SEC Commissioner Opposes Enforcement Approach

Newly seated member of the Securities and Exchange Commission Hester Peirce has a different view on her agency’s enforcements – and she votes accordingly.

Investment News reports that in a recent speech at the Rocky Mountain Securities Conference in Denver she explained why she votes more often than her fellow commissioners against staff enforcement recommendations: “When I believe that we ought not to have spent our Enforcement Division’s time and effort on a matter, I am likely to vote against it.”

She expressed criticism of past SEC leadership, including former SEC Chairwoman Mary Jo White, who she said used the “broken windows” approach – where the SEC went after many small infractions in an attempt to scare off larger violations.

To this, Peirce quipped: “While following the ‘broken windows’ approach, perhaps the SEC should have changed its name to the ‘Sanctions’ and Exchange Commission, because it acted like a branch of the U.S. Attorney’s Office for the Southern District of New York.” (Mary Jo White formerly served as the U.S. Attorney for the Southern District of New York).

In 2016, Mary Jo White celebrated her agency’s single-year record for the most enforcement actions filed (868 actions and levying $4 billion in monetary sanctions), according to Investment News. At the time White said in a statement,”By every measure the enforcement program continues to be a resounding success holding executives, companies and market participants accountable for their illegal actions.”

In contrast, Peirce said she watches for instances where the SEC is doing “rulemaking by enforcement,” pushing the “bounds of its authority,” and engaging in lengthy investigations and curbing attorney-client privilege.

When it comes to corporate civil penalties, Peirce expressed concern. “After being the victims of the fraud that has led to an SEC investigation, shareholders are now paying a corporate penalty to resolve the matter,” Peirce said. “The SEC needs to be extremely careful in how and when it imposes corporate penalties to avoid making an already bad situation worse for shareholders.”

Source: Investment News

Only Minor Repair for Dodd-Frank

Soon after President Trump took office, deregulation forces centered on the 2010 Dodd-Frank law that tightened regulations on financial firms. The big question then: Would Dodd-Frank be repaired or replaced?

Back then President Trump was calling for the complete dismantlement vowing to “do a big number” on Dodd-Frank.

In our January 2017 issue of Simply Stated, however, we noted that big bankers had been working closely with regulators in the Obama administration over the past six years honing Dodd-Frank regulations into something they could live with, and although they would like to see several specific regulations removed, they were not passionate about scrapping the law all together.

Add to that, several Wall Street bankers, who, after years of complaining about Dodd-Frank, began to actively urge against its full repeal.

Notably, Goldman Sachs Chairman Lloyd Blankfein publicly opposed repeal. “It’s not in Goldman’s interest,” he said. He explained that regulatory costs have helped raise the barriers to entry in his business, higher than at any other time in modern history. As a result, he forecasted more opportunities for global giants like Goldman to gain market share, saying “only a handful of players will likely be able to effectively compete on a global basis.”

There also was no rallying opposition among non-financial sector CEOs who apparently resigned themselves to the Dodd-Frank regulatory regime and had committed huge amounts of money to its implementation.

Whether from regulatory battle fatigue, or big bank gate-keeping, we thought there was far more fight in those who would rise to oppose the full repeal of Dodd-Frank.

Fast-forward to the present and we now have an answer to the repair or repeal question. Turns out the answer is pretty close to neither – perhaps it should most accurately be characterized as minor repair.

Congress just passed a much watered-down plan that keeps most of Dodd-Frank intact. Explaining how it all came about, the Wall Street Journal is reporting that behind the scenes, President Trump’s then top economic adviser and a powerful senator settled on a less ambitious plan in early 2017. In recent weeks, Mr. Trump called a senior House lawmaker, urging him to move forward despite objections from Republicans who wanted broader changes.

The strategy to seek modest Dodd-Frank changes, agreed to in private by Senator Mike Crapo (R., Idaho) and former National Economic Council Director Gary Cohn in early 2017, paid dividends reports the Journal. The House of Representatives by 258-159 approved the resulting bipartisan legislation, sending it to the president for his expected signature.

