They are finished speaking, consistent with the regulations accompanying a tourist night 65, the staff will only meet members and witnesses as appropriate, when not recognized in order to avoid background noise. Members are reminded that all house rules, relating to order in the courtroom, apply in this hearing. This hearing is entitled Insider Trading, stock option grants, and examination of corporate integrity in the covid19 pandemic. We know that we have votes on the floor, we will not have any delays of this hearing in order to allow members to vote. If members should go vote, and return, and while we all have part of the alphabet to vote in, im sure there can be some accommodation made so that when they return you can ask questions, and vote with the others not appearing on other alphabetical characterizations. And when im voting, i believe mr. Meeks, has agreed to serve as chair until my return. I will now recognize myself for five minutes for an opening statement. Our Capital Markets system is unique in history up until about 150 years ago every Business Enterprise was made up of people who knew each other. We are family members who had personal trust. And a business could only be as large as a group of people who could finance and put together, and Investment Opportunities were limited to those that you happen to be able to unfold. You wouldnt trust your money with some enterprise of strangers. And of course, you didnt have liquidity, since you could tell your investment pretty much only to somebody else who knew somebody. So at that point, people could rely on personal trust. Today, investors turn your money over to anonymous insiders, corporate boards, executives, police never met. And they know, that the insiders, have more for more information, retention, and power. And they dont have the buyings or the personal trust, they rely on law to make sure that the insiders are treating the investment fairly. I will continue, we had a little tagging the problem there. We now apply that system to the covid pandemic, in which nearly 200,000 americans have lost their lives, and at which many firms affected by this pandemic are having sudden increases or decreases in their value. Many pharmaceutical firms, for example, even the suggestion of involving a federal program shoots up the value. Following the sort of announcement, kodiak, no ethics, and , beach saw their stock prices rise by over 400 . With this trend in mine, the sec has reminded companies in this pandemic they should not only abide by law, but practice good corporate hygiene. Tear clayton has reiterated the use in a recent letter, regarding todays hearing, which i submit for the record and it will be made part of the record without objection. But admonishments are not laws and regulations. Admonishments will not deter the truly greedy. So we have to design our laws and regulations to govern those who cannot be governed by admonishments. For example, while taxpayers have invested frequent one billion in federal contracts with nova bags and moderna. They developed a vaccine since april, executives and firms have sold over 60 Million Dollars in their companies stop. We need to know that they were not taking advantage of any inside information, that perhaps the stock had gone up too high, given the realistic possibilities. Greater concern of suspicious activity involving kodiak, with the announcement of a 750 Million Dollar government loan, that took place about the insider concern. We took a concern there on Stock Options in their granting. With all Equity Compensation insiders need to be approved by shareholders. When Shareholders Approve a plan that says Stock Options will have granted with a stock option exercise price equal to fair market value, one option they grand date believe that. Executives who get the Stock Options will live by that. If instead the market value doesnt reflect Material Information insider information, thats going to be announced the next day. Or the next week. Shareholders have been duped into approving Equity Compensation that does not reflect real fair market value. I want to thank the insiders at kodiak who have added insult to injury, first they granted Stock Options at what they knew to be an in fairly low price. Then they spent a lot of shareholder money on a Corporate Law firm to tell them it was all legal. That tells us we have to change the laws, because if any major firms can say this is legal, it shouldnt be. And so we have to deal with the issues of what is called, spring loading. Where Shareholders Approve, a Compensation Plan based on fair market value. It has to be fair market value, with the market has knowledge of the material on transactions. That the insiders know about. So i look forward to exploring this with our witnesses, we will now hear from the Ranking Member for four minutes, for his opening statement. Thank you mister chairman. Its the definition of insanity doing over and over again expecting different results, so here we are once again, holding a hearing on an issue that weve already had held a hearing on. Additionally three of these bills attached to this hearing had not only had a hearing, theyve been passed by the house of representatives. So i asked a committee why are we spending precious time in resourcing on bills that have already passed the house nine months ago . Just because we keep having hearings on bills that have already passed, doesnt mean that the senate is going to take them up. Dont get me wrong, Insider Trading is