SEC is still fumbling the ball

July 9, 2009

Maybe someday the Securities and Exchange Commission will figure out what to do when it gets a credible tip about potential wrongdoing. But judging by the agency’s handling of a recent investor complaint, the nation’s top securities cop has a long way to go.

This tale begins in March, when an investor in Britain sent an email to Bill Singer, a New York securities lawyer, complaining about a cold call he had received from someone purporting to be from a brokerage firm in Peoria, Illinois, calling itself AJ Witherspoon & Co. The call was an effort to interest him in a transaction involving shares in a company called SecureTee International.

For years, Singer says a number of apparently fictitious Illinois brokerage shops have been cold-calling European investors, trying to get them to buy and sell “pre-IPO” shares of SecureTee — a onetime Nevada-based company that has never filed an actual initial public offering registration statement with the SEC. Occasionally, Singer has been contacted by investors who say they have been scammed and he has usually passed on the information to the SEC.

In the past, Singer says the SEC hasn’t done much with the information. And he wasn’t expecting anything different this time around, after he forwarded the investor’s complaint to the SEC’s online whistle-blower and tips hotline.

But this week, Singer and the investor actually got a response back from the SEC. It came from Jim Daly, a lawyer in the SEC’s Office of Investor Education and Advocacy. In the emailed response, Daly informed the investor that “despite the alleged Peoria, Illinois address,” AJ Witherspoon probably isn’t located in the United States. And the cold call likely was part of a “scam/fraud.”

In light of the way the SEC dismissed all those tips about the hanky-panky going on at Bernie Madoff’s firm, the response from Daly clearly represents some progress. But the problem is there’s so much more the SEC should be doing in cases like this and regulators continue to miss an opportunity to crack down on scams in real time.

If the SEC has done enough research to determine that the regal-sounding AJ Witherspoon is probably nothing more than a sham, why is it only providing this guidance to potential victims on a one-on-one basis? The website for AJ Witherspoon is still up and running. The apparently faux brokerage has an active Chicago-area phone number. There’s every indication the would-be broker is still hunting for prey. Surely, other investors are getting calls and some may even be turning over money to AJ Witherspoon.

To be fair, there may be legitimate limits to what the SEC can do here, especially if the behind-the-scene operators of AJ Witherspoon are offshore.

Phone messages to the Chicago-area number and email messages seeking comment were not returned.

An SEC spokesman declined to comment on the matter, except to note that regulators are “revamping” the process for handling investor complaints and tips in the wake of the Madoff mess.

But filing a legal action isn’t the only tool the SEC has to clamp down on stock fraud. The SEC could issue an investor alert warning investors to beware of a “cold call” from AJ Witherspoon. Or it could add the firm’s name to the SEC’s poorly-publicized PAUSE list — a periodically updated log of unregistered investment firms with sketchy backgrounds. Yet the SEC has chosen not do this.

Not all regulators, however, are standing pat. In May, the Australian Securities & Investments Commission added AJ Witherspoon to its “cold calling blacklist.” Sure, this apparent scheme is small potatoes. But if the SEC still can’t get the small stuff right, it’s fair to wonder about its ability to tackle the major fraud cases.


The SEC, after this column was published, says the only companies that get added to the PAUSE list are offshore companies posing as US-based investment advisors. The SEC cannot add a company to the PAUSE list solely based on the suspicion it is really operating offshore.

One comment

Comments are closed.