Senator Crapo discussed with Gary Cohn, (formerly president and COO at Goldman Sachs Group Inc.) the outlines of legislation rolling back rules on smaller to medium-size banks. Both agreed such legislation would be worth doing, even though the strategy would leave behind other GOP priorities. It was the most they felt they could get through a divided Congress.

The bill’s most significant change cuts regulations for small lenders by raising the asset threshold from $50 billion to $250 billion – the level where banks automatically undergo stress tests and other rules. Left untouched are many Dodd-Frank pillars, including emergency government powers and curbs on derivatives, and there was no attempt to reorganize the Consumer Financial Protection Bureau.

New IRS Rules Will Target State Work-Around Schemes

The Internal Revenue Service and Treasury Department are working on new rules that will warn high taxing states that have been concocting work-around schemes to offset the loss of deductions under the recently enacted federal tax law.

The new $10,000 annual cap on state and local tax deductions is having a big impact on such high taxing states as New York, New Jersey, Connecticut and California. Rather than embrace tax reform for their residents, several states have enacted or are considering a variety of “creative” ways around the new federal tax law.

It’s worth noting, that according to the Wall Street Journal, “prior to the new tax law, six states claimed more than half of the deduction’s benefit which cost about $100 billion a year, and New York and California alone raked in about a third of the cost due to their punishing rates on high earners (13.3% in California).”

One such scheme involves the establishment of charitable organizations controlled by a state or local government. Taxpayers would pay their state/local taxes to these charities run by the local government, and then deduct that amount on their federal tax returns as a charitable contribution.

As example, California is trying to set up a “California Excellence Fund” to launder the tax deduction. IRS regulations are already pretty clear about charitable intent and donors not receiving benefit from their “donations.”

An IRS notice said their soon to be released regulations will “assist taxpayers in understanding the relationship between the federal charitable contribution deduction and the new statutory limitation on the deduction for state and local tax payments.”

Sexual Harassment and Tax Deductions

Senators are considering a fix to a provision in the new tax law that may inadvertently penalize victims of sexual harassment in the workplace. The 2017 tax law eliminated the federal tax deduction companies were allowed when they paid out sexual harassment cases. But, a one word mistake by tax writers may also have eliminated the ability of sexual harassment victims to deduct their legal expenses.

Tax writers used the word “chapter” rather than “section” in the amendment which could be interpreted as broadly applying the elimination to victims, according to a spokesman for New Jersey Senator Bob Menendez.

For example, in a $100,000 settlement, costs and legal fees might involve $45,000, with the remaining $55,000 payout going to the victim. But without being able to deduct costs and fees, the victim would have to pay tax on the entire $100,000, “which may mean a tax bill equal to or larger than their payout,” according to Attorney Genie Harrison, who represents one of Harvey Weinstein’s former personal assistants in a sexual harassment lawsuit.


Simplified Tax Code: Not everyone happy

One of the most touted promises of the new tax law was that it would simplify the process for most people to pay their taxes. Good news? Apparently not so good for tax preparer H&R Block whose sales guidance for 2019 disappointed Wall Street investors and plummeted their shares as much as 21% after their guidance last week. Reuters reports that the simpler “new tax code could hurt the company’s pricing, thus the 2019 guidance.” H&R Block shares are down approximately 10.6% on the year.

Seattle Head-Tax Quickly Repealed

In a ruckus meeting last week, the Seattle City Council voted 7-2 to repeal a city tax on large businesses that was unanimously enacted just a few weeks earlier. The new “head tax” that promoters said was to help the homeless was aimed at larger businesses. At $500 per employee it was estimated that those businesses would have been taxed $45 million per year., the city’s largest employer, led a coalition of businesses to place a repeal referendum on the city’s November ballot. The referendum campaign was joined by other large businesses including Starbucks and a grocer’s trade group.

Opponents called it a “tax on jobs,” and Amazon threatened to abandon plans for a major downtown office building if it was approved. Now that it has been repealed by the City Council, Amazon said it is committed to “being part of the solution of homelessness” and would continue to invest in nonprofit groups addressing the problem.


It’s hard to lead a cavalry charge if you think you look funny on a horse. – Adlai Stevenson

Success is going from failure to failure without loss of enthusiasm. – Winston Churchill

Artificial intelligence is no match for natural stupidity.

Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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