Post sponsored by NewzEngine.com

Source: Securities and Exchange Commission

Washington D.C.

Oct. 9, 2020

Thank you, Steph [Avakian] for that kind introduction.  It is a pleasure to be on the program today.  I would also like to thank the SEC Investor Advocate Rick Fleming for the opportunity, as well as the Program Faculty Chairpersons, Stephanie Avakian and Dalia Blass, and the Practising Law Institute for coordinating this year’s program.  Before I begin, let me remind you that views I express are my own, and do not necessarily represent the views of the Commission, the individual Commissioners, or my colleagues on the Commission staff.[1]

I realize for some, this may be your first time hearing about the SEC Ombudsman.  As brief background, the SEC Office of the Investor Advocate (OIAD) was established by Congress[2] to ensure that the needs of investors are considered as decisions are made at the SEC and at self-regulatory organizations.  The office analyzes the potential impact on investors of proposed regulatory changes, identifies problems that investors have with investment products and financial service providers, and recommends changes to statutes and regulations for the benefit of investors. 

Among his core objectives, the Investor Advocate is required to assist retail investors in resolving significant problems they may have with the Commission or with self-regulatory organizations.  To accomplish that objective, the Investor Advocate is required by statute to appoint an Ombudsman[3] to: act as a liaison between the Commission and any retail investor in resolving problems that retail investors may have with the Commission or with self-regulatory organizations; review and make recommendations regarding policies and procedures to encourage persons to present questions regarding compliance with the securities laws; establish safeguards to maintain the confidentiality of communications; and submit semiannual reports for inclusion in the Investor Advocate’s semiannual Reports to Congress that describe the activities and evaluate the effectiveness of the Ombudsman during the preceding year.[4]

In September 2014, I was named as the first Ombudsman for the SEC.[5]  Reflecting upon that six years later, I am thankful to be surrounded by amazing colleagues in the Office of the Investor Advocate, each of us pioneers of sorts, as we each perform unique, and still relatively new, functions in support of the statutory requirements of the Office and the mission of the agency.  In addition to the Investor Advocate Rick Fleming, the Chief Counsel Marc Sharma, and the Senior Economist Brian Scholl and their investor engagement, policy, and economist staff, I am fortunate to have my own small but mighty team within the Office.  Nancy Doty, Melanie Singh, and Charity Miti-Kavuma have been with me for about a year now, providing legal analysis and interacting with investors on a daily basis, and I am grateful for their work and dedication.

On a day-to-day basis, the most apparent aspect of my role involves the interactions with retail investors and others who contact me with their questions or concerns about the SEC or the SROs we oversee, and my remarks today primarily focus on those interactions.  Put simply, in my role as Ombudsman, I am available to serve as an additional channel of communication between retail investors and the SEC or SROs and to clarify certain SEC regulations, policies, and practices.  Where an established resolution process exists, I typically will direct an investor to the appropriate SEC staff or resources, and I will follow up with the investor or with my SEC colleagues, as necessary.  I also help investors identify resources outside of the SEC to resolve their questions and concerns.

From the beginning, however, I recognized the importance of the quality of service we provide.  I have no real control over the volume or substance of matters that come in, and I never wanted to equate the volume of matters received to the value of the role.  Assisting just one investor with one issue can make a significant difference to that investor, to their family, and at times, to the way I approach my work and to the agency and the industry.  That is where the real value lies.

That said, I do track the volume of investor inquiries closely.  I am proud to say that from Fiscal Year 2015 – my first full year in the role – through the first six months of Fiscal Year 2020, my team fielded over 11,300 investor contacts.[6]  In terms of the type of work we do, the information we provide to investors, and the small size of the team, that is significant, and I am very proud that we have been able to handle that volume and handle it well, providing investors with useful information and thoughtful responses.

