Quelle Surprise! SEC Plans to Make the World Safer for Fraudsters, Push Through JOBS Act Con-Artist-Friendly Solicitation Rules

If you merely looked at the SEC’s record on enforcement, you’d conclude that it suffered from a Keystone Kops-like inability to get out of its own way. The question remains whether that outcome is the result of unmotivated leadership (ex in the safe realm of insider trading cases) and long-term budget starvation leading to serious skills atrophy, or whether the SEC really, truly, is so deeply intellectually captured by the financial services industry that it thinks industry members don’t engage in fraud, they only make “mistakes”?

It’s sure looking like the latter. We’ve railed repeatedly on the refusal of the SEC to use an obvious tool, Sarbanes Oxley, to pursue not only the massive failings of these firms to install adequate risk controls during the crisis, but also to go after obvious recent cases, namely, the JP Morgan CIO losses and the MF Global collapse.

Further confirmation comes today in the form of investor abuse and repudiation of Dodd Frank requirements that the SEC hopes to slip next week when hopefully no one will notice.

We and numerous others have railed about how absolutely awful the JOBS Act is. It’s going to do perilous little to help small businesses raise dough; in fact, the number of frauds that will arise will almost certainly raise the cost of capital for small ventures over time. The JOBS Act was a wet dream for bucket shop operators.

And the SEC seems determined to make a bad situation worse. The Consumer Federation of America, along with a number of distinguished co-singers, has written the SEC objecting to its plan to circumvention of the public comment process for issuing rules under the JOBS Act. Specifically, it plans to end a long-standing ban on widespread solicitation and advertising in private offerings (yours truly is well aware of these rules: there are restrictions, for instance, on the number of parties that can be presented a possible deal when it is not registered with the SEC). As the CFA notes via e-mail:

In the 1990s, a previous experiment with lifting the general solicitation and advertising ban led to an immediate upsurge in fraud, causing the Commission to reinstate the restriction…The JOBS Act itself requires the SEC to issue rules affecting how solicitation can be conducted and it does nothing to eliminate the agency’s existing responsibility to ensure that investors are adequately protected in private offerings

What is depressing, if you read the letter below, is that the SEC clever ruse to avoid public comment is violation of the Administrative Procedures Act. And worse, the CFA contends that the SEC is putting its finger on the weighing machine when it makes a cost-benefits assessment as mandated by Dodd Frank, ascribing far too much importance to industry compliance costs, and too little to the risks to the public.

Consumer Federation of America JOBS Letter Aug 15

Please read the letter in full. This section is telling:

The Commission cannot apply a less rigorous approach when analyzing the potential harm to investors and the markets from weakening investor protections, as this regulation would do, than it applies when considering the cost of regulations to strengthen investor and market protections, such as those required under the Dodd-Frank Act. On the contrary, protecting investors and promoting market integrity remain the primary responsibilities of the agency.

Actions speak louder than words. If you believe the SEC is serious about “protecting investors and promoting market integrity,” I have a bridge I’d like to sell you. And if the SEC gets its way next week, I might actually be able to pull it off.

Print Friendly, PDF & Email


  1. JGordon

    I for one am in favor of the SEC and increased public corruption. That may seem like sarcasm, but it’s not. The sooner this rotten, corrupt system implodes, the better we’ll all be.

    1. Jack Lohman

      Yes, things are going to have to get worse before they get better, and I’m somewhate surprised to see this crumble under our “change” president. We all recognize the effects of our corrupt political system, but what do we do with these jokers when the House of Cards falls?

  2. Conscience of a Conservative

    Best not to focus too much on the SEC in isolation but regulators as a group. When viewed in the context of what goes on at the OCC, Fed, Treasury and the DOJ it’s clear that the order of the day is making it impossible for a financial firm to commit a crime, when all the rules of conduct are obliterated.

    Was no one outrated when we read that Corzine is being given immunity in exchange for his testimony on MF Global and DOJ is refusing to give immunity to Edith O’Brien’s in order to learn more about Corzine’s role.

    And we also learn that Jon Corzine is planning on starting a new hedge fund. Will be interesting to see what kind of investors are interested and why.

    1. JGordon

      The end state of any regulatory democracy is likely corporate Fascism followed immediately by collapse.

      In fact, you can generalize to say that all societies eventually end up in a collapse state. The fact that many people today are incapable of accepting that logical and infailable conclusion just goes to prove how narrow minded and full of hubris people are. Even today, when we on the precipice of a rapid and stunning decline, most are completely oblivious to it.

      1. EricT

        Don’t you mean libertarian democracy. Because, I don’t see how regulations promote lawlessness.

        1. enouf

          Allow me to ask you this; Why would any law-abiding citizen(s) require any sort of “regulation”? Seems you’ve drank the koolaid. ..sigh


  3. jake chase

    The SEC has never had any effect on the financial markets except to disable legitimate business by its draconian rules compliance with which is all but impossible for honest businessmen and ridiculously easy for con men. You need experience to understand this and I am determined not to argue about it with those who think a big brother in Washington represents some kind of fraud deterrent. I would scrap all the securities laws and let people understand they are on their own when considering investments.

    1. enouf

      Why stop at ‘securities laws’? – why not scrap all USC and UCC-1 for starters? – work from Constitution(s) upward ..if that seems to much to wrap our collective stool-sample head around, how about include just the rest of the FIRE sectors laws?


      p.s. I’m allowing myself to use the terminology others do, even though what you/i/we speak of, to me, are not “Laws” per se. (they are instead Statutes / Acts / Codes / Rules / Regulations / Ordinances) but most certainly most, if not all, are “UnLawful” ..no worries though. I can see myself using “ManMade Laws” instead.

