In December 2018, Bill 3718 (the “Bill”) was introduced in the Senate and referred to Committee. The Bill, or the “Ban Conflicted Trading Act,” prohibits members of Congress and senior congressional staff from trading individual stocks and other investments while in office. Specifically, the Bill prohibits such covered persons from (1) purchasing or selling any security, commodity, future, or derivative and (2) entering into a transaction that creates a net short position in any security. Additionally, the Bill prohibits any covered person from serving as an officer or member of any board of any for-profit association, corporation, or other entity. Certain exceptions are set forth for investments that were held before taking office. Investments in diversified mutual funds or exchange-traded funds would still be allowed. On a case-by-case basis, the Select Committee on Ethics may authorize a covered person to place their securities holdings in a qualified blind trust approved by the Committee. Under the Bill, all members would have six months after enactment to divest their shares. New members would get six months from their entry into Congress to divest. Those who fail to comply with the Act would be subject to a civil penalty. Similar measures have been introduced in prior sessions of Congress; however, in light of recent enforcement activity, it’s fair to predict that this measure may be adopted. The Bill can be found in full here.
On December 10, 2018, Representative K. Michael Conway introduced H.R. 7234, a new bill entitled “Holding Foreign Companies Accountable Act” that seeks to amend the Sarbanes-Oxley Act of 2002. The bill requires each “covered issuer” to disclose annually to the SEC the (1) provisions of laws or rules in foreign jurisdictions that prevent the PCAOB from performing its inspections of auditors located in such foreign jurisdictions and (2) date when such provisions no longer prevent said PCAOB inspections. A “covered issuer” is a reporting company with a registered public accounting firm that (i) is located in a foreign jurisdiction and (ii) the PCAOB is unable to inspect because of the applicability of laws or rules of such foreign jurisdiction. If the PCAOB is prevented from carrying out an inspection of the auditor for three consecutive years, the SEC is authorized to prohibit the covered issuer’s securities from being traded on a national securities exchange, unless such covered issuer certifies to the SEC that it will retain a registered public accounting firm that the PCAOB is able to inspect.
The bill follows a joint statement issued earlier this month by SEC Chairman Jay Clayton, SEC Chief Accountant Wes Bricker and PCAOB Chairman William Duhnke that highlighted the significant challenges the SEC and the PCAOB currently face in overseeing the financial reporting for U.S.-listed companies whose operations are based in China. See our earlier post on this topic here.
A copy of H.R. 7234 is available here.
Shortly following the SEC’s proxy roundtable, Senators Reed, Perdue, Heitkamp, Gillis, Jones and Kennedy introduced a new bill, S. 3614, which would amend the Investment Advisers Act in order to require proxy advisory firms to register as advisers. The bill is referred to as the Corporate Governance Fairness Act. In addition to requiring registration under the Advisers Act, the bill would require periodic inspections by the Commission of the activities of proxy advisory firms to examine compliance with policies and procedures designed to address conflicts of interest as well as other matters such as knowingly making false statements or omitting to state a material fact that would be necessary not to render a proxy advisory firm’s statements not misleading. Finally, the bill would require the Commission to deliver a report to Congress every five years assessing the effectiveness of the regulation of proxy advisory firms.