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Q&A: Marc Steinberg on overhauling U.S. securities law

4 minute read

Source: SMU’s Dedman School of Law

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July 21 (Reuters) - After more than two decades practicing, studying and teaching U.S. securities law, Professor Marc Steinberg has some thoughts on what's wrong with it.

In his recent book, "Rethinking Securities Law," Steinberg says a "piecemeal" approach by state and federal authorities has led to mandates "that are erratic and antithetical to sound public policy" when it comes to investor protection and safeguarding the markets.

The former SEC enforcement attorney who's now a professor at SMU Dedman School of Law proposed reforms in eight areas, including the framework for what companies are required to disclose and the structure of the U.S. Securities and Exchange Commission itself.

Steinberg spoke recently with Reuters about some of his proposals and his thoughts on the agency's current leadership.

This conversation has been edited for clarity and length.

REUTERS: How feasible are the changes you propose?

STEINBERG: For a lot of these changes, I think it will take a situation like we had in 2008 or around the turn of the century. I mean, for example, to restructure the SEC, that would be an enormous change. But without the SEC being restructured, I think massive change is unlikely.

REUTERS: Why is that?

STEINBERG: The problem is the commissioners come from the same structural background. They're nearly all lawyers with big firm experience. What I would change drastically would be the composition of the commission.

REUTERS: How so?

STEINBERG: For example, one commissioner would come from either a large commercial law firm or a large company. Another commissioner would come from an auditing firm, because the commission needs auditing expertise.

Another would come from, for example, the plaintiffs' bar. There's never been a commissioner appointed, so far as I'm aware, from the plaintiffs' bar, and isn't that amazing?

You look at firms like Robbins Geller, Bernstein Litowitz, and there are fine securities lawyers in those firms, but never has one been appointed to the commission.

REUTERS: But doesn't the SEC staff already have different kinds of experience?

STEINBERG: There may be some gaps in which the commission is going to have to rely upon the staff. But wouldn't it be nice if, when the Enforcement Division or the Office of Accounting or the Division of Corporation Finance brings up an issue that will have substantial accounting impact on companies, we would have a commissioner who was well versed in accounting?

He or she will be able to question the recommendations of staff and be able to provide his or her views to the commission.

REUTERS: What type of impact would having a plaintiffs' lawyer on the commission have?

STEINBERG: If the commission's primary objective is to protect investors, having an individual who has spent his or her career from that perspective would be quite helpful. That individual may not be so reluctant for the commission to bring enforcement actions against high level corporate executives.

REUTERS: Are some of your recommendations more attainable?

STEINBERG: There is one change which executives would fight like crazy, but which makes total sense. We all know that insiders always have more information than we do. What happens is that they trade, and then they file a Form 4 after they trade and the market follows those. My proposal says that insiders must file before they trade, to alert the marketplace of the possible perspectives of insiders.

REUTERS: So insiders make less on their trades. Is that the point?

STEINBERG: Exactly. These people are fiduciaries under long-established law. Why shouldn't they wait? And wouldn't that also make the market more efficient?

REUTERS: What do you think of the current leadership at the SEC?

STEINBERG: This is all a matter of perspective. Compared to the former chair, yes, they are far more enforcement-oriented. Now the question is what are they going to do?

REUTERS: What do you propose?

STEINBERG: We have all this hubbub about environmental and social disclosure. All that is very interesting. It's good to have the information disclosed, but in the end, does it really make a substantive impact with respect to investor protection?

I'm not being critical of this type of disclosure, but my point is, this should not be the central issue. It should be creating a level playing field.

Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com

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