This Week in ESG and Impact Investing

  In the wake of the lawsuits filed by the Securities and Exchange Commission (SEC) against cryptocurrency exchanges Coinbase and Binance , it's time to refocus the conversation on the transformative potential of cryptocurrency, particularly in its capacity as a form of money that transcends traditional limitations. The conventional functions of money are widely acknowledged as: a medium of exchange, a unit of account, and a store of value. But cryptocurrency underscores a less-discussed fourth function: a means of social control, an ability to set the rules of economic interactions. It's a democratic financial instrument that exists outside the control of traditional central banking systems. Cryptocurrency, by its decentralized nature, pushes back against the centralized control and regulation associated with traditional money. In doing so, it raises important questions about financial sovereignty and monetary policy. It forces a discussion about who should have control ov...

Given the current status of the midterm election, it appears likely, but not certain, that Republicans will control the House. If so, this means Rep. Patrick McHenry, R-N.C., currently ranking member of the House Financial Services Committee, will  become chairman. Overall, this change will be negative for the country. Regulatory agencies most at risk include the Consumer Financial Protection Bureau (CFPB), given Sen. Elizabeth Warren's role in creating the agency and in light of the fact that an appeals court ruled the CFPB’s funding mechanism  unconstitutional: "A three-judge panel of the 5th U.S. Circuit Court of Appeals ruled that the design of the CFPB violated the Constitution because it receives funding through the Federal Reserve, rather than appropriations legislation passed by Congress." As a matter of turf, McHenry is likely to support bringing the agency under congressional funding procedures, as broken as these are. We also expect the Securities and Exchange...

We have requested the Fed, SEC, FDIC, OCC, and CFPB initiate rulemaking to create "transparency and accountability for corporate Black Lives Matter (BLM) pledges." The picture above is from  https://www.instagram.com/p/Cb iZ8MBppWI/  The Problem with Jon Stewart. For more, see:  https://www.prlog.org/12911485-creative-investment-research-requests-federal-agencies-hold-corporations-accountable-for-blm-pledges.html  

On Monday, March 21, 2022, the US Securities and Exchange Commission approved a long discussed proposal that requires "all publicly traded companies to disclose their greenhouse gas emissions and the risks they face from climate change." The facts are clear and unambiguous: increasingly extreme weather, including unprecedented heatwaves, droughts and flooding will continue to have a material impact on business operations. Risks are growing, not falling.   As we noted in out June, 2021 comment to the SEC on climate change disclosures, we have been objectively, independently measuring the social impact of investment activities since 1989.  2002 saw the first international adoption of our approach, when we helped develop Social Performance Indicators for Banks, ( https://www.creativeinvest.com/SocialPerformanceIndicatorsfortheFinanceIndustry.pdf ) building on our work in rating women and minority owned banks. There, we specifically included  social measures that detaile...

        The SEC defines insider trading as buying or selling a security in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading is not isolated to Wall Street and has increasingly become an issue on Capitol Hill and in regulatory agencies, like the Federal Reserve. A 2004 study examining common stock returns generated from 1993-1998 on equity held by US Senators found that a portfolio mimicking the purchases of Senators outperformed the market by 85 basis points each month. On the other hand, portfolios mimicking equity sales by Senators underperformed the market by 12 basis points each month. The study noted that these results “suggest Senators knew appropriate times to both buy and sell their common stock.” Congress is privy to nonpublic information obtained via briefings from regulatory agencies, other Congress people and trade associates. They have...

The Securities and Exchange Commission’s concern about “initial coin offerings” is understandable. There are significant problems in the ICO marketplace, but new markets always have issues. Unfortunately, the SEC’s recent restrictions defining the tokens sold through such offerings as “securities” completely miss the point and once again will constrain the ability of startups to raise much-needed capital without having to go to a bank or venture capitalist first. See:  https://www.americanbanker.com/opinion/sec-takes-jab-at-startups-while-leaving-the-big-banks-alone

Commentary: Judges shouldn’t be rubber stamps

Anyone still waiting for justice with respect to the role that large banks played in the financial crisis had to be disappointed in a New York appeals court's ruling in a case involving a settlement agreement between Citigroup Global Markets and the Securities and Exchange Commission. Read more at: http://www.americanbanker.com/bankthink/appeals-court-ruling-in-citi-case-is-a-gift-to-big-banks-1067939-1.html Also see:  http://www.prlog.org/11948760-william-michael-cunningham-files-revised-brief-in-sec-vs-citigroup-2nd-cir-ct-of-ap.html

