SEC You in Court

SEC Aims to Get Tougher on Fraud” is the headline in today’s Wall Street Journal. Shorter version of this post: SEC you in court.  The story goes on to say that,

Securities and Exchange Commission Chairman Mary Jo White, laying out a broad enforcement agenda for the first time since taking the helm at the agency five months ago, said the agency will seek charges against more individuals and pursue larger fines against companies that commit wrongdoing.

Ms. White said the agency should tackle both big and small cases, and signaled a willingness to litigate more cases in court. She also said the agency would pursue charges against individuals “wherever possible,” rather than charging companies. In what she called a “subtle shift,” she has instructed the agency’s enforcement staff to look first at misconduct at the individual level, “working out to the entity, rather than starting with the entity as a whole and working in.”

Mary Jo White

Mary Jo White

It’s easy to get a business to pay a fine without admitting guilt to settle a case.  Getting a corporation to admit guilt is more difficult, although in most cases only slightly harder.  But getting an individual to plead guilty as part of a plea-bargain deal is much more difficult.  A felony (or even misdemeanor) conviction made in public is awfully difficult to remove from a resumé.  And the individuals Ms. White is pursuing usually have high incomes and large quantities of wealth.  The SEC will find itself in court much more often by pursuing cases in this fashion.  And, frankly, their record of winning cases that actually go to trial is not very good.

But Ms. White’s plan will accomplish one goal.  The SEC will need more lawyers and more bureaucrats.  This is, of course, completely consistent with the economic theory of government: bureaucrats have a goal of expanding their power.  This often takes the form of empire-building.  Ms. White is right on track.

The SEC should change its name to Shakedown and Extortion Commission.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.

One Reply to “SEC You in Court”

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