Mar. 30, 2023
March 30, 2023 To the Commission: Commissioners Peirce, Crenshaw, Uyeda, and Lizarraga, you have the opportunity to consider whats best for your former colleagues at the Commission and reject this proposal as currently written. As the only four members of the Commission who have actually been employed as Commission staff, you know the dedication and forthrightness that staff bring to the job. Requiring staff and families to reveal their private financial matters to unvetted, incompetent contractors is an affront to your former colleagues. The proposed rules references to automated reporting should be deleted in their entirety because that portion of the proposal is unnecessary, unwise, legally deficient, and will allow third parties to discern nonpublic information in the Commissions possession. I. The third-party automated electronic system is unnecessary Presumably, the Chair wishes to ensure greater compliance with preclearance and securities holdings requirements. But the Chairs policy team has not even attempted to show the necessity of requiring automated reporting of securities transactions to a (likely incompetent) government contractor -- euphemistically described by the rule writers as a third-party automated electronic system (TPAES) (also described in the rule text as a third-party automated compliance system). Indeed, the rule writers themselves admit a TPAES is not necessary, saying the current preclearance system has been successful. But apparently, OECs awareness that a number of private corporations have shifted to automated software systems that provide direct notification of securities transactions is sufficient to replace a system that the Commission admits is already successful with a privacy-invading system. Awareness does not equal necessity or even desirability. II. The third-party automated electronic system is unwise The rule writers claim the TPAES would reduce the burden on employees and compliance staff. This is not at all facially clear. And the system creates additional dangers that cannot be mitigated. Hackers or bad actors will get access to the TPAES and publicize employees private financial holdings. Full stop it will happen at some point. The TPAES will have full account access and likely full account number availability and as a cursory Google search of FINRA alerts will show, having this type of information is an incredibly easy way to commit ACATS account transfer fraud. Indeed, many financial institutions ask for a customers recent transactions to verify identities and/or transfers and the TPAES hackers will have a limitless supply of instantly verified transactions with which to steal employees data. So much for reducing the burden on employees. The rule writers also claim this proposal will reduce the risk of human error or oversight in reporting and reviewing of securities holdings and transactions. Again, this is not facially apparent, and the TPAES will itself be subject to bugs, errors, misreportings, failure to report no system is perfect. Instead, there will just be a third layer of potential errors introduced into the already successful system that OEC describes in the rule proposal. Furthermore, the system does nothing for any employee misfeasance that currently may exist employees (if any) who are not reporting securities transactions will continue to do so from hidden accounts that they do not disclose to the TPAES. Instead, the TPAES will burden those employees who are already conscientious and respectful of the rules imposed by the Commission. III. The third-party automated electronic system is legally deficient. It is axiomatic that a governments rulemaking power with respect to all citizens including employees must be rationally related to legitimate government interest. But the proposal gives unlimited discretion to the DAEO to impose deadlines for securities reporting, including outside the TPAES (Members and employees must report all purchases, sales, acquisitions, or dispositions of securities in the manner and according to the schedule required by the DAEO). The rule does not provide any rationale for not providing a minimum grace period in which to comply with the reporting, including for accounts that do not participate, pursuant to waiver, in the TPAES. There is no valid reason to give an unelected official unlimited authority to require any reporting deadline at all the DAEO could require one-second confirmation time frames and recommend discipline for any employee who took 30 seconds to report a securities transaction. The Commission must write rules on the basis of proven need and not give unfettered discretion willy-nilly to an official. Thus, the Commission must prove the five-day reporting deadline does not satisfy a legitimate need of the Commission after all, OEC admits the current reporting system, including the five-day deadline, is successful. The proposed rule contains legal deficiencies that preclude its adoption and that will render it unenforceable with respect to certain individuals. The proposal has significant differences from current ethics reporting, which only requires the employee to provide information to the Commission. The TPAES would require a spouse to respond to information in the spouses personal capacity, by authorizing the TPAES. This is fundamentally different from requiring an employee to provide information that the employee has access to. The proposed rule states: The proposed rule does not contain any collection of information requirements as defined by the Paperwork Reduction Act of 1995 (citation omitted). Per the PRA, collection of information means the obtaining, causing to be obtained, soliciting, or requiring the disclosure to third parties or the public, of facts or opinions by or for an agency, regardless of form or format, calling for either (i) answers to identical questions posed to, or identical reporting or recordkeeping requirements imposed on, ten or more persons, other than agencies, instrumentalities, or employees of the United States or (ii) answers to questions posed to agencies, instrumentalities, or employees of the United States which are to be used for general statistical purposes. The proposal to require brokers to provide securities transaction disclosure to the Commission and/or its contractors is clearly requiring the disclosure to third parties of facts by an agency calling for identical reporting requirements imposed on ten or more persons. 44 U.S.C. 3502(3). Presumably, the rule writers believed the term does not apply because collection of information excludes requirements imposed on employees of the United States. But my spouse, and my dependents, are not employees of the United States. Even as an employee of the United States, I do not have authority to tell the broker of my spouses solely owned account to provide information to the Commission or its contractors. I dont have that authority (my spouse wont let me, sorry) and no federal statute gives the Commission the authority to require me to do so, even as an employee of the United States. (Sorry, the Chair isnt Congress) Instead, the Commissions proposed rule would impose a collection of inf ormation requirement on an individual who is not an employee of the United States. Pursuant to 44 USC 3506, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid OMB control number. If finalized, the proposed rule will not be applicable to non-employees, and the Commission will not be able to require my spouse or dependents to comply with it. Nor will they voluntarily. IV. The third-party automated electronic system will allow third parties to discern non-public information in the Commissions possession. The TPAES contractor will have instantaneous records from north of 3,000 individuals who are all bound by the Commissions Watch list, i.e., those companies whose shares employees cannot purchase because of pending Commission action. That means an unvetted contractor with employees who are NOT bound by federal ethics statutes or regulations, or SEC preclearance, will have a constantly updated source of stocks that are NOT on the Watch list and they will be able to discern in real time when certain highly traded stocks are likely to have been added to the Watch list, or removed from the Watch list. Take Apple surely one of the most frequently bought and sold stocks by Commission employees (if they are currently allowed). The TPAES contractor will see Apple being bought and sold and know its not under Commission investigation. One Monday, though, he will come in and see no one is trading Apple anymore. Same thing Tuesday, Wednesday, for months. Now he knows something is up and Apple might be facing an SEC investigation. He shorts the stock, thereby profiting off inside, nonpublic information within the Commissions possession. The human desire to profit off inside knowledge is limitless, and I have no faith in the Commissions acquisitions staff being able to police the TPAES contractors ability to discern such inside knowledge. For the foregoing reasons, the Commission should remove all references to automated reporting in this unwise, unnecessary, legally deficient, and dangerous proposal. Respectfully submitted, Current Commission Employee