Gary Brouse, ICCR and Mary Schapiro, SEC. SEC Open Meeting, 2011.  Photo by William Michael Cunningham. We note, with more than a little regret, Mary Schapiro's exit from the Securities and Exchange Commission. How her departure will impact the Dodd/Frank Section 342 initiative and Crowdfunding is unclear. She was in a tough and thankless job. In her favor, she did save the Agency. The question is, save it for what? Will it take the more aggressive stance required to repair the financial system? It seemed to be moving in that direction . My concerns with the Agency are well known , but Ms. Schapiro was cordial and professional every time I met her. I thank her for her service and wish her well.

This webinar will provide a social investing summary of the law,  along with a summary of how investors and businesses can use the law to enter the Crowdfunding market.  We will also review current developments. All paying attendees will get a copy of my book:  The JOBS Act: Crowdfunding for Small Businesses and Startups  [Paperback - Published 9/26/12]  The law targets emerging growth companies and defines them as an  issuer with “total annual gross revenues of less than $1,000,000,000  (one billion dollars)..during its most recently completed fiscal year.”  For potential investors, providing a platform for the sale of emerging company securities does not require registration as a Broker/Dealer, given certain exemption qualifications.  To become a funding platform, vendors must  fulfill 12 requirements.  Equity issuers are subject to certain restrictions/limits.  There are four trading restrictions and three exe...

The above is from the SEC's meeting on Rule 506 of Regulation D. This is an important provision that will allow small firms to raise up to $50 million under the JOBS Act. The result of the meeting is that a draft rule will be posted to the SEC website concerning the mechanics of this provision later today. 

Mary Schapiro, Chair, SEC and Darryl Issa (R-CA) Chairman, Committee on Oversight and Government Reform, at JOBS Act Hearing, June 26, 2012. Photo by William Michael Cunningham As C-SPAN noted, "The JOBS Act ( Jumpstart Our Business Startups Act), designed to help small companies raise investment capital, was signed into law by President Obama on April 5, 2012.  On June 26th, the TARP Subcommittee of  the House Oversight held a hearing on the Security and Exchange Commission's (SEC) efforts to implement the Act. The SEC had 270 days from the signing of the Act to set forth rules. Rep. Patrick McHenry (R-NC) chaired the hearing. The JOBS Act relaxes some of the regulations put in place by the Sarbanes-Oxley Act and establishes the creation of Internet funding portals to facilitate 'crowd funding,' the collective pooling of money to support business projects. Critics worry that the JOBS Act's relaxed regulations will encourage fraud."  We at...

Selected highlights from the Appeals Court Brief filed yesterday by the SEC: "As one example, the same district judge who rejected the consent  judgment here approved a consent judgment in which Worldcom agreed to  injunctive relief—and later, a $750 million penalty, one of the  largest ever obtained  by the Commission—without admitting or denying the fraud allegations in the  complaint." Irrelevant, since they refer to a different time and industry. More  importantly, a $750 million dollar fine in 2002 translates into a $962  million dollar fine in 2012. Or a $285 million dollar fine is only  $223 million in 2002 dollars. The SEC notes that "BP resolved charges that it violated the Clean Air Act in connection  with the Texas City refinery explosion, which killed 15 people and  injured 170, by entering into a consent judgment that ordered it to  undertake an array of remedial measures and pay one of the largest  civil...

William Michael Cunningham submitted a "Friend of the Court" brief in a case currently pending before the United States Court of Appeals for the Second Circuit. The case concerns the rejection, by a Federal Judge, of a settlement agreed to by the United States Securities & Exchange Commission (SEC) and Citigroup Global Markets Inc. (Citigroup), the latter accused of securities fraud. As a friend to the Court, Mr. Cunningham seeks to provide an independent, objective and unbiased view in support of broad public interests. His education and experience have uniquely positioned him to provide objective, independent research and opinions concerning the issues central to the case. The "Friend of the Court" brief concludes by noting that markets have become less stable. Faulty regulatory practices and collusion (too big to fail, etc.) have moved regulators and lawmakers..in the direction of supporting suppliers to the financial service marketplace. A decision by the (A...

