Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act, SEC Release No. 33-9497, at 13 (Dec. 18, 2013), available at http://www.sec.gov/rules/proposed/2013/33-9497.pdf. With respect to the proposed Crowdfunding provisions, issuers who engage in offerings of more than $500,000 would be required to file with the Commission financial statements audited by an auditor that satisfies the Commission’s independence rules in Rule 2-01 of Regulation S-X. The proposed Crowdfunding rules provide different requirements with respect to issuers that engage in offerings of less than $500,000. In addition, the proposed Crowdfunding rules provide that issuers file an annual report, containing information similar to the information required in the issuer’s offering statement, with the Commission not later than 120 calendar days after the end of the most recent fiscal year covered by the report. The proposed rules also provide, among other things, that the annual report be provided to investors by requiring issuers to post it on their websites. See Crowdfunding, SEC Release No. 33-9470 (Oct. 23, 2013), available at http://www.sec.gov/rules/proposed/2013/33-9470.pdf.
 In 2013, NASAA members initiated approximately 2,200 enforcement actions, resulting in $616 million in restitution awards to investors and 1,816 years of incarceration sentenced upon violators. NASAA Enforcement Report: 2014 Report on 2013 Data (October 2014), available at http://www.nasaa.org/wp-content/uploads/2011/08/2014-Enforcement-Report-on-2013-Data_110414.pdf.
 Securities Act §3(b)(2)(C), as added by JOBS Act §401(a). See Rule 144 under the Securities Act.
 Securities Act §4(a)(6), as added by JOBS Act §302(e), and Securities Act Rule 506(c), as added by JOBS Act §201. Securities Act Rule 144 allows public resale of restricted and controlled securities if a number of conditions are met, including, for example, meeting the holding period requirement of one year (assuming the seller is not an affiliate of the issuer). See Rule 144 under the Securities Act.
 See, e.g., Opening Statement of Senator Paul S. Sarbanes (D-MD), U.S. Senate Committee on Banking, Housing and Urban Affairs, Hearing on the Nomination of William H. Donaldson (February 5, 2003), available at http://www.banking.senate.gov/03_02hrg/020503/sarbanes.htm.
 See, for example, Commissioner Luis A. Aguilar: A Stronger Enforcement Program to Enhance Investor Protection (Oct. 25, 2013), available at http://www.sec.gov/News/Speech/Detail/Speech/1370540071677; Taking a No-Nonsense Approach to Enforcing the Federal Securities Laws (Oct. 18, 2012), available at http://www.sec.gov/News/Speech/Detail/Speech/1365171491510; Combating Securities Fraud at Home and Abroad” (May 28, 2009), available at http://www.sec.gov/news/speech/2009/spch052809laa.htm; Reinvigorating the Enforcement Program to Restore Investor Confidence (Mar. 18, 2009), available at http://www.sec.gov/news/speech/2009/spch031809laa.htm; Empowering the Markets Watchdog to Effect Real Results (Jan. 10, 2009), available at http://www.sec.gov/news/speech/2009/spch011009laa.htm.
 See Commissioner Luis A. Aguilar, Dissenting Statement In the Matter of Lynn R. Blodgett and Kevin R. Kyser, CPA, Respondents (Aug. 28, 2014), available at http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370542787855#_edn1.
 See Gupta v. Securities and Exchange Commission, 2014 U.S. App. LEXIS 11217 (2d Cir. 2014), petition for cert. filed, 2014 U.S. Briefs 535 (U.S. Nov. 10, 2014) (No. 14-535).
 See U.S. Supreme Court Order List (Jan. 12, 2015), available at http://www.supremecourt.gov/orders/courtorders/011215zor_3e47.pdf (denying cert for Gupta, Rajat K. v. SEC, U.S. Supreme Court, No. 14-535).
 See Gupta v. Securities and Exchange Commission, 2014 U.S. App. LEXIS 11217 (2d Cir. 2014), petition for cert. filed, 2014 U.S. Briefs 535 (U.S. Nov. 10, 2014) (No. 14-535).
 See, Jayne W. Barnard, When Is a Corporate Executive “Substantially Unfit to Serve?" 70 N.C.L. Rev. 1489, 1522 (1992).
 U.S. Securities and Exchange Commission, Annual Equal Employment Opportunity Program Status Report, p. 35 (FY 2013), available at http://www.sec.gov/eeoinfo/eeoreports/sec-eeo-status-report-715-2013.pdf.
 Id. at p. 10.
 U.S. Securities and Exchange Commission Office of Inspector General, Office of Audits, Audit of the Representation of Minorities and Women in the SEC’s Workforce, p. i (Nov. 20, 2014), Report No. 528, available at http://www.sec.gov/oig/reportspubs/528.pdf.
 See, Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, § 342(a)(1)(A) (2010) (Title III, Subtitle D, Other Matters).