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Ethics Group Shifts Tactics, Asks for Political Spending Disclosure Rule in Regulatory Overhaul

Public Citizen, a key supporter of a petition that asks the SEC to write a rule requiring companies to disclose their spending on political activities, is no longer quietly acquiescing to the agency’s refusal to write a rule. Chair Mary Jo White has said the agency’s priority was to finish congressionally mandated rules that have been behind schedule. Because she is also interested in completing work on the overhaul of the agency’s disclosure rules, Public Citizen is asking supporters of the political spending petition to comment on the disclosure overhaul and ask for a spending disclosure as part of that effort.

After years of failure lobbying the SEC to write a rule requiring public companies to disclose their spending on political activities, one of the rule’s supporters is shifting tactics.

Public Citizen, an organization founded by Ralph Nader in 1971, is now asking retail investors to submit comments on the SEC’s Disclosure Effectiveness project with requests that the agency write a political spending disclosure rule.

SEC Chair Mary Jo White has rebuffed entreaties for the spending rule, and the groups backing a spending disclosure requirement have been frustrated by the market regulator’s lack of a response. Because White has said for much of her three-year tenure at the agency’s helm that the broad overhaul of disclosure rules is one of her key priorities, they see the overhaul as an opportunity.

The more than 1.2 million comments written in response to the 2011 petition have been placed in the petition’s designated comment letter page on the SEC website. The vast majority of the letters are form letters that say that corporate spending on political activities has gone unchecked since the Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission removed most restrictions on political spending. Democratic lawmakers, led by Senator Charles Schumer, have also pressed the SEC on the rule.

Now, almost 10,000 individuals using form comment letters asked the SEC to work on the rule through the Disclosure Effectiveness project.

“Businesses should not be empowered to use back-door political channels… to do their political bidding, and shareholders have a right to know how executives are using company resources for political purposes — especially if those purposes are against shareholders’ interests,” the form letter said.

The SEC declined to comment on Public Citizen’s change in tactics.

“It’s not a choice on the part of the agency. But retail investors are recognizing that this is another forum in which the agency should be assessing the need for this rule,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division on March 30.

White made the disclosure project a priority in response to years of complaints by companies about requirements they say are expensive to meet but offer little information valued by investors. Investors were initially worried that the SEC will only cut back on the requirements. But SEC officials have since reassured them that they also want to add disclosure rules that make companies provide investors with more information.

The agency began working on a proposal while Mary Schapiro was at the SEC’s helm. But Schapiro stepped down in December 2012 and was replaced by White a few months later. Soon after White came on board, the issue was quietly dropped from the agency’s regulatory agenda. Ethics groups complained about the move, citing an oversight hearing in May 2013 when Republican lawmakers strongly criticized the agency and asked for the rule’s removal from the agenda. White has said on several occasions that her priority is to complete the rules from the Dodd-Frank Act and the JOBS Act. She has also said that specialized disclosure rules are not part of the SEC’s core mission to protect investors and promote efficient securities markets. and

Business groups say the disclosure requirement is outside the SEC’s legal authority and call it an arbitrary attempt to interfere with company First Amendment rights.

Given the fierce opposition to the rule, the SEC’s chances of adopting it is slim. Moreover, SEC officials have said they will get to corporate governance disclosure rules in their disclosure project after they deal with the financial disclosure rules and the disclosures for business activities.

In the meantime, Republicans in December 2015 inserted a rider in the federal government budget that bans the SEC from adopting the rule in fiscal 2016, which ends in September.

Some Democrats and ethics groups say the SEC has the flexibility to plan for the rule during the current fiscal year despite the prohibition.