by Brian Mahany
Hats off to Jonathan Wall at Investment News. He writes a featured article this week suggesting the SEC is “a joke” because it consistently fails to enforce its own orders.
Since the Madoff debacle, the SEC learned just how bad its public image had become. Financial experts kept scratching their heads wondering how the SEC could have missed something as big as Madoff, especially since they had been explicitly warned by a whistleblower. The SEC got the message and began cranking out the press releases. Since that time, hardly a day goes by without some mention of the Commission in the financial press. Lots of press doesn’t equal effectiveness, however.
Taking a page from the IRS playbook, the SEC has become a giant – and effective – PR machine. Daily headlines proclaim how the SEC shut down this scam or ordered that fraudster to disgorge their ill-gotten gains. Sounds like they are really doing something, right?
Wrong says Wall and many others (I have repeatedly lamented in these pages how the SEC needs to put fraudsters in prison, not issue “cease and desist” orders. It’s like the FBI telling a bank robber to stop robbing banks.)
According to Wall and others, the SEC doesn’t even do a god job enforcing its cease and desist orders!
Wall cites a 2006 cease and desist order against JP Morgan in which the commission “ordered” the company to abide by securities regulations. Just last week the SEC found that JP Morgan was up to its old tricks. What did they do? Criminal prosecution? Some type of regulatory sanction? No, they apparently issued another cease and desist order and told JP Morgan to cease doing the same things they were previously ordered to cease doing.
There is more to the story, however. Apparently they were told to stop yet another time in 2009.
Here is what Wall had to stay in his story:
“Now ask yourself: Is this any way to run a cop shop? The SEC’s enforcement division, led by Robert Khuzami, should be embarrassed for engaging in such charades, as should Chairman Mary Schapiro and her fellow commissioners. No one can expect Wall Street to respect the SEC when the agency doesn’t even pay lip service to its own orders against repeat offenders. The notion of deterrence has become a fantasy.”
Jonathan, we agree with you wholeheartedly. Our clients are getting tired of getting hurt by dishonest investment bankers, issuers and stockbrokers. It’s frustrating to see the SEC announce they are taking action, only for the company to later simply pay a fine while denying any wrongdoing. As long as the only risk is a slap on the wrist and fine, there is little incentive for Wall Street to clean up its act.
If you have been hurt by a stockbroker, investment advisor or bank, call us. We represent victims of financial fraud, not the Wall Street big wigs. In many cases we can recover your money through arbitration and without a lawsuit. And usually we can do so with no upfront legal fees.