not only wrong, it is illegal. And not only does it hurt the integrity of our Capital Markets, it also hurts our main Street Investors as well as mrs. 401 k . We also agree that Insider Trading should be punished to the fullest extent of the law. However the subcommittee should not be used as a name and shame game for companies for one doing that they have perceived to have happened. And yes the facts surrounding one company at first certainly appeared to be suspicious. And need to be fully investigated, thats not our job. Securities and Exchange Commission is tasked with ensuring market integrity, under the securities of change back to 1934, the fcc already has the problem prague were to bring in fact, during fiscal year 2019, the commission brought 862 Enforcement Actions to hold individuals, issuers, and Financial Institutions accountable. Sending a clear message to market assistance. Let the result speak from the themselves. Eight six 862 enforcement accidents to more than 4. 3 billion dollars, and penalties. Obtain nearly 600 bars or suspensions against market participants. Suspended treating training 271 issuers, and return nearly 1. 2 billion dollars to investors. Instead of playing judge, jury, and executioner in the court of public opinion. The committee should be focused on the Bipartisan Solutions that support job creators of all sizes. Particularly hard hit Small Businesses. These proposals would strengthen broader access to capital, reduce regulatory costs and burdens, and improve access to investors to better put their money to work. Create more Investment Opportunities for everyday mainstream investors. Im not just going to curse the political darkness, im trying to light a policy candle here. Heres a partial list of what we should be discussing and working on today. H. R. 40 eight 60, they amendments act introduced by the Ranking Member. We have my legislation, which is Small Business acts something weve dealt with now for four congress is in a row hr 1909, helping angels leaders start of. Hr 28 99 mainstream probacked,. Very loud or milk, hr 39 87 relieving stress. H. R. 40 76 modernizing disclosures for investors act reduce by wagner. Another one of my bills, hr 20 9 19 improving Investment Research for. Representative style has won, on helping starteds continue to grow act. Regulation acts introduced by the subcommittee, congressman i could go on and on but the list as you can see exhaustive. Weve got much more to do, but instead of Holding Hearings on legislation that the house has already acted on. Lets move forward on Bipartisan Solutions that delivered the results the American People deserve from the Financial Services committee. We know that there are problems, we need to address those problems. This isnt going to do it, unfortunately. I would point out that one part of this hearing is on my bill to deal with spring loading, which has not been considered by this Committee Led along the full house. And which bans a practice that i think will discover is wrongful and unfortunately legal. And so we do have a strong purpose to have this subcommittee hearing. I now recognize the Ranking Member, the gentleman from north carolina, for one minute. Insider trading is wrong, we can all agree on that. The fcc, i think we can all agree is doing a really good job to pursue bad actors. What we should be spending our time on, as my friend just said, we should be spending time on identifying solutions to strengthen our economy. Strengthen our current economic recovery, and help workers come back safely to the workforce, after the virus. After we get testing and treatment going. Today, i introduced a bill to do just that. The gig worker actually compensation act. Today an increasing share of our workforce does not want to be bound by traditional constraints, such as an office. Or set hours, or traditional employer employee relationships. These gig workers are critical in our technical technologically driven world. My bill allows gig workers such as rideshare drivers, or food delivery careers, to share the same economic benefits. The upside potential of removing the businesses are helping to improve. Todays hearings should be focused on that type of solution, not just a rear facing set of issues in election year. Thank you so much. Ill point out that spring loading is legal, until this Committee Makes it illegal, and its just as out of order mr. Chairman, if we wish to debate the church had been debate. You should not reply about everyone else is opinion. That is not in good form for the chair. And you are not recognized, you did make your points clear. But when people question whether this is a legitimate hearing, it is appropriate to spend to spend ten or 20 seconds responding. Today we welcome the testimony of, dr. Joe finish, mr. Jacob, and mr. Gavin martin. Mr. Claypool is a Research Director for public citizens, president s office. Where he focuses on corporate crime and wrongdoing, and the ways in which create power destroyed our democracy. Doctor fisher is the distinguished professor at business law, and codirector of the institute of law and economics at the university of pennsylvania law school. Mr. Franco is chair of the government investigation and security enforcement, practice at dickinson right. He also previously served as senior counsel for the fcc division of portland. And mr. Martin is Senior Vice President , and general counsel for the society for Corporate Governance, where he leads the societies efforts related to corporate