A frequent question investors pose to me highlights a simple, yet fundamental gap between their understanding of what the SEC’s mission means and their expectations of what the SEC can do for them.  The mission of the SEC is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.  As discussed in my prior reports,[7] investors frequently assume that the purpose of SEC investigations and enforcement actions is to protect specific investors by helping them get their money back.  While the SEC’s actions may at times align with the personal interests of harmed investors, investigations and enforcement actions are not initiated for the sole purpose of recovering money a particular investor may have lost.  Rather, the SEC is tasked with enforcing the federal securities laws to protect the broad interests of the investing public by maintaining fair, orderly, and efficient capital markets.

One of the most important things I do as Ombudsman is examine an investor’s concerns from two critical points of view – from the investor’s perspective and understanding, and from my perspective as Ombudsman and as an attorney with securities law expertise.  Then, I have to carefully manage the investor’s expectations.  Once I establish rapport and a level of trust, investors tell me a lot of things, often things that are tough to hear – marriages collapsing under the weight of a bad investment decision, students withdrawing from college because of mounting tuition expenses, and seniors faced with reentering the workforce when their retirement savings is lost to a scam.  These investors include teachers and students, seniors and millennials, active duty military and veterans, civil servants and small business owners – people who invested their money so that it would grow, so that they could claim their financial portion of the American Dream and put more money into their child’s college fund, make the down payment on a first home, afford a more comfortable, secure retirement, or, as was the case with a very memorable investor I spoke with for almost an hour, offset the high cost of moving his mother into a quality senior living facility.  Often, retail investors interpret the “protect investors” portion of our mission to mean that the SEC will protect them against their personal investment losses and will help them recover those losses should they occur, or that they can contact me and an investigation will automatically be launched on their behalf and decided in their favor. 

For those in the industry, this may seem like a rather coarse interpretation of that portion of the mission statement, but I hear this routinely from investors.  I have come to recognize that many investors share this view, and it is often the very reason that investors reach out to me.  Some investors send rounds of letters and emails asserting that we must protect them in exactly the manner that they request because of the mission statement.  Some investors have shared, in so many words, that they felt as though they had been victimized twice – once by the fraudster, and again by the SEC refusing to protect them or represent their personal financial interests.  These conversations and interactions are not always easy, and in these unprecedented times, the conversations are often intense.  However, these difficult conversations present valuable opportunities for me to listen to their concerns, clarify their expectations, and provide options if I can, so that they leave with something of value that will help inform their decisions going forward, and so they feel that their concerns were heard. 

The fundamental question usually comes down to this: what can I, in my role as Ombudsman, do for investors?  Often, I am able to communicate with colleagues in other offices and divisions across the agency to facilitate a discussion or to troubleshoot a complaint.  At times, I may contact SRO staff to discuss certain aspects of an investor’s questions or concerns.  In some instances, I may explain to investors that there are legal options and remedies available to them that may not be available to regulators, such as the ability to hire private legal counsel and seek restitution.  However, it is worth noting that retail investors with smaller claim amounts often have difficulty finding affordable, quality legal representation.  For some, depending upon where there live, law school investor advocacy clinics are an excellent option.  While funding remains an ongoing challenge, law school investor advocacy clinics continue to provide essential no-cost legal representation and resources to eligible retail investors of limited means and with smaller claim amounts, usually less than $100,000.  However, only twelve clinics, I believe – located in California, the District of Columbia, Florida, Illinois, Nevada, New Jersey, New York, and Pennsylvania – appear to be in active operation today,[8] leaving a large segment of retail investors unable to access the no-cost legal representation, community outreach, and legal counseling services that the clinics provide.  I encourage you all to learn more about the important services the law school investor advocacy clinics provide and the critical gaps that they fill.  

My interactions with retail investors and their responses – positive and critical – provide valuable insight into how they view the role of the SEC as they make investment decisions.  For example, an overreliance on SEC protection could make an investor feel comfortable taking on increased levels of risk.  On the other hand, not knowing where to find specific disclosures relating to information an investor deems important may frustrate or discourage an investor to the point of not investing at all.  In the end, I always attempt to provide meaningful service to investors by helping them better understand the role of the SEC and the services and information we can provide, and by empowering them to make well-informed investment decisions for themselves.

