5 responses to “Closing Argument for the Defense: The People vs. SEC Division of Enforcement”

  1. Bruce –

    Unfortunately you make a much better case for the SEC than they did for themselves during the Congressional hearing. The SEC should have highlighted their successes during that hearing. Instead, they just took the beating, evaded questions and took a Markopolos pie to the face.

    The SEC had already lost in the court of public opinion. The Congressional hearing was the last chance to state their case.


  2. I think the jury is still out.

    Harry Markopolis’s recommendations in the second half of his testimony made a great deal of simple common sense; things like:

    -getting more Bloomberg terminals for examiners;
    -getting out of the conference rooms and into the offices of firms while doing compliance visits;
    -attending financial advisory group meetings
    -more use of simple audit techniques like, “Have you seen anything suspicious going on here? Here’s my card, call me if you want to tell me anything.”

    I don’t know whether such procedures fall within the organizational boundaries of the Enforcement division–but if not, they certainly ought to be of concern to the Enforcement people.

    You’re right that a congressman grandstanding is gratuitous abuse. But it’s also clear that bureaucratic sclerosis can strike the SEC as well as any federal agency.

    If I read Markopolis’ report as if it were an organizational effectiveness audit, I find legitimate cause for concern. To argue that the employees are dedicated, intelligent and hard working is relevant and gratifying–but not exculpatory. Organizations of bright, well-meaning people can still act stupidly, even wrongly, as a group.

    The jury is still out.

  3. You and Charles are looking at this as impartial and rational jurors.

    The public is pinning some of the blame of the financial collapse on the SEC. People are looking for a scapegoat. The Fed and Treasury are spending billions trying to fix the collapse. The SEC is being elusive and not answering questions at Congressional hearings.

    There is a mob mentality on the streets and you will have a hard time finding impartial and rational jurors. They want a hanging.

    Congress wanted a hanging. That is why they paraded the SEC officials in the Congressional hearing. They wanted to pile on the abuse.

    The SEC needs to fight back and show its history of success. Yes, they missed Madoff. Yes, there are some structural issues at the SEC that Madoff exploited. (Was Madoff acting as a hedge fund, an investment adviser, an investment company or a broker dealer? and which arm of the SEC was responsible).

    In the eyes of most of the American Public they are guilty. Guilty of what? It does not matter. They failed in the light of media soundbites and sentiment.

    The quick fix is to do a better job at marketing and public relations. The verdict will not come from facts, but from perception of the facts. Prosecutors have the perp walk. Police have the drugs and guns piled on the table at a press conference. The SEC has Madoff going in and out of his penthouse wearing his Yankees cap. I see several SEC complaints being filed every week. A short press release on the SEC website is not enough.

  4. Clearly,the author,has little,if any, experience actually working with the SEC. If he did, his police analogy would be “If your bank was robbed ten days in a row, and everybody knew the bank robbers and their colleagues, and it was robbed on the eleventh day by the same people, would you ask where were the police”?.

    The SEC missed the dot.com frauds, Enron, WorldCom, Bear Stearns,all the big, now defunct, investment banking house collapses, the huge market in unregulated (read made up out of thin air) credit default swaps (which WERE securities) the securitized mortgage obligations, TYCO, Madoff; the list is endless. Yet they spend a grossly inappropriate portion of their time and budget on going after what they call “penny stock fraud”. If you took all the money lost in penny stock frauds since the beginning of time, it wouldn’t about to a raindrop in the ocean. Yet these are the thousands of “enforcement actions” they are so proud of bringing. All they are doing is chilling the ability of small businesses (which, as our politicians are so fond of reminding us, create 70% of our jobs) to raise capital for their growth, and scaring any broker that has the nerve to try to help small companies by making markets in them (you’d have to understand the increasingly draconian regulations and threats the SEC puts out concerning micro-cap and small cap trading to really understand what i”m referring to). And as far as the “big cases” are concerned, well, yes, they are just publicity stunts and a waste of taxpayer money and the Commission’s time. Just look at the Martha Stewart case; she wasn’t even charged in court with what the SEC accused her of (inside trading). All they could do was get her on the absurd charge of defending herself when being questioned informally (without having her rights read to her) by investigators. We should all be afraid of that one!

    As someone who has had familiarity with the SEC for decades, their personnel story is this: the smart ones come and go from the brokerage world, so, yes, they treat brokerage industry with kid gloves, and, the long time staffers are just not smart enough to make it in the private world.

    This is not to say other government agencies don’t suffer from the same problem, but, at the moment, the spotlght is on the SEC.
    These problems have been endemic in the Commission for years; I am not saying that it is a recent problem and that we should condemn just the SEC personnel of the last 5 or 10 years; 25 years would be more appropriate. Personally, I think everyone in the SEC should be made to resign and we need to start fresh with people who have a clue as to how the markets work and don’t work.

    I guess you can tell which way I’m voting.

    Now don’t get me started on Congress…