Tops on, Hey, what's going on with the rules for company disclosures? Are they changing? What's happening with crypto companies, mergers and acquisitions, even executive comp It's now under a new regime at the SEC, and some shareholder activists are crying foul. What's going on with the new deregulatory zeal To help us unpack all of this and what it might mean for your portfolio, let's bring in Michelle Leader.
She is an SEC filing specialist and founder of the research service Footnoted, focusing on material information hidden in corporate SEC filing. She's also the author of the book Financial fine Print, Uncover a Company's True Value. So Michelle, let's start out talking about the new regulatory stance or I should should I say deregulatory stance at the SEC. It's a little easier, it's a little more corporate friendly. What's the state of regulations for public companies these days?
Yeah, I mean, you know, obviously the basic rules haven't changed. I mean, you know, the nineteen thirty three Act is still there. All of those rules are still there. It's it's the enforcement that is, you know, a bit up
in the air. You know, studies are showing that the SEC is doing a lot less enforcement these days, you know, and some of it is partly due to staffing issues, right Like, the SEC, I think a lot about twenty percent of the staff have left since the beginning, well since January twentieth, since since you know, Trump term two. You know, people left or they took the buyout or
or you know what have you. But you know, enforcement, you know, either by number of cases or the size of the settlements, the SEC is just kind of sleeping. They're just not as active as they've been in the past. And that's been well documented by some academic studies and some other people who follow that part of the SEC. You know, there's also been the dismissal of several big
name cases, right you know. So it's overall a de regulatory environment, much more so than you know, the first Trump administration.
So, Michelle, you mentioned the reduction in headcount. The IRS has seen a large head count reduction, and that legitimately shows up in both enforcement and collection actions. The Senate released report last year you can actually see for every dollar they spend on the IRS, here's how much we generate in taxes collected. That reduction has been some attrition, some of it from DOGE. It sounds like you're saying the SEC is seeing a very similar reduction. Did I
hear you right? Did you say it's more than twenty percent of the staff? Is that enforcement staff for just across the board?
I think it's across the board, so, and presumably it would include you know, administrative folks, you know, I mean it's it's the numbers I've seen. It's about twenty percent across the board. And of course the SEC has a lot of contractors, like outside people, so I think it also includes contractors. You know, There's no definitive head count that I've seen, but this has been reported, you know, by multiple outlets. Sin it's around twenty percent.
Really interesting, and there's a new sheriff in town. Paul Atkins is the head of the SEC. Tell us a little bit about the philosophy and policies of the new SEC chairman.
Well, you know, he's a former SEC commissioner, so you know, this is not his first time, you know, at the SEC, but it is the first time that you know, he's chairman. He's known for being you know, he's an attorney. You don't have to be an attorney to be an SEC commissioner, but almost always it is an attorney who is doing it. And he's just known for being a big booster of crypto.
In between the time, like when he left the SEC last time and you know, went to work, you know, in private practice, he was you know, representing a number of crypto firms, and so he's of course taking that you know background with him to the SEC. And so there's a lot of like, you know, I joke around, like you know, and I'm gonna be dating myself here, but like you know that you know episode of The Brady Bunch where it was like Jan Jan Jan, Well,
this is like crypto, crypto, crypto, and that's all. It seems like the SEC is really focused on, you know, and you know, there's normally The other thing is that there's normally five SEC commissioners, and there's only been four since Akins came on board. It's typically the party in power, so the Republicans named three commissioners, and then the party out of power, the Democrats, name two, but there hasn't been I'm sorry not the president has to name the
SEC commissioners. So three from you know, the majority party, and two from the minority party, and so, needless to say, there hasn't been a Democratic Commissioner that's been named, so they're operating with only four and it's so there's basically only one person who is kind of like sounding the
alarm on all this crypto stuff. Anytime there's like a new regulation or like a change in regulations, you know, it's it's kind of interesting to see, you know, what's said there, you know about you know, all of these changes that are.
Going on beyond crypto. I've heard Atkins talk about the initial public offerings market and he wants to jump start again. I kind of laughed at make I POS great again. What What are your thoughts on the regulation that some people have said the burdensome reporting requirements are leading American companies to stay private longer. What are your thoughts there?