That is always a gratifying outcome – when an investor feels more empowered and better informed.  At times, investors will contact me simply to say thanks and to let me know that they have mastered the art of the EDGAR search.  They now know where to find information that they feel is important to their investment decisions – from risk factors to use of proceeds, from executive compensation to corporate governance.  They understand that they have access to that information when they need it, and they may feel better equipped to ask tougher questions and seek additional information based upon what they know.  Moreover, they appreciate that someone at the SEC took the time to consider their particular questions and concerns.

I am usually not the last stop for investors; however, I do feel that I add value in helping investors navigate when they do not know where to go or do not understand their options.  They can call me – the Ombudsman, a real person at the SEC here to help real people like themselves.  And I want to make sure that the information and resources I provide are thoughtful and meaningful, and that the guidance I provide helps them understand the options available to them as they make investing decisions going forward.

In closing, I want to share with you some remarks I had the pleasure of hearing at a virtual conference recently.  Journalist John Quinones was one of the featured speakers and he shared some of the best advice he received early on in his journalism career.  One bit of advice really resonated with me.  I am paraphrasing a bit, but a more experienced journalist told him not to worry so much about talking to the movers and shakers of the world and capturing their stories, as they already have the money, power, access, and influence to make their voices heard.  Instead, talk to “the moved and the shaken.”[9]  Concentrate on giving a voice to people who do not have a voice.  Focus on the real people out there, people who need someone to listen to, understand, and elevate their concerns. 

As SEC Ombudsman, I serve in a role that, in large part, was created so that real people – retail investors and other interested persons – particularly those that have been moved and shaken by complicated disclosure documents, by inappropriate investment advice, by fraudsters, by unpredictable drops in the value of their investments, by losing their life savings, by unemployment, by a pandemic, or by simply not knowing who to contact at the SEC, have someone at the SEC to listen to, understand, elevate, and help resolve their concerns.  The impact of my role in their day-to-day lives when they call upon me to provide assistance may not be readily apparent, but the value is there.  It is my privilege to give them a voice.  I often share their questions, concerns, and feedback with leaders across the agency, and their personal experiences and perspectives at times may impact how we approach our work.  One question from a retail investor certainly has the potential to impact how I approach my statutory responsibilities, and every investor who contacts me or my team is valued.

Thank you for your time today, thank you for your interest in my role, and most importantly, thank you for your interest in the work of the U.S. Securities and Exchange Commission.  Enjoy the remainder of today’s program.


[1] The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner.  These remarks express the author’s views and do not necessarily reflect those of the Commission, the Commissioners or other members of the staff. 

[2] Exchange Act § 4(g), 15 U.S.C. § 78d(g).

[3] Exchange Act § 4(g)(4)(A), 15 U.S.C. § 78d(g)(4)(A).

[4] Exchange Act § 4(g)(8), 15 U.S.C. § 78d(g)(8).

[6] See SEC, Office of the Investor Advocate, Report on Activities for Fiscal Year 2019 (Dec. 19, 2019) [hereinafter Report on Activities, Fiscal Year 2019] at 25-26, https://www.sec.gov/advocate/reportspubs/annual-reports/sec-investor-advocate-report-on-activities-2019.pdf and SEC, Office of the Investor Advocate, Report on Objectives for Fiscal Year 2021 (Jun. 29, 2020) [hereinafter Report on Objectives, Fiscal Year 2021] at 22, https://www.sec.gov/files/sec-office-investor-advocate-report-on-objectives-fy2021.pdf.

[7] See Report on Activities, Fiscal Year 2019 at 31, and Report on Objectives, Fiscal Year 2021 at 27-28.

[8] At present, there appear to be 12 investor advocacy clinics in active operation: six in New York (Benjamin N. Cardozo School of Law, Cornell Law School, Fordham University School of Law, New York Law School, Pace University School of Law, and St. John’s University School of Law), and one each in the District of Columbia (Howard University School of Law), Florida (University of Miami School of Law), Illinois (Northwestern University School of Law), Nevada (University of Nevada Las Vegas School of Law), New Jersey (Seton Hall University School of Law), and Pennsylvania (University of Pittsburgh School of Law). 

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