The SEC is still lame

August 11, 2009

Don’t believe the hype about the new sense of “urgency” at the Securities and Exchange Commission.

The Wall Street Journal reports that the SEC’s recent string of enforcement actions against Bank of America, General Electric and former AIG chieftain Hank Greenberg is part of a new get tough campaign by SEC Chairman Mary Schapiro. But don’t believe it.

Settling investigations that are so old that the case files are getting green mold on them isn’t the sign of regulatory toughness. It’s simply an attempt by regulators to clean-up the docket so the litigation papers can be sent to cold storage.

Sure, the SEC gets some credit for moving quickly on the Merrill Lynch hidden bonus investigation. But the $33 million fine that Bank of America has agreed to pay to resolve the matter is chump change. And BofA CEO Ken Lewis has an incentive to settle, as he tries to sweep last year’s messy merger with Merrill under the rug.

But as US District Judge Jed Rakoff showed during a Monday court hearing, the SEC’s proposed $33 million settlement with BofA is nothing more than business as usual for the nation’s top securities cop. Rakoff got BofA’s lawyer to acknowledge that in agreeing to the settlement, the big bank doesn’t believe it did anything wrong in failing to disclose to investors that Merrill paid big bonsues to some of its employees.

The admission by BofA’s lawyer reveals a fundmental flaw in how the SEC goes about settling high profile cases. By allowing parties to pay a fine without “admitting or denying” the alleged regulatory offense, the SEC is nothing more than a collection agency.

It’s high time for the SEC in signature cases to require a bank, broker or rogue Wall Street executive to admit some liability before settling a civil enforcement action. And if that condition is a dealbreaker, then go ahead and sue ‘em.

Yes, the SEC may lose some of these cases at trial–largely because a big Wall Street bank can afford to mount an aggressive and costly legal defense. But I think most big banks will accept the SEC’s terms because the last thing these titans of capitalism want is a public trial in which everyone gets to see their dirty laundry.

The reason Wall Street banks and brokers often settle is to keep all those damaging emails and witness testimony out of the lime light. Do you really think Lewis and John Thain want to be forced to take the stand in federal court and submit themselves to hours of cross-examination?

If Schapiro wants to show she means business at the SEC, she can go back and get Bofa to admit to some wrongdoing as part of a settlement. And if that admission exposes the bank to shareholder liability that’s okay.

If we want Wall Street bankers to start changing their behavior, there has to be some real consequences for their misdeeds.


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I could swear the new head of the SEC promised God and congress (though not in that order) that she was going to swing into action like her hair was on fire. Well, after this week’s settlement with BofA over Merrill’s bonuses, the closest her hair got to keeping that promise was probably a pretty strong smell of backroom cigar smoke. Thankfully, the settlement went before Judge Jed Rakoff for approval. There it hit a wall. Splat! Normally (under the well established protocol that defines the seamy conjoinment of Washington and Wall Street) this latest regulatory slap on the wrist should have whizzed right through regardless of what sort of dishonesty or fraud was involved. Normally a small fine is sufficient, but not this time. Judge Rakoff, unlike an alarming chunk of the nation he serves, thought “effectively lying” (in this case, to shareholders) was a pretty serious matter, especially since BofA wasn’t even required to admit wrongdoing. So it’s back to the smoke-filled room for BofA and the SEC. Anyone got a light?

Posted by Amandus Colver | Report as abusive

SEC is working for Maddoff

Posted by simon | Report as abusive

Yep; SEC used to be called “Eagle on the Street” (a book with that title was actually published). The only hope is a new financial products safety agency as recommended by E. Warren. It is worth remembering that the SEC was created because Wall St defeated the 1930s proposal to have B-Ds, exchanges, etc regulated by the FTC that had a reputation for strong regulation.

More bubbles, anyone?

Posted by Bill1944 | Report as abusive

[...] SEC remains under fire and for good [...]

[...] The SEC is still lame (Matthew Goldstein, Reuters blogs) Tuesday, August 11, 2009 11:24 AM [...]

OK, so we know all to be true. The $64 Billion question is how can the American people make a change?
As a former Madoff investor, I constantly see myself fighting the system that was put in place to protect us and all American Investors.
Can we make a difference and make a change? We know the problem exists, but do we know how to fix it?

Posted by Former Madoff Investor | Report as abusive