Regulatory Capture Of The SEC - FDL [View all]

[WillyT]

Regulatory Capture of the SEC
By: masaccio - FDL
Sunday April 15, 2012 10:40 am


Which master does the SEC serve? Congress or the Great Vampire Squid?

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The SEC is the Three Stooges of regulation. It can’t manage the simple problem of creating a rule comparing the compensation of CEOs with the median compensation of employees. When it does propose a regulation, it looks like the universally derided regulatory structure to enforce the Volcker Rule. It can’t supervise Wall Street, which sold securities fraudulently to investors around the globe. It’s gotten so bad that Judge Rakoff insists that it prove it represents the public interest on a weak settlement.

The anecdotal evidence is now complemented by an academic paper http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1333717 examining SEC enforcement actions, The SEC And The Financial Industry: Evidence From Enforcement Against Broker-Dealers by Stavros Gadinis, a professor at the Berkeley Law School. Gadinis looked at all SEC actions against brokerage firms from 2005 through the first four months of 2007, under a Republican administration, and in 1998 under a Democratic administration. Gadinis concludes:

The analysis shows that big firm defendants fare better in three ways. First, when big firms and their staff are engaged in misconduct, the SEC often brings actions based exclusively on corporate liability, without naming any specific individuals as defendants. Second, for the same violation and comparable levels of harm to investors, a big-firm defendant is less likely than a small-firm defendant to end up in court rather than in an administrative proceeding, facing a higher likelihood of being banned from the industry as a result. Third, among cases that the SEC assigns to administrative proceedings, big-firm defendants are more likely than small-firm defendants to receive no industry ban, controlling for violation type and harm to investors. The gap between big and small firms persists when the analysis is limited to the individual employees of such firms.

P.53. Nothing has happened in the wake of the Great Crash to suggest that things have improved. Look at the Goldman Sachs Abacus case: Goldman has to give back the money it leeched up through one of its tentacles, and suffers no serious sanction. There is only one individual named, the flunky salesman Fabrice Tourré. There isn’t any reason to believe this was the only similar case at Goldman Sachs. The SEC has taken no action on the Senate investigation of Senators Carl Levin and Tom Coburn, or the Final Report of the Financial Crisis Inquiry Commission.

Gadinis raises but does not opine on the question of whether the SEC is a captured agency. The term does not have an exact definition...

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More: http://firedoglake.com/2012/04/15/regulatory-capture-of-the-sec/