House GOP leaders express concern over SEC process for collecting public comments

By Mark S. Nelson, J.D.

A group of 10 GOP members on the House Financial Services Committee led by Ranking Member Patrick McHenry (R-NC) sent a letter to SEC Chair Gary Gensler seeking further explanation for the agency’s reopening release issued October 7, 2022, which reopened the comment period on 11 proposed rulemakings in which some public commenters’ comments were not received by the SEC due to a technical error. Although expressing concerns more generally about the public comment process at the SEC, the GOP members’ letter focused on whether the same technical error impacted the recently adopted proxy advisor rules. The GOP letter asks the SEC to reply by the end of October 2022.

In addition to seeking information on the SEC’s public comment process, the GOP members wanted more specific information about the proxy advisor rulemaking. To this end, three of the five sets of questions posed by the GOP members asked about the proxy advisor rulemaking. According to the GOP members’ letter, they want to know from the SEC the following:

• In particular, were all comments submitted for the proxy advisor rule received by the Commission? If you know that the proxy advisor rule was not affected by the glitch, please provide the analysis showing how the Commission reached this determination.
• If the SEC never received a submitted comment for the proxy advisor rule or another rulemaking release, how can the SEC satisfy the APA’s consideration requirement?
• Will you rescind the final proxy advisor rule and reopen the comment file?

By way of background, the Trump-era SEC adopted rules and supplemental guidance that significantly altered the status of proxy advisory firms under federal securities regulations by imposing new disclosure and conflicts of interest requirements on these firms, including giving companies a chance to dispute proxy advice recommendations.

The GOP letter noted that the SEC had explained that the technical issue regarding public comments began as early as June 2021, but that the bulk of affected comments were those submitted in August 2022. The SEC’s most recent proxy advisor rules had been proposed in November 2021 and adopted in July 2022.

With the change of Administrations in January 2021, the Gensler-led SEC reassessed the Trump-era rules for proxy advisers. The SEC proposed amendments to the proxy adviser rules in November 2021 and, in a final rulemaking issued in July 2022, which was also published in the Federal Register that same month, the SEC rolled-back some of the Trump-era rules for proxy voting advice businesses (PVABs), including:

• Rescinding conditions that had been imposed on the use by PVABs of certain exemptions;
• Rescinding supplemental guidance on PVABs that had accompanied the Trump-era rules; and
• Deleting Note. to Exchange Act Rule 14a-9 which, per the Trump-era rules, stated that an example of potentially misleading conduct under the rule would include a PVAB’s failure to disclose material information regarding proxy voting advice.

In early October, the SEC reopened the public comment periods on 11 rulemakings, including its proposed climate risk disclosure regulation, in order to allow public commenters whose comments were not received by the SEC up to 14 days after the reopening release is published in the Federal Register to resubmit those comments. The reopening release recently published in the Federal Register and the reopened comment periods will formally close on November 1, 2022.