Should We Pick Up The Slack?: Remarks Before The Investor Advisory Committee - SEC Commissioner Hester M. Peirce, March 6, 2025

Thank you, Brian [Schorr], and good morning to you all at this first Investor Advisory Committee meeting of 2025. Thank you to all the panelists joining us today. Although the Commission’s make-up has changed and we are seeing Commission priorities shift, our shared desire to ensure vibrant capital markets and informed investors will continue to unite and guide us.

Today’s first panel is set to discuss how public companies disclose the risks and opportunities associated with artificial intelligence. I hope that one theme in the conversation will be the value of principles-based disclosure and the value of affording companies the discretion to make disclosures based on what is material to their particular circumstances. Principles-based disclosure rules do not prescribe corporate disclosure, but instead provide the framework within which companies make material disclosures to investors. Attempts to fill disclosure rulebooks with requirements specific to climate, artificial intelligence, or any other hot topic disserve investors in several ways. First, companies that do not have material things to say about these topics can be forced to spend company resources saying them. Second, even mere disclosure requirements can end up being an indirect way for a securities regulator to micromanage substantive company operations. Third, these disclosure requirements can distract corporate boards and managers from doing more important things. Fourth, corporate disclosures filled with answers to prescriptive disclosure frameworks drown out material information. Clear and comprehensive disclosure should be our goal, not homogenization for its own sake. I anticipate that the panel of experts Alvin has gathered will provide us with much to think about. 

Today’s second panel will discuss retail investor fraud. Artificial intelligence will be part of the conversation here also. This technology, like any other, can improve lives, but in the hands of bad actors it can devastate lives. Our response to the now higher tech fraud menace will require creative thinking and a commitment to pursuing cross-agency coordination at all levels of government. The Commission has taken an important step in facilitating this effort through its Interagency Securities Council (“ISC”), led by Adam Anicich and Manuel Vazquez.[1] The ISC brings together financial regulators and law enforcement to discuss “emerging threats, hear from investigators conducting and supervising investigations, and explore case study examples of agencies employing innovative approaches to combat financial fraud.”[2] I look forward to hearing from Andrea and the other experts she has assembled.

The Committee also will consider a Draft Recommendation aimed at ensuring “that investors retain their ability to bring claims under Section 11 following an initial offering by establishing a required lockup period.”[3] In other words, the Committee may be asking us—pardon the pun—to pick up the slack after the Supreme Court affirmed the tracing requirement in Section 11 of the Securities Act.[4] The Draft Recommendation notes that recent changes to the IPO process have diminished plaintiffs’ ability to pursue claims under Section 11 by “taint[ing] the pool of registered shares” and thus impeding traceability.[5] How widespread are these changes? For example, although the problem may be broader than direct listings, only 11 direct listings took place from 2021 through 2023.[6] Given that many companies going public want to raise capital, why should we expect that direct listings will increase in the future? Additionally, while early lock-up releases may be on the rise, they are often bespoke and in at least some instances might accord with the Draft Recommendation.[7] Would the Draft Recommendation, if implemented, even change behavior? Shouldn’t we protect underwriters’ ability to waive a lock-up in appropriate circumstances? How large of a problem would this recommendation solve, and should the Commission expend its limited resources to solve it? Does the availability of private rights of action under Section 10(b) mitigate this problem? Given the strict liability standard of Section 11, might attempts to expand its reach do more harm than good for investors given the costs and distraction companies will bear in Section 11 litigation?

Let me conclude by thanking Brian Schorr and the other members of the Committee and today’s panelists for their dedication, as well as Cristina Martin Firvida, Marc Sharma, Andrew Sporkin, and Adam Moore for their hard work in putting together today’s meeting.