Policy

Warren Says SEC’s Clayton Puts Interests of Bankers Over Average Investors

Massachusetts Senator says she doesn’t see the value of more IPOs

Sen. Elizabeth Warren took issue with SEC Chairman Jay Clayton at a Tuesday hearing. (Bill Clark/CQ Roll Call)

Sen. Elizabeth Warren accused Wall Street’s top regulator of supporting policies that benefit “a handful of bankers and lawyers” instead of average investors.

The Massachusetts Democrat has been an outspoken critic of Wall Street and the Securities and Exchange Commission, the federal agency that oversees the financial sector.

She grilled SEC Chairman Jay Clayton on Tuesday for his support of legislation he said would increase the number of companies making their initial public offering. She referred to bills such as the Financial Choice Act, which would loosen regulations on participants in the financial industry from startups to investment banks.

“Why do you care about the smaller number of IPOs given the greater total volume of investments in public companies today?” Warren said at a hearing of the Senate Banking, Housing and Urban Affairs Committee Tuesday.

Looking down at white sheets of paper in front of her, she cited a statistic that the number of dollars invested in publicly traded firms in 2014 was three times more than in 1996.

“Those IPOs are a good investment,” Clayton said. Most analysts agree IPOs perform well in bull markets such as the current one that began in 2009 but are considered to be a more speculative investment than companies already listed on a stock exchange such as the Nasdaq or the New York Stock Exchange.

“I’m sorry, but I don’t see why you think they are a good investment when investors are putting their money in these companies and losing their investments,” Warren said. “Then you want to loosen regulations that will help only a handful of bankers and lawyers. There’s no evidence IPOs will do as well as or better than publicly traded companies for investors.”

Earlier in the exchange, Warren said the large number of IPOs in 1996 and 1997 was accompanied by the dot-com bust a few years later. “You think those were ideal conditions for ordinary investors?” she asked.

Clayton came to Capitol Hill to testify for his first time since he took over as the chairman of the 4,600-employee agency in May. A former partner at the Wall Street securities firm Sullivan & Cromwell LLC, he has been more vocal about the need to spur capital formation than preventing investors from being defrauded.

In his prepared remarks, Clayton said increasing the number of IPOs would help holders of popular 401(k) retirement plans.

“I view Mr. and Ms. 401(k) as bearing a potentially significant cost as a result of the shrinking number of public companies,” Clayton said. “I expect this dynamic, if not addressed, will lead to fewer opportunities for Main Street investors to invest directly in high-quality companies. Without IPOs of growing companies, we have a shrinking and generally more mature portfolio of public companies.”

Warren and Clayton did not mention the Choice Act in their exchange, but the legislation was the subtext of their talk. The bill would rewrite key parts of the Dodd-Frank Act of 2010, which required more disclosure by the sellers of securities for the benefit of investors after the financial crisis. The House passed the Choice Act on party lines June 8, but the Senate has not taken up the measure.

Sen. Tom Cotton, an Arkansas Republican, took a shot at Dodd-Frank by holding in his hands two copies of documents from firms launching an IPO. The first was of Walmart, based in Bentonville, Arkansas, in the 1970s: Cotton said the document was 26 pages. The second was from a typical company today: the document was more than 260 pages. “I know more mom-and-pop investors read Walmart’s prospectus and made money from it than any company today,” he said.

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