First Official Recommendation from the Investor Advocate

On February 24, 2014 the Securities and Exchange Commission established the Office of the Investor Advocate. According to the SEC, the purpose of the Office of the Investor Advocate encompasses three core functions: (1) to provide a voice for investors, (2) to assist retail investors, and (3) to support the SEC’s Investor Advisory Committee.

Rick Flemming was appointed in February, 2014, as the first director of the Office of the Investor Advocate. In this role, Flemming reports to the Chair of the SEC. In addition, the law requires the Investor Advocate to directly submit to Congress A Report on Objectives due June 30th and A Report on Activities due December 31st every year without any prior review or comment from the Commissioners or SEC staff.rick-fleming-headshot

In Rick Flemming’s biography on the SEC’s website, he describes his role as “building an office charged with the responsibility for analyzing the impact on investors of proposed rules and regulations, identifying problems that investors have with financial service providers and investment products, assisting retail investors in their interactions with the Commission and self-regulatory organizations (SROs), and proposing legislative or regulatory changes to promote the interests of investors.”1

Flemming demonstrates his dedication to these initiatives with his first official recommendation to the Securities and Exchange Commission to disapprove a New York Stock Exchange proposal submitted earlier this year.

The proposal is to amend Sections 312.03(b) and 312.04 of the NYSE Listed Company Manual to exempt early stage companies from the existing NYSE requirement to obtain shareholder approval before selling shares for cash to related parties, affiliates of related parties, or entities in which a related party has a substantial interest. In this proposal, “Early Stage Company” would be defined as a company that has not reported revenues greater than $20 million in any two consecutive fiscal years since its incorporation.

In a statement published on October 16th, 2015, Flemming explains how the sheer number of proposals submitted each year make it impossible for investors to maintain a high level of awareness and that his team reviews each filing under federal securities laws.  Flemming states that his first official recommendation “marks the beginning of [his] Office’s efforts to shine a brighter light on rule changes by the exchanges, either to oppose proposals that may be detrimental to investors or, conversely, to support the efforts of exchanges to amend their rules in ways that benefit investors.”2

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