Senate Dems urge SEC to review stock buyback rules

A group of Senate Democrats is pushing the Securities and Exchange Commission (SEC) to review its rules about stock buybacks, following an increase in share repurchases after the passage of the Republicans’ tax law.

In a letter penned Thursday to SEC Chairman Jay Clayton, Democrats wrote that a review of the rules is warranted given developments in executive compensation, shareholder activism and buyback activity.

More than 20 Senate Democrats signed on to the letter, including Senate Minority Leader Charles Schumer (D-N.Y.), Tammy Baldwin (D-Wis.) and Chris Van Hollen (D-Md.).

The letter comes as Democrats seek to leverage growth in stock buybacks as a key part of their messaging against the tax law. Democrats argue that the plethora of buybacks indicates that the law’s benefits are going to wealthy shareholders, rather than middle-class workers.

Republicans have pushed back, arguing that there are many non-wealthy taxpayers who own stocks through their retirement accounts.

The Senate Democrats, however, said they are also troubled by a spike in stock sales seen by corporate insiders following their companies’ buyback announcements. Earlier this month, SEC Commissioner Robert Jackson, a Democrat, called for a review of the stock-buyback rules, given that trend.

The senators argued that the SEC needs to review its 1982 rule that shields companies offering stock buybacks from securities-law violations if they follow certain criteria. The review, Democrats wrote, is needed “to ensure that corporate executives are not using the rule inappropriately to enable advantageous sales of their own stock while ignoring the needs of their companies’ workers.”

The senators also noted that Clayton, an independent aligned with Republicans, said at a hearing last year that he would be troubled if buybacks are motivated by companies’ short-term interests.

“We, too, are concerned that short-term interests are too often driving stock buybacks,” the senators wrote. “Shareholders, employees and the American public will benefit when executives have the appropriate incentives to facilitate job growth and long-term investment in their firms.”

The senators requested that Clayton start reviewing its buyback rules by starting a public comment period.