That clear, simple statement is a founding principle of the Securities and Exchange Commission, as reported on the SEC’s own website. The independent agency was born out of the Great Depression in the 1930s, after thousands of companies played fast and loose with their books and lured millions of investors into disastrous investments.
Elsewhere on its website, the agency claims, “all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it…Only through the steady flow of timely, comprehensive, and accurate information can people make sound investment decisions.”
Yet today, the SEC seems to have lost its way and forgotten its mission, at least with regards to the Cardin-Lugar anti-corruption regulation now before the agency. Instead of ensuring the “steady flow of timely, comprehensive and accurate information” about America’s oil and gas companies, whose finances have suddenly become very shaky in the current economic crisis, it is acting like it wants to protect the industry from investors’ prying eyes.
As reported in today’s Washington Post, the agency has proposed a new regulation to implement Cardin-Lugar, Sec. 1504 of the Dodd-Frank law, which would “make it possible for oil and mining companies to mask their payments to governments at home and around the world.” No investor has clamored for this secrecy. Just the opposite: ever since the extractives reporting law was enacted in 2010, investor groups have publicly supported it, along with a strong implementing regulation.
Recently, a group of institutional investors, including very large banks and asset managers like Manulife, with trillions of dollars in assets under management, called for more disclosure, to match the payment reports already required by the European Union, Canada and Norway. In a letter to the SEC, they noted that the oil and gas payments data in other countries have already proved their worth to investment analysts. “We see great potential for the use of extractives payment ….if it is disclosed in the same manner across jurisdictions,” they wrote.
Hester Pierce, a GOP member of the Commission who supports the proposed, watered down regulation, is quoted in the story as saying the original, stronger regulation, struck down by Congress in 2017 at the behest of the oil industry, “would hamper our ability to serve investors [and] dampen issuers’ interest in raising money in our public markets.” She never explains how providing American investors with more information—information already available to investors in London, Toronto and Frankfurt for their listed companies—would not serve them.
And what kind of oil companies (“issuers”) would shy away from listing on U.S. stock exchanges because we require the same level of reporting as Europe and Canada? Honest ones? Or ones that are afraid, as the SEC says, to “tell the public the truth about their businesses?” In fact, critics say, the current proposal appears handcrafted to please industry instead of serving investors.
With stock markets gyrating wildly and oil stocks taking a particular beating, this hardly seems the best time for the SEC to promote secrecy over openness in oil company finances. (As of last week, for instance, ExxonMobil’s stock was down 45 percent for the year.) Although the proposed rule was issued before the pandemic, before oil demand collapsed, before Russia and Saudi Arabia launched a price war, and before a global recession loomed, the SEC still has time to recognize these new realities in its final rule.
There has never been a greater need for investors and analysts to have the SEC’s promised “comprehensive and accurate” information about oil company finances. Sometimes heavily indebted, with far-flung operations, including in corners of the world that were already unstable before the current crisis, oil and mining companies need to be manifestly clear about “the risks involved in investing.” And that includes detailed information about the depth and breadth of their involvement with governments.
The current rule does not serve investors. A rule that conforms to the global standard would. The SEC still has time to change course and issue a rule consistent with other jurisdictions, with the public interest and with its historic mandate.