"The Securities and Exchange Commission..announced that Pamela A. Gibbs has been named as the inaugural Director of the Office of Minority and Women Inclusion, which oversees diversity in the agency's employment, management, and business activities. Ms. Gibbs comes to the SEC from the Commodity Futures Trading Commission, where she has served since October 2009 as the Director of its Office of Diversity and Inclusion. In that role, Ms. Gibbs was the principal advisor to the CFTC Chairman on equal employment and diversity matters, and oversaw outreach and recruitment of minority and women's groups. She also worked with the agency's Office of General Counsel and Office of Human Resources to ensure fairness and consistency in the agency's personnel policies and practices. Prior to the CFTC, Ms. Gibbs.. started in 1991 as a trial attorney in the Civil Rights Division (of the Department of Labor). She later was Acting Deputy Director for Program Operation in the Office ...

According to the Responsible Investor and SEC websites, in a major policy reversal, "the Securities and Exchange Commission (SEC) (will) allow shareholder resolutions (concerning) companies’ environmental and social risks.. Similar resolutions had previously been blocked under policies dating back to the Bush administration. The move was unveiled in new guidance by the SEC’s Division of Corporation Finance under new director Meredith Cross. As a result, companies will no longer be able to automatically exclude resolutions seeking information on the risks of environmental, human rights and other social issues." Shareholder resolutions are now sure to include executive compensation, community development, diversity, gender, SRI, ESG and CSR issues. See: http://www.sec.gov/interps/legal/cfslb14e.htm

On Sept 10th, the US Senate Committee on Banking, Housing, and Urban Affairs held a hearing on Oversight of the SEC’s Failure to Identify the Bernard L. Madoff Ponzi Scheme and How to Improve SEC Performance. Testifying were H. David Kotz, Esq. - Inspector General SEC, Harry Markopolos- Chartered Financial Analyst and Certified Fraud Examiner, Robert Khuzami, Esq - Division of Enforcement SEC, John Walsh, Esq - Office of Compliance Inspections and Examinations SEC The testimony is summarized below and copies of the written statements are available at; http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=7b38b6a3-f381-4673-b12c-f9e4037b0a3f Madoff's alleged Ponzi scheme is the biggest fraud held by a person in the US history. By definition, a Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. Although investo...

According to the Chicago Sun Times , "Exchange-traded funds that leverage their holdings could lead to outsized losses, the Securities and Exchange Commission said. It said brokers and financial advisers should warn people away from them unless they plan to hold them for just a day. The problem with leveraged ETFs comes down to the magic and mystery of compounded returns. If you leave your money in a leveraged ETF over time, your return can differ drastically from the fund's stated goal, especially in volatile markets. "

At 10:00 a.m. on Friday, July 10, 2009, in 1100 Longworth House Office Building, the Full Committee of the House Agriculture Committee and the House Financial Services Committee conducted a hearing titled "A Review of the Administration’s Proposal to Regulate the Over-the-Counter Derivatives Market." Timothy F. Geithner , Secretary, U.S. Department of the Treasury, was the only witness. The hearing began with a consideration of the risk to taxpayers from the over the counter derivatives market. According to Wikipedia , "Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. The OTC derivative market is the largest market for derivatives, and is largely unregulated with respect to disclosure of information between the parties, since the OTC market is made up of banks and other highly sophisticated parties, such as hedge funds. According to the Bank f...

Modernizing the Securities and Exchange Commission’s Disclosure System Yesterday, the SEC hosted a roundtable meeting to discuss the 21st Century Disclosure Initiative. The Initiative seeks to examine the basic purposes of disclosure, from the perspectives of investors and markets. The SEC hopes to create a comprehensive plan for overhauling the current disclosure system, EDGAR. In the first panel, panelists talked about the kinds of information and data format that the market and investors really need, given this dynamic market environment. Most panelists argued that investors need summarized information rather than whole financial statements. A summary of panelist comments would be: "Most individual investors access company information using third party services, like Yahoo Finance, Bloomberg, etc… The issue is that people don’t really have time and ability to figure out where is the number they want by looking at the hundreds pages financial statements in the EDGAR system. Howe...