Matt Taibbi has written a characteristically informative, incisive piece about the embarrassing spectacle of the SEC’s Director of Compliance Inspections and Examinations, Andrew Bowden, making sycophantic remarks about the private equity industry at a recent conference, a story we broke early last week. It’s bad enough to see a regulator so besotted by firms he oversees; it’s even worse in light of statements Bowden made less than a year ago the widespread fraud and misconduct he said his examiners were finding. As we wrote in our original post:
Bowden stated that the SEC had found “violations of law or material compliance failures” in more than half the firms examined. Let’s not put too fine a point on this: the SEC said that most firms were stealing from investors, either by accident or design. Bowden confirmed that view, later telling the New York Times’ Gretchen Morgenson that “investors’ pockets are being picked.”
In case you have yet to see it, contrast that view of the industry with Bowden’s take a mere ten months later:
So far, the International Business Times, Bloomberg, the Los Angeles Times, Bill Black, Bill Moyers, and Truthout have taken up this incident. As with the Los Angeles Times, Taibbi weighing in means this is no longer just a business story but a broader political one, of the severity of regulatory capture.
As Taibbi writes:
And, worse, it reveals an attitude that’s absolutely poisonous among regulators, this fawning worship of people on Wall Street who maybe break a few rules, but that’s okay, because they make tons of money! Can you imagine Elliott Ness giving a speech gushing over what nice cars Al Capone drives? It’s revolting.
It’s not necessary for regulators to hate the greedy bottom-liners who go around toying with peoples’ jobs and livelihoods using borrowed money.
It’s not even necessary for regulators to hate those same rich takeover artists for paying half the taxes of most ordinary people, because our bought-off government refuses to close the loophole that allows Mitt Romney to call the money he makes “carried interest” instead of income.
We don’t need regulators to be out to get anyone. But is a healthy indifference too much to ask? Do we really need for even the regulators to slobber over these people?
Now it is easy to see Bowden as trying to curry favor with the private equity industry to advance his and his son’s personal interest. But the realty may be even more troubling. From reader Insider:
I actually know Drew – not very well, but well enough to know that you’ve got this wrong. He’s not angling for a job here. He could get one in the industry any time he wanted…
The problem isn’t that he’s trying to get on the good side of the industry because he’s hoping for a job – the problem is that he’s trying to get on the good side of the industry. Drew, like pretty much all of us, wants people to like him. That’s a perfectly natural feeling, but it’s not at all an appropriate mindset for a regulator…
That relates directly to the larger issues in the private equity industry. Every time he brings up the issue with fees in private equity, Drew emphasizes all the changes that have occurred in the industry since he very publicly raised the issue, and the role the agency has played in helping them see the error of their ways and make corrections. In his mind, that’s the accomplishment.
But that’s not the job of the regulator. It’s actually the responsibility of the industry to decide to mend its ways and figure out with its lawyers and consultants how to get on the right side of the law. The job of the regulator is not to convince the industry to do better going forward – the job of the regulator is to identify misconduct and see that it is punished. The regulator is a police officer, not a rehab counselor.
The “rehabilitate, don’t punish” approach toward regulation has only grown in the last few years, and unfortunately, much of that has happened under Drew’s leadership. And there’s a reason it’s an appealing approach: it’s less confrontational. It feels like an “everyone wins” approach, where the regulator can claim successes while the industry promises next time they’ll do better and consultants and lawyers collect their fees and everyone’s happy (except of course for clients, who in most cases are not made whole from past bad behavior). But it’s not justice, and it’s not what the regulator was tasked to do.
For someone who may be too beholden to the industry’s good favor – again, as much for its own sake as for any other reason – the rehabilitation approach is deeply appealing, because it avoids the nasty public battles that unfold in courtrooms as defense attorneys rant about overreach and regulators gone wild, and reduces the level of confrontation at industry conferences and even private events (and don’t underestimate how much of an impact private social settings can have on public decision-making).
I don’t think Drew is looking for a job so much as he is looking for people to like him – but unfortunately, that alone has a profound impact on how seriously the regulator is viewed and how effectively it can do its job. I think at some level he is a sensible person, and can only hope that he eventually realizes that he does not need the industry’s approval to do his job, and in fact will be only the more respected the more attention he pays to punishing bad behavior and the less attention he pays to winning the audience over at conferences.
The naivete is stunning. Bowden actually has convinced himself that he can “rehabilitate” private equity? What odds would you lay that he can change the behavior of an industry that is chock full of polished sociopaths? Even after cornering the market on the best legal talent in America to create complex documents that gives them air cover for a lot of their dubious practices, private equity kingpins apparently felt that making themselves obscenely rich wasn’t good enough. They still had to take more if they could get away with it.
As important, notice that Insider tells us that Bowden is singularly responsible for spreading this barmy “no punishment” gospel within the SEC.
It’s time to demand Bowden’s removal for his antipathy for doing a regulator’s job and demand that the SEC get tough with financial crooks, including the ones at the high end of the food chain.
Please write SEC commissioner Mary Jo White. Let her know how disgusted you are by this incident and tell her she needs to prove that this is not what the SEC stands for. Bowden needs to go and the agency needs to get tough with private equity.
Chairman Mary Jo White
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Please also call or write your Senators (contact information here) and Representative (contact numbers here). Or if the officials in your state are hopelessly bank friendly, call Elizabeth Warren and Maxine Waters. Tell them that this video is proof that the SEC is incapable of doing its job, and they need to have Mary Jo White explain, in detail, what she intends to do to turn the agency around.