Did hundreds of thousands of “investors” really write “personally” to the SEC on corporate disclosure? No, not really.

As followers of this blog will know, for the last four years Democrats and others on the political left have been trying to get new mandatory disclosure requirements on spending related to politics. When this effort failed in Congress with the defeat of the so-called DISCLOSE Act, the effort went to the Federal Election Commission. But the FEC is a bipartisan board, designed that way specifically so that one party cannot force rules on the other for partisan gain. There, the disclosure effort failed.

Since then the left has been trying to get some agency – any agency – to require more disclosure. They’ve used the IRS, resulting in the IRS targeting scandal; they tried the Federal Communications Commission, resulting in a mini-scandal of ill-advised regulation and purloined bank accounts; and for the past two years, they’ve been trying to get the Securities and Exchange Commission to demand more mandatory disclosure of corporate spending. Late last month, however, the SEC indicated that it will not take up the regulation of corporate political speech.

The reason, we believe, was revealed by Senator Chuck Schumer (D-N.Y.) when he first introduced the DISCLOSE Act – it was for the “deterrent effect” of compulsory disclosure on speech. We’ve written at length about the problems of both excessive disclosure and “junk disclosure,” and we won’t repeat that here. Suffice it to say that while we think excessive disclosure of the type now demanded is a bad idea, and while we note that the left demands not only disclosure of political spending, but of all types of associational relationships, such as membership in trade associations, funding of charities, think tanks, and other non-profits, we do admit that one can conjure up plausible reasons for more compulsory disclosure.

Professor John Coates of Harvard has been a supporter of more mandatory disclosure, which, he admits, he wants written by Democrats, not Republicans, which to us says something about the dangers of mandatory disclosure. Professor Coates is one of the nation’s foremost scholars in the realm of law and economics and corporate governance. There is certainly nothing wrong with his having a different take on the issue than we here at CCP do. There are legitimate arguments for still more compulsory disclosure, though we are not persuaded and also think that it is unwise for honest brokers to ignore the political dynamics driving the disclosure push. If nothing else, the politics makes it less likely that that rules will be carefully and effectively drawn. Still, there is room for honest disagreement. But honest disagreement requires a fair presentation of fact. That’s why we were particularly disappointed by this recent blog post from Professor Coates. Addressing the SEC’s decision to drop increased mandatory disclosure from its 2014 regulatory agenda, he repeats a line from the partisan lobby, claiming that the SEC decision:

“repudiates the 600,000+ investors who have written to the SEC personally to ask it to adopt a rule requiring such disclosure… .”

It is true that the SEC has received more than 600,000 comments on this issue. Of the more than 600,000 comments received by the SEC, however, more than 99.7% were mere form letters, ginned up by unions, liberal advocacy organizations such as Common Cause and Public Citizen, and left-wing politicians, such as then New York City Public Advocate and now Mayor-elect Bill de Blasio. Less than .01 percent are actual, substantive comments. There is no way to know what percentage of these 600,000 plus commentators are actually “investors,” but almost certainly a great many are not investors at all, and virtually none write as investors. It is also absolutely clear that they did not write “personally” to the SEC in any normal meaning of the word “personally” – rather, they clicked a button on a website or chain email, that sent a form letter in their names. Of course, we also know that most of those form comments have nothing to do with concerns for securities markets, capital formation, or investor information, but were simply screeds against Citizens United. The most popular one, (representing over 285,000 comments) for example, reads, in its entirety, as follows:

I am deeply concerned about the influence of corporate money on our electoral process.

In particular, I am appalled that, because of the Supreme Court’s ruling in Citizens United v. Federal Election Commission, publicly traded corporations can spend investor’s money on political activity in secret.

I am writing to urge the Securities and Exchange Commission to issue a rule requiring publicly traded corporations to publicly disclose all their political spending.

Both shareholders and the public must be fully informed as to how much the corporation spends on politics and which candidates are being promoted or attacked. Disclosures should be posted promptly on the SEC’s web site.

Thank you for considering my comment.

The second most popular, accounting for 129,873 commentsreads:

Dear Members of the Securities and Exchange Commission:

 It’s long past time to end secret political spending by corporations.

 So I strongly support the SEC issuing a rule in the near future that would require publicly traded corporations to publicly disclose all their spending on political activities.

Both shareholders and the public deserve to know how much a given corporation spends on politics (directly and through intermediaries), and which candidates are being promoted or attacked.

 Thank you for considering my comment.

Another, accounting for over 67,000 commentsreads, in its entirety:

I am extremely concerned about the influence of corporate money in our political process, in particular its undisclosed appearance. As a taxpayer, I have to report each time I make a political donation, and I strongly believe that corporations should do the same. That’s why I’m writing you today to urge you to mandate that publicly held corporations disclose their political spending.*

Any of these form letters would have been just as relevant to the Consumer Products Safety Commission, the Army Corps of Engineers, or the Federal Reserve. (Hey, why not use the Federal Reserve to regulate political spending? Federal Reserve notes are legal tender; checks clear through the banking system – regulating campaign finance fits its mission about as much as it fits the SEC’s).

The claims such as those being made by the campaign finance reform lobby, suggesting that well over half a million “investors” are so worked up about this that they are writing “personally” to comment on an SEC petition for rule making, is nonsense. Scholars may have sharp opinions on issues, but when they wade into public debate, they ought to at least raise the factual content of the debate. We’re disappointed that a scholar of Professor Coates’ stature would so credulously repeat the bogus claims of the reform lobby.


*An interesting point about all three of the letters quoted above is that they mistake the current law and the current petition. Under existing law, corporations that make political expenditures must disclose them to the FEC. The petition under consideration at the SEC would have also required disclosure of trade association dues, contributions to non-profits, and other activities that are, at most, only indirectly related to politics. The third form letter quoted above is particularly egregious in misinforming the public. Those who clicked the button to send it to the SEC were misinformed by the advocacy groups that sent them the form letter about both the current and proposed regulations as they apply both to corporations (corporations must disclose the political spending) and to individuals (“taxpayers” do not have to publicly disclose their membership dues, contributions to non-profit groups, and other activities indirectly related to politics).

In fact, almost all (one could argue all, but some are vague enough it is hard to tell what they think the law is) of the 18 different petition letters sent to the SEC get the law wrong. For example, this one, form letter “B,” (over 11,000 copies sent) in its entirety states:

Securities and Exchange Commission

Dear Commission,

Right now, Super PACs don’t have to disclose their unlimited corporate donations. That means they can keep the public in the dark about who’s funding the attack ads that bombard their TV screens daily.

That’s why I’m joining with the 14 United States senators who formally asked you to use your regulatory authority to require that corporations disclose their spending in elections.

SEC: Exercise your regulatory authority to require public disclosure of corporate political contributions.

Of course, Super PACs do disclose their corporate donors, and indeed all of their donors.

Clearly, so-called “reform” efforts are not attempting to actually educate the public or foster a smart, considered rule making by “investors.”