Look, I think that you know, there is you know, some regulation that probably could be trimmed. But do you do it with like, you know, a scalpel or do you do it with like a chainsaw? You know. I think with anything, there's things that can always be made better and improved, right, But I think this wholesale approach to like all regulation is bad and it's costing people money. Is a little bit of an overkill, you know. I mean, you can make an argument, for example, they nixed the
climate rules that they had been working on forever. You could probably make an argument that, you know, maybe the climate rules went a little bit too overboard. It was going to be cumbersome for companies to do. You know, but you know, climate change is real, and you know some companies are impacted by it more than others, and you know there should be disclosures because there is a risk to investors about that.
So let's talk about what's probably the single biggest idea that's been floated by President Trump doing the way with quarterly earnings reporting. You're an SEC geek. What does this sort of thing mean from your perspective and what does it mean for investors?
Yeah, so I think that you know, first of all, let's remember, you know, I think they say, like, oh, small companies, this is not like your corner store, you know, your little bodega in Manhattan, and they're suddenly having to like, you know, put out a ten K or ten Q. These are publicly traded companies that have gone you know, are asking me and thousands of other investors for our for our money to grow their business and to you know,
build their businesses. Now, this idea that you know you can go you know again, I think, like, you know, you can throw out I guess the baby with the bath water, so to speak. I hate to use that expression, but you know, could there be a little bit less you know, uh in the quarterly earnings? Yeah, maybe we don't have to do like the PowerPoint presentation and the detailed earnings call and like the big thing, but still report earnings, you know, and you know, give people a
taste of what's going on. I think going to every six months would be really, you know, bad for investors overall. I mean, maybe it'll benefit the largest, most sophisticated investors, but you know, other people who are invested in stocks, I think it's it's just bad news because a lot can happen in six.
Months, to say the very least a lot happens in three months. So so let's let's talk about executive compensation. I have a lot of a lot of questions to throw you away with this, and obviously we have to start with Elon Musk and the trillion dollar package that the board approved. I don't see anyway how he ever gets anywhere near that amount of money. But still it seems like just crazy sky's the limited amount of compensation.
Are are these giant stock grants a new trend? Is this something that's here to stay?
Well, I mean there's of course always been stock grants. I mean, you know, and you want to reward someone, you know, I'm all about, you know, rewarding someone for doing a good job, right, Like if a CFO you know, manages to or a CEO manages to turn around the company, you know, they should be rewarded. That's what you know, That's what capitalism is about. Right. But I think that what we're seeing in the wake of the Elon vote,
you know, where shareholders overwhelmingly approve the compensation. And I think, you know, Tesla is sort of a special situation, right
because it's like a cult of personality. I mean, you know, nobody I can't think of many other CEOs, let's say, that have that kind of like you know, platform, that kind of you know, personal you know, identification to I mean, you know, obviously because of uh, you know X and and you know all of his followers on X, so you know, and and the fans of Tesla, you know, the cars and everything. So it's just a bit of
a unique situation. But we're seeing in the wake of that situation, we're seeing a number of examples where executives are also being rewarded and what seems like outsize awards, and it's almost like, well, Tesla did it, so why can't wait. It's almost like it's created like a green light for you know, giving away you know, additional equity.
You know. I was just looking the other day new Menfo, which is you know, a company that sells all our information to whoever, you know, the highest bidder, you know, gave its founder and its ceo. The guy had been there, has been there eighteen years, and it gave him nearly ten million shares to incentivize him. Does this guy really need ten million shares to be incentivized? I mean, he's been at the company eighteen years, you know, So where's
the guy going? You know? I think also the stock is not doing so great, so why is he being rewarded? And again I think it comes down to the stock is doing great, Sure, reward the ceo, reward the c suite, you know, But if the stock isn't doing good and you're giving away ten million shares to someone you know who's been there to incentivize them. You shouldn't need to be incentivized to like turn the stock price around, Mark do a good job.
Makes a lot of sense to me. Let's let's talk about executive compensation clawbacks. How often do we see either the company or a shareholders or perhaps the SEC saying, hey, this compensation was very undeserved, unearned, and we're going to try and claw some of this back. Tell us about that, Yeah.
