Post by jcline on Nov 9, 2006 22:25:30 GMT -4
The Irrelevant SEC
Edward Siedle, 11.27.06, 12:00 AM ET
In bed with the industry it's supposed to regulate, it needs a shakeup. the
senate finance committee and the Government Accountability Office are both
taking a harsh look at the Securities & Exchange Commission. It's about
time. One thing on the agenda is the SEC's questionable handling of an
insider trading case involving a $7 billion hedge fund. But the bigger issue
is that the federal agency charged with safeguarding investors is on the
verge of becoming irrelevant. If you want protection from investment
pitfalls, you're going to get it from the private sector.
Here's what's wrong with the SEC.
Political pressures Look who gets chosen for the important job of SEC
commissioner. Not those with established records for fighting on behalf of
investors. Rather, the post routinely goes to insiders, especially those who
have devoted their careers to representing financial services firms. Former
SEC chairman William Donaldson, cofounder of investment bank Donaldson,
Lufkin & Jenrette, is one prominent example. Below the commissioner level,
directors of divisions within the agency, such as market regulation and
investment management, are also chosen according to how chummy they are with
Wall Street's big guys.
The speed with which SEC managers find comfortable quarters within the
industry after their period of government service is powerful evidence of
how seldom these professionals seriously oppose the institutions they are
supposed to regulate. Paul Roye, for example, worked as a lawyer
representing the fund business before becoming its chief overseer at the
SEC. Meanwhile, one of his former law firm superiors, Paul Haaga, became the
industry's chief lobbyist. After the fund business stumbled into the biggest
scandal in its history under this duo a few years ago, Roye rejoined Haaga
at mutual fund giant Capital Research.
Reliance on self-regulation The commission is ever more willing to allow the
brokerage industry to self-insure, self-adjudicate (through mandatory
arbitration) and even control public access to the brokerage industry's
criminal and disciplinary histories. Self-regulation involves an
insurmountable conflict of interest and results in thousands of instances of
avoidable fraud each year.
One almost laughable example of lame self-regulation: the BrokerCheck
Program, run by the National Association of Securities Dealers, the
brokerage industry's self-regulator. The NASD says it "should be your first
resource to learn about the professional background, registration/license
statuses and conduct of NASD-registered firms and their registered brokers."
Would you believe that the program does not permit a broker or firm to
respond "yes" to the question of whether the broker or firm has any
disciplinary matters in his or its past? Only two answers are permitted:
"no" and, get this, "maybe." That's what we call industry-friendly. For all
of $5,000, I put together a disciplinary database a few years ago that
showed the NASD underreports brokerage industry misbehavior by about 85%.
Since the NASD blocked me in court from publishing it, investors remain
perilously uninformed.
Transparency The SEC has allowed the financial industry to control the
content and timeliness of disclosures to the public. For example, most of
the SEC's money manager investigations uncover "deficiencies," some of them
involving serious misbehavior. But the commission refuses to make its
findings available.
Follow-through In May 2005 the SEC staff issued a report on conflicts of
interest in the pension consulting industry. The staff concluded that the
industry was subject to rampant conflicts and disclosure was abysmal. Were
pension sponsors who may have suffered harm ever privy to the financial
information the pension consulting industry provided to the SEC? Nope.
Instead the SEC issued a vague warning to pension sponsors to more carefully
scrutinize the investment consultants they hire.
This agency spends $888 million a year. If it were subject to disclosure
laws the SEC would have to admit it could get a lot more bang for taxpayers'
buck were it not so compromised by conflict of interest.
Edward Siedle, a former SEC Attorney and the President of Benchmark
Financial Services.
Edward Siedle, 11.27.06, 12:00 AM ET
In bed with the industry it's supposed to regulate, it needs a shakeup. the
senate finance committee and the Government Accountability Office are both
taking a harsh look at the Securities & Exchange Commission. It's about
time. One thing on the agenda is the SEC's questionable handling of an
insider trading case involving a $7 billion hedge fund. But the bigger issue
is that the federal agency charged with safeguarding investors is on the
verge of becoming irrelevant. If you want protection from investment
pitfalls, you're going to get it from the private sector.
Here's what's wrong with the SEC.
Political pressures Look who gets chosen for the important job of SEC
commissioner. Not those with established records for fighting on behalf of
investors. Rather, the post routinely goes to insiders, especially those who
have devoted their careers to representing financial services firms. Former
SEC chairman William Donaldson, cofounder of investment bank Donaldson,
Lufkin & Jenrette, is one prominent example. Below the commissioner level,
directors of divisions within the agency, such as market regulation and
investment management, are also chosen according to how chummy they are with
Wall Street's big guys.
The speed with which SEC managers find comfortable quarters within the
industry after their period of government service is powerful evidence of
how seldom these professionals seriously oppose the institutions they are
supposed to regulate. Paul Roye, for example, worked as a lawyer
representing the fund business before becoming its chief overseer at the
SEC. Meanwhile, one of his former law firm superiors, Paul Haaga, became the
industry's chief lobbyist. After the fund business stumbled into the biggest
scandal in its history under this duo a few years ago, Roye rejoined Haaga
at mutual fund giant Capital Research.
Reliance on self-regulation The commission is ever more willing to allow the
brokerage industry to self-insure, self-adjudicate (through mandatory
arbitration) and even control public access to the brokerage industry's
criminal and disciplinary histories. Self-regulation involves an
insurmountable conflict of interest and results in thousands of instances of
avoidable fraud each year.
One almost laughable example of lame self-regulation: the BrokerCheck
Program, run by the National Association of Securities Dealers, the
brokerage industry's self-regulator. The NASD says it "should be your first
resource to learn about the professional background, registration/license
statuses and conduct of NASD-registered firms and their registered brokers."
Would you believe that the program does not permit a broker or firm to
respond "yes" to the question of whether the broker or firm has any
disciplinary matters in his or its past? Only two answers are permitted:
"no" and, get this, "maybe." That's what we call industry-friendly. For all
of $5,000, I put together a disciplinary database a few years ago that
showed the NASD underreports brokerage industry misbehavior by about 85%.
Since the NASD blocked me in court from publishing it, investors remain
perilously uninformed.
Transparency The SEC has allowed the financial industry to control the
content and timeliness of disclosures to the public. For example, most of
the SEC's money manager investigations uncover "deficiencies," some of them
involving serious misbehavior. But the commission refuses to make its
findings available.
Follow-through In May 2005 the SEC staff issued a report on conflicts of
interest in the pension consulting industry. The staff concluded that the
industry was subject to rampant conflicts and disclosure was abysmal. Were
pension sponsors who may have suffered harm ever privy to the financial
information the pension consulting industry provided to the SEC? Nope.
Instead the SEC issued a vague warning to pension sponsors to more carefully
scrutinize the investment consultants they hire.
This agency spends $888 million a year. If it were subject to disclosure
laws the SEC would have to admit it could get a lot more bang for taxpayers'
buck were it not so compromised by conflict of interest.
Edward Siedle, a former SEC Attorney and the President of Benchmark
Financial Services.