Market Overview

POGO Opens Wall Street-Washington Revolving Door

A few years back in the course of an interview with Fox Business host David Asman, I was asked what I thought of the exceptionally close relationships between the regulators and the industry. I responded, “David, I think the term there is “incestuous.”

Fast forward three plus years and we receive a scathing review of just how widely developed and deeply embedded the incest runs. Let's navigate as the folks at the Project on Government Oversight shine the light on these practices in releasing,

SEC's Revolving Door Blurs Line Between Regulator and Industry
A Project On Government Oversight (POGO) study of thousands of government records found that former staff of the Securities and Exchange Commission (SEC) routinely: 

>>Tried to help corporations influence agency rulemaking;
>>Defended companies suspected of wrongdoing;
>>Helped companies soften the blow of enforcement actions;
>>Won exemptions from federal law for their clients; and
>>Secured the agency's blessing for companies to block shareholder proposals on issues such as executive pay.

POGO's in-depth analysis of the SEC's revolving door found many examples of where the line between regulator and industry was blurred. For example, several former SEC staffers were part of the successful lobbying effort last year to block tightening of regulations for money market funds, one of the top priorities of former SEC Chairman Mary Schapiro.

There was also the case of a former SEC manager who helped companies such as JPMorgan, UnitedHealth Group, Yahoo! and Alaska Air block shareholder proposals. When he was at the SEC, he was the deputy director in the division that reviewed these proposals.

And in yet another example, an enforcement branch chief in the SEC's San Francisco office left the SEC in May 2010 to become in-house counsel at Wells Fargo & Co. Less than two weeks later, she filed six disclosure statements indicating she would be representing Wells Fargo in connection with pending enforcement matters, including probes conducted by her former office.

POGO's study of the SEC's revolving door found that from 2001 through 2010, 419 former SEC employees filed 1,949 disclosure statements indicating their intent to contact the SEC on behalf of an employer or client. Former staffers are required to file the disclosures within two years of leaving the SEC. (POGO is making those disclosure statements available online in a searchable SEC Revolving Door Database.

The examination of the SEC's revolving door is particularly relevant in light of President Obama's nomination of Mary Jo White to head the SEC. White is a former U.S. attorney, but more recently worked as a partner at the law firm of Debevoise & Plimpton, where she has represented Wall Street firms before the SEC.

“The revolving door between the SEC and the firms it oversees is so pervasive that it threatens the integrity of our regulatory system,” said Michael Smallberg, author of the POGO report. “The relentless flow of SEC officials to and from industry can enable powerhouse firms to shape the SEC's culture and sway policies.”

Besides pointing out many of the systemic shortcomings that have allowed the revolving door to shape the culture of the SEC, POGO's report also sets forth recommendations on what can be done to mitigate some of the more harmful effects of the revolving door.

The full report can be found at Dangerous Liaisons: Revolving Door at SEC Creates Risk of Regulatory Capture.

The full web package can be found at The SEC's Revolving Door: Dangerous Liaisons

Not surprisingly, those both currently and formerly at the SEC do not take kindly to this report. CNBC provides an outlet for the SEC defense,

SEC spokesman John Nester said the report ignores the broader context, telling CNBC in an email, “The report provides a series of anecdotes that overlooks the fact that the Commission has strong ethics rules in place that assure decisions are made on their merits according to the rules and regulations.

Former SEC Director of Enforcement Robert Khuzami goes further, calling the revolving door a “myth.”

In an opinion piece for Reuters in August, Khuzami wrote that enforcement decisions are made my “teams of attorneys with multiple levels of review and scrutiny throughout the agency.”

“Enforcement staff, having landed a highly sought-after and difficult-to-obtain job, often passing up other opportunities in the process, would not risk reputation and career and even jail by undermining an investigation for a possible future job prospect,” Khuzami wrote. “(T)o put it bluntly, would you hire someone so dishonest, so without principle and held in low esteem by former colleagues … to represent you in matters of importance?”

When was the last time that many institutions on both sides of Wall Street and Washington have prioritized principles over profit and self gain?

Additionally, perhaps Nester and Khuzami might care to explain just what happened in the cases involving Putnam/Peter Scannell, JP Morgan/Peter Sivere, Madoff, Stanford, Darcy Flynn, Gary Aguirre . . . shall I go on?

Thank you POGO!!

Larry Doyle

Isn't  it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: Markets Trading Ideas

 

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