I mean, usually you're seeing that on the plaintiff lawyer side, Like you know, of course, there's a very active plaintiff's bar here in the US where you know, if a company says that they're going to earn twenty five cents a chair and suddenly they you know, report twenty cents a share, there's you know, a whole group of lawyers, law firms that you know, will then sue the company and try to you know, do clawbacks and that type of thing. You don't you're not really seeing that on
the SEC side so much. You know, a lot most companies where I would say a majority of companies do have clawback policies, but usually it's kind of rare that you know, uh, the clawback money. I mean, I can really only think of a couple of examples, you know, where there's been you know, uh, you know, a clawback of compensation. It's it's not something that happens all that regularly.
So you mentioned crypto earlier. What does the regulatory framework look like for crypto? How how have the rules changed? It seems like the SEC has fully embraced this.
Yeah, I think there's just a general uh let's say they are approach to crypto at the SEC, whereas you know, which is very very different, you know than the prior you know, SEC chairman Gary Gensler. You know, he was all about regulating crypto and trying to call it into account and you know, making sure or that you know,
it wasn't you know, scamming people. And I would say that the current SEC is basically, you know, a one to eighty degree turn from that, you know, and in fact, you know, I mean I feel like crypto in terms of some of their rules and regulations, it seems to be the only thing that they care about. You know, they're talking about, you know, combining with you know, doing, you know, regulatory combinations to kind of make it easier to do this. I think in general, different people have
different views about crypto. I think that anything that makes it easier for people to get into crypto, especially less sophisticated investors, is problematic for me as someone who cares about you know, I don't think like someone's grandma should be in.
Crypto, to say the very least. So what about cyber security disclosures that that seems to be a new requirement. It seems to be really important in the financial industry. How important is is cybersecurity to any publicly traded company? What what are their obligations there?
Well, you know, anytime there's a cybersecurity A couple of years ago, in twenty twenty two, the SEC put in new rules again, this was under Gary Gensler that required a lot more disclosure about cybersecurity incidents, and they required companies to actually disclose this in an AK using a section, a particular section, so that it could be found very easily, you know, instead of a cyber you know, so that you know, if you were looking for cybersecurity incidents, you
can find them pretty quickly. But you know, companies are
still disclosing this in haphazard ways. Even though they're required to disclose this in a specific section of the a K, many companies are not doing that, and you know, to be fair, the problem with a lot of these cybersecurity incidents is when companies first disclose them, they don't know if it's going to be like a you know, a five you know, thousand dollars you know fix, or a five hundred you know, million dollar fix, right, you know, oftentimes you know, it takes time to get in there
figure out what's really going on. But of course, you know, these hacks and these cybersecurity incidents have gotten a lot more you know, sophisticated these days. I'm sure, like you know, like I mean, I can't count the number of text messages I get, you know that, you know, seem alert. I got a new one the other day. Someone put an event on my calendar and was waiting for me to accept it, and I'm like, how did you even
you know, find this on my calendar? You know, So there's a lot of scamming going out there, and you can imagine if you're like a big company with a lot more money than you know, Michelle Leader has that, you know, the efforts are a lot more intense to try to figure.
Out polk hoals. You know.
It's you know, it's just it's it's you know, unfortunately, there's bad actors out there, and cybersecurity, you know, is much more important. I mean, we do everything online these days. We pay our bills online, you know, and so you know, there's a lot of you know, I'm sure there's a lot of a lot of incidents that are going on, some of which we probably don't even know about, of course, if it's very big. I mean, you know, we kind of remember the ones like home Depot had an incident
a number of years ago. I mean, I feel like, you know, the number of times I've gotten an email from Kroll offering to like, you know, from some company offering to like, you know, secure my you know, identity for a year, you know, has grown exponentially recently.
Huh, really really interesting. So to wrap up, there's a new deregulatory regime in Washington, d C. It's very crypto friendly, it's not particularly ESG or climate change friendly, and it's going to have an impact on what companies are obligated to disclose to their shareholders. We'll find out the impact of this over the next few years. I'm Barry Riddolts. You've been listening to Bloomberg's At the Money, a flaw US about the loss of the loves at