Democrats Probe SEC Chair Jay Clayton on Clawbacks, Risk Disclosures in Senate Banking Committee Hearing

September 29, 2017

During his first visit to the Senate Banking Committee as SEC Chair, Jay Clayton fielded multiple questions in the wake of the Equifax cyber security fallout, noting "companies should be providing better disclosure about their risk profile" while stating his intention to finish the pending Dodd-Frank clawback rules.  Adding color to the oversight hearing, Mr. Clayton's testimony came days after the SEC revealed its own cyber attack which took place in 2016 when its internal data system EDGAR was hacked and data stolen.  Most of the hearing focused on the fallout over the Equifax cyber attack which resulted in the theft of credit data of over 140 million Americans.  Mr. Clayton faced several lines of questions from Senators on both sides of the aisle about Equifax's decision to delay its disclosure of the attack and the thoroughness of the company's risk disclosures which preceded the breach.  In perhaps the day's most noted line of questioning, Mr. Clayton responded to a question from Senator Sherrod Brown (D-OH), the Committee's Ranking Member, stating that "companies should provide better disclosure about the cyber risks [they] face."  Senator Brown, further noted that three senior Equifax executives had decided to retire in the wake of the scandal, and asked "whether it is appropriate for the executives who ran the company during the breach that they get to retire and keep their stock awards?"  Mr. Clayton responded he believed that, in general, if executives profited from a high stock price due to failure to disclose material information, there should be an ability to get back those gains.  Senator Brown quickly followed up asking Mr. Clayton whether he thought the clawback should be ordered by the SEC or determined by the company's board.  Mr. Clayton responded that the SEC was working on the Dodd-Frank clawback rule, but noted that it was one of many priorities.  Senator Brown emphasized the importance of the rule, and the Equifax scandal may lead to renewed pressure on the SEC to accelerate completion of the rule.