Wall Street Says “Jump!” and the SEC Says “How High?”

by Jacob Zamansky on March 23rd, 2010 at 10:43 am : Comments 001

The Wall Street Journal last Thursday published three prominently featured articles that, at first blush, seemed unrelated but together underscored why the SEC has pretty much abdicated any moral authority to represent and protect the interests of individual investors.

The first and most alarming article was the lead story about how the SEC is supporting Wall Street’s efforts to dismantle the provisions of the 2003  global settlement designed to ensure the integrity of Wall Street’s research.  The provisions, which prevent research analysts from talking to their firm’s investment bankers without a compliance officer being present, are of considerable importance to me as it was my case against Merrill Lynch alleging fraudulent research that sparked former New York Attorney General Eliot Spitzer to bring his action.  Eliminating the protection definitely isn’t in the interests of individual investors, and it is an abomination that the SEC is squandering its limited resources by getting involved in the matter.

In a letter to U.S. District Judge William H. Pauley III the attorney representing Wall Street’s firms argued that regulations enforced by Finra moot the need for a Chinese Wall.  “These rules adequately address the concern intended to be addressed” in the Spitzer settlement, he said.

Regulations enforced by Finra? This brings us to the Journal’s  C1 story about the resignation of Finra’s head of enforcement.  The Journal’s story notes that Finra’s disciplinary actions have declined markedly these past few years and most of the actions have involved small players who simply don’t have the resources to fight back.  By comparison, investor arbitration claims have risen sharply, underscoring that Wall Street’s clients definitely perceive widespread wrongdoing.

And finally there is the Journal’s B1 story about how New Jersey’s Division of Gaming Enforcement nearly yanked the license  of MGM Mirage because it knowingly partnered with persons of questionable character in Macau.  Although MGM managed to negotiate a settlement that will allow it to keep its license, the company must still unload its half percent interest in Atlantic City’s Borgata Hotel Casino and Spa.  Now that’s what you call no nonsense regulation!  You can rest assured that MGM will be a lot more diligent in the future about the company it chooses to keep. If MGM’s casino business was regulated by the SEC, the company invariably would have managed to settle the matter with a paltry fine and would not have had to admit any wrongdoing.

The SEC repeatedly has promised to get serious about enforcement and protecting the interests of investors, but the agency’s support of dismantling one of the few investor protection reforms in recent years shows that its interests are ultimately more aligned with Wall Street than individual investors.  At the end of the day, Las Vegas and Atlantic City casinos are regulated with considerably more diligence and aggressiveness than Wall Street brokerage firms.  The only meaningful actions against Wall Street firms have been initiated by the attorney generals of Massachusetts, New York, and New Hampshire.

And that’s why individual investors must make certain that unlike the SEC, officials elected to these influential positions not be in the back pocket of Wall Street.

Filed under SEC, Wall Street, fraud