Hester M. Peirce and Elad L. Roisman are Commissioners at the U.S. Securities and Exchange Commission. This post is based on their recent public statement. The views expressed in this post are those of Ms. Peirce and Mr. Roisman and do not necessarily reflect those of the Securities and Exchange Commission or its staff.
We write to explain why we voted against the Commission’s settled action in the matter of Andeavor LLC. [1] A majority of the Commission found that Andeavor violated Exchange Act Section 13(b)(2)(B), which requires reporting companies to devise and maintain a system of “internal accounting controls,” when Andeavor repurchased its stock from shareholders after its legal department concluded that it did not possess material nonpublic information about a merger. [2] Because we believe the Commission’s finding entails an unduly broad view of Section 13(b)(2)(B), we respectfully dissent.
Make no mistake: Insider trading by public companies engaged in share repurchases is unacceptable, and we support all appropriate actions—including charges under Rule 10b-5—when companies use material nonpublic information to take advantage of their shareholders. We also support all appropriate actions under Section 13(b)(2)(B) when companies have inadequate internal accounting controls that threaten to erode confidence in their financial statements. In short, we have supported, and will continue to support, vigorous enforcement of the antifraud, disclosure, and other securities laws against corporate wrongdoers whenever appropriate. But the tools we use must be fit for the task. And in this case, we believe Section 13(b)(2)(B) is not the appropriate tool.