governments and regulations. Witnesses are reminded that your alltestimony will be limited to five minutes. Time will go off at the end of your time, and i will ask you to respect our rules here by wrapping up your oral testimony. Without objection, your written statements will be made part of the record. We will now recognize our first witness, mr. Claypool. Thank you chair, Ranking Members, on behalf of more than 500 of the members and supporters of public citizen, many of whom are investors and who like all americans are hopeful for the Timely Development and safe and affordable covid19 treatments. We welcome this probe and to Insider Trading during this pandemic. The reported events are concerning, chair men concert Covid Concerns well. Additionally, all 45 of its covid19 trial who received its Vaccine Development antibodies. This is good news, the good news that pushed up the companys stock price 30 to an allhigh time of 87 dollars. Prior to the announcement, several executives modified existing plans, and the days following the announcement, the ceo and other executives and funds controlled by the board, sold about 90 Million Dollars with company shares. Remember, its taxpayer money funding 100 of the work to develop a covid19 vaccine, all of. It a study published by coalition, stock market value for the eighth biotech companies, grew by 130 billion dollars between january in august. Executives and insiders from just three of these companies, so that least 370 million and company stocks. Inflated by news of government awards and trial results. Meanwhile, npr is reporting thats a number of fcc inches cider trading Enforcement Actions has committees to its lowest point in decades. Public citizenry served documented at the fcc. And across the federal government. If the agency is following the Trump Administration orders to stand down, as we risk government wide profit than that alone deserves a hearing. As for legislation, we look forward to full house passage requiring the fcc and cfpb to provide monthly reports on consumer and Investor Protection activities. Ideally, the fcc will want to report a significant enforcement increase against opportunistic insiders we applaud the house for approving this reform bill offered by representative jim hines. Establishing a clear law against a legal training, will serve prosecutors well, we also applaud placid of the gap bill by representative maloney. And the ten five you one trading plan offered by chair waters. One particularly promising return is compensation that requires recipients cares act to play six and a collective pool. To the corporation later found misuse cares act or ate from a successful law or engage in any other misconduct that results and finds, and the pool of senior managers would be used to fund the funds. Such a concept already exists and separate bills sponsored by representatives, it is crucial for congress to condition the true lease and federal aid. Reportedly with the intention of helping workers so that is not diverted in the pockets of pandemic profiteer. We applaud this committees contributions of the heroes act and look forward to working with you. As you is to get the next round for help. I welcome your questions with written responses were well event. The chair this is maybe first time in decades, a witness has concluded less than five minutes. The witness did not choose to yield his remaining time to. Me and accordingly i would recognize doctor. Doctor . Are you maybe on mute . Do i have an . Oh yes. Okay thank you sorry, chairman chairman Ranking Member, and members of the subcommittee, its an honor to participate in todays hearing. Thank you to chairman sherman for the kind introduction, just a point of clarification. Im just a lowly law professor, im not a doctor. So thank you for the promotion. I want to take just a few minutes to put the reported of events to which cherub chairman sherman and Rick Claypool referred in a little way in the past six months as we all know the pie markets have experienced unprecedented levels of volatility. And trading activity. I know fcc jake clayton has provided this subcommittee in earlier testimony with the data. On both the high levels of trades and the incredible price swings that weve seen. Not just in pharmaceutical companies but across the range of industries that have been affected by the pandemic. And these fluctuations obviously create the opportunity for men amputation, for misconduct, for self dealing, theyve also drawn considerable media attention. Ive written about securities fraud, sec enforcement, and Insider Trading. I know one focus in my opening remarks on a view of the regulatory structure and the challenges that the market environment and poses on the regulatory structure. The activities that i understand the subcommittee to be interested in today, involve three district setting of issues. Disclosure integrity, the use of Stock Options, and Insider Trading. I will address disease shoes intern, i will briefly conclude by addressing potential areas of regulatory reform. So the first issue is disclosure integrity. From new stories that weve heard, say that issuers have made distorted inaccurate or overly optimistic disclosures, to drive up their stock prices. And this can be for various reasons. Ranging from enabling a insiders to sail and make a lot of money, increasing the value of Stock Options, or facilitating the issuers axes to the Capital Market. Now, let me be clear, existing securities regulation requires disclo