  4. Chris Rogers

    As a Brit, I’m rather impressed how the US regulatory authorities are having a field day with UK financial institutions, whilst ignoring malfeasance perpetuated by its own financial elites, many of which by the way have occurred in the City of London.

    Given the treatment metted out to HSBC, Standard Chartered and Barclays over the past month or two, one would expect a few American heads to be placed on the chopping board to give the appearance that Obama is now taking financial crime serious.

    Obviously, UK targets are easy presently, but it stinks of hypocrisy to attack UK Institutions for various regulatory breaches/criminality whilst turning a blind eye to Wall Street and the numerous instances of fraud, money laundering and other criminality that makes up a regular working day for many a monied hero.

    Its a funny Olde World is all I can say!!!!!!!!!!!

    1. TK421

      I see what you mean, Chris. The thing is that Standard Chartered was pursued by a local American official. Meanwhile the Obama government has no interest in pursuing fraud of any kind, let alone fraud by American firms that might donate to his campaign. I wouldn’t say it’s hypocrisy so much as a difference in values between local and national government.

      Congratulations on the Olympics, by the way.

  5. Cindy

    The only reasons the SEC exists is to create a “safety and soundness” diversion and provide fraud an absolutely boundless environment to flourish.

    What a shame, the US is finished – fu*ked by your own people from within. Everything bad is deserved in spades.

    1. TK421

      Yes, we deserve what we get. President Obama has made it abundantly clear that he supports and believes in Wall Street, yet millions of Americans are going to vote for him in the hopes that he’ll go after it some day.

  6. Ruff

    Excellent post and comments.

    More that these are the people from the same government you expect to vouch for the 99%. I hope it’s becoming clear that the 99% are screwed with Obama, Romney or just about every other candidate. In other words, they are saying, ‘you are screwed and can’t do a damn thing about it.’

    It’s your choice to wake up.

  7. lifeafterdebt

    With fines for “mistakes” paling into insignificance compared to the returns already reaped at the cost of the economy and ultimately the individual, banks continue to get off with their fraudlent misdeeds when they receive soft touch punishments which are more often than not picked up by their insurers on top of the soft touch regulation they have enjoyed to date. I wrote this in disgust on hearing some would have us believe bankers libor crimes are victimless and their criminal actions remain beyond the strong arm of the law. http://lifeafterdebts.blogspot.co.uk/2012/08/traitors-and-liasons.html

  8. dbak

    It’s easy to criticise the politicians of both parties for being reluctant to go after the the big money interests in this country. But when you see the ridiculous amounts of money needed to mount a viable campaign don’t expect them to bite the hand that feeds them. For all the moaning and crying I constantly read on this blog I don’t see many calling for public financing of candidates for office. If anyone has a better idea let’s hear it.

    1. Chris Rogers


      Having spent a week coving 8,000 miles in your wonderful nation one was struck by the abysmal lack of political dialogue among the general population I engaged with – there is a very large disconnect with a ‘bread and circus’ atmosphere across the nation – basically, lots related to sport, but not a lot related to the dire condition of the economy or understanding of the causes of such a decay.

      As for the public funding of elections and political groupings, I can attest in the UK this exists and large caps are imposed on those standing for public office – regrettably, even with these safeguards our political process has been corrupted and all economic dialogue infused with neo-liberal hogwash.

      I have never been ashamed to call myself a ‘socialist’ and wear this badge with honour – strange that when you engage in ‘open dialogue’ with your fellow countrymen my political beliefs are treated with absolute disdain by many – basically, I witnessed a lack of understanding about social democracy and social contracts.

      Another matter that struck home was the fact that many I engaged with from working class and lower middle-class backgrounds seemed ignorant as to the causes of the present crisis and Federal bailout of the financial services sector – this is none too surprising given the lacklustre political reportage epitomised by the ’60 Minutes’ interview with Romney – at least in the UK Jeremy Paxman of Newsnight would have gone for the jugular.

      That said, hope prevails and at least I was able to convince one person from Florida that perhaps abstaining is not a good idea and that a vote for The Greens may be a worthy form of protest at the legacy parties whom seem more concerned in their pockets than the condition of their fellow countrymen.

  9. john c. halasz

    Dear Yves:

    Your repeated use of the locution of “I have a bridge to sell you” is getting old, if, for no other reason, because selling off public infrastructure is one of the prime objectives of the latest phase of neo-liberalism.

  10. EVmarc

    SEC is NOT incompetent or captured by banksters. Or they are making mistakes
    That’s just the propaganda
    The SEC is a criminal enterprise in the protection racket
    The SEC guys know they are breaking the law
    And the police, justice dept, congress, president
    Are all in the protection racket

  11. N Maier

    Your position is rather unenlightened and weak given the facts. Did the SEC prevent the $50B Bernie Madoff scheme when they were notifed multiple times? Does the SEC prevent the National Inflation Organization from perpetuating serial “pump and dump” schemes right under their nose? Did the SEC “protect” investors, including dozens of sophisticated investors, mutual funds and hedge funds from their investment in Facebook? The SEC does ZERO to protect investors. Their role is to perpetuate the monopolies of the biggest security firms through regulation. You seem to be firmly in the camp of those who are willing to give up their freedom for the supposed “security” provided by government. I want freedom as an investor. I want to choose the investments I make. It is already against the law to commit fraud and the government should be prosecuting those who commit fraud. (Has anyone been prosecuted at MF Global?)
    Might I suggest that you change the name of your website from “Naked Capitalism” to “Naked Fascism”, because that is what you are advocating.

Comments are closed.