The continuing failure of the SEC
Bill Moyers has some excellent posts on the SEC. First, he and Michael Winship have an excellent article on the Project on Government Oversight (POGO) and its report on the SEC:
In our last episode of that ongoing Washington soap opera, “As the Door Revolves,” we introduced you to former federal prosecutor Mary Jo White, pursuer of drug lords and terrorists, who left government to become a hot shot Wall Street lawyer defending such corporate giants as JPMorgan Chase, UBS, General Electric and Microsoft. Oh yes — and former Goldman Sachs board member Rajat Gupta, currently appealing his insider trading conviction.
The New York Times reports that White and her husband, who’s also a corporate litigator, have a net worth of at least $16 million and investments that might be valued as high as $35 million. Now, courtesy of President Obama, Mary Jo White’s been named to head the SEC, the Securities and Exchange Commission — the very agency that regulates her clients and everyone else doing business in the stock market.
But as they say on late night TV, wait — there’s more! Join us for our latest episode of “As the Door Revolves” in which the door spins even faster between the SEC and big business. According to a major new report from the nonpartisan watchdog POGO – the Project on Government Oversight — hundreds of the agency’s former employees have done or are doing business with the SEC on behalf of the corporations the agency is supposed to regulate.Imagine — hundreds with an intimate knowledge of how the place works advocating for their clients with friends at the SEC — colleagues who themselves may be looking for a big payoff when they, too, leave government.
Imagine — hundreds with an intimate knowledge of how the place works advocating for their clients with friends at the SEC — colleagues who themselves may be looking for a big payoff when they, too, leave government. From 2001 through 2010, 419 SEC alumni filed nearly 2,000 disclosure forms saying they would be representing companies or individuals coming before the commission. And that’s only the “tip of the iceberg,” POGO says, “Because former SEC employees are required to file them only during the first two years after they leave the agency.” In other words, after that first couple of years there are no official records kept so we can’t know how vast the problem is or even how far back it goes.
However, POGO writes, “Former employees of the Securities and Exchange Commission routinely help corporations try to influence S.E.C. rule-making, counter the agency’s investigations of suspected wrongdoing, soften the blow of S.E.C. enforcement actions, block shareholder proposals and win exemptions from federal law.”
No wonder the SEC has granted special waivers to business on some 350 occasions that, according to the report, “softened the blow of enforcement actions.” What’s more, a year ago, The New York Timesreported that “Close to half of the waivers went to repeat offenders — Wall Street firms that had settled previous fraud charges by agreeing never again to violate the very laws that the SEC was now saying that they had broken.” The plot thickens, or in this case, sickens.
POGO also notes that in three instances — from 2008-2012 — when there were cases against UBS, the Swiss investment bank retained ex-SEC attorneys to argue on its behalf and was, in the words of the Times, “granted relief.” And when Obama’s first SEC chair, Mary Schapiro, pushed for reform of the $2.6 trillion money markets business, it was lobbied against by at least half a dozen former SEC staffers, and opposed by the two Republicans on the commission and one Democrat, Luis Aguilar, who used to be an executive vice president with the money management firm Invesco. The POGO report says that shortly after “Invesco sent a team to meet with Aguilar at the SEC and tell him why tightening rules for money market funds was a bad idea,” he came out against Schapiro’s plan, Coincidence? Aguilar told POGO there’s no connection. Sure.
When George W. Bush was president and . . .
And at the same site is an interesting Q&A in which John Light interviews Michael Smallberg:
The Project on Government Oversight (POGO), a government accountability watchdog group, published a report this week on the so-called “revolving door” at the Securities and Exchange Commission. Authored by POGO Investigator Michael Smallberg, the report highlights numerous examples of how the back and forth of SEC regulators between jobs in Washington and on Wall Street blunts the agency’s effectiveness.
Smallberg includes recommendations for how the SEC and other parts of the government could take action to limit the negative effects of the revolving door. We spoke with Smallberg about his report and the corrosive effect of what he calls “regulatory capture” — what happens when an agency is “captured” by the industry it regulates.
John Light: Why is the revolving door a potential problem for regulatory bodies in general, and specifically for the SEC?
Michael Smallberg: When you have so many people going back and forth from a regulatory agency to the regulated industry, it can shape the mindset of people throughout the agency and make them more sympathetic to the viewpoints of industry groups, sometimes at the expense of people with a stake in the agency’s mission, like consumers, investors or shareholders. In some cases, people who used to work at the agency have connections to people who are still there. They can take advantage of that access to obtain favors for their clients, who, in many cases tend to be large institutions that have the resources to hire these alumni.
The revolving door creates a risk of what we call “regulatory capture” — when companies are able to sway the policies of the agency in their favor. Many of these agencies are supposed to be independent regulatory agencies — independent not only from political pressure that might be applied by Congress, but also from large industry groups. The revolving door between a regulator and a regulated industry creates at least a heightened danger of regulatory capture.
Then there’s a question of optics: The appearance that a regulatory agency is cozying up to the companies it’s supposed to regulate can undermine the public’s confidence in the regulatory system, which in turn can make the regulatory agencies less effective. And on another level, the revolving door can devalue the notion of public service. When you have so many people who are looking at their government position as a stepping stone to going into the private sector and making much larger salaries working for the big companies, we worry that will demoralize other civil servants who are looking at their government service as more of a life calling.
Light: Your report looks not just at the records of SEC commissioners, but of hundreds of lower-level employees who went on to represent employers and clients before the commission within two years of leaving. How can these low-level SEC employees influence regulation after they leave the organization? . . .