The first (and only) time I was ever subpoenaed by the S.E.C. was 25 years ago, in connection with a high-flying company I had worked for whose stock had crashed and whose president subsequently went to jail.
I just remember their being a little surprised I didn’t come with a lawyer — well, all I was going to do was answer their questions, why did I need a lawyer for that? — and that everything went fine.
I suppose the faces at the S.E.C. have changed somewhat since then, but I’ve always felt that, by and large, the S.E.C. are the good guys. That in a world of too many government regulations — a world where an entire agency, like the I.C.C. (Interstate Commerce Commission) could simply be eliminated — the S.E.C. is, by and large, a corps of overworked, underpaid protectors of one of America’s (and thus the world’s) very most precious assets: our free, efficient, and relatively honest capital markets.
This isn’t to say there may not be horror stories out there, cases of excessive zeal, botched opportunities and the like. But in thinking of the literally hundreds of millions of dollars private lawyers have made from the “strike suit” game described a few days ago, I couldn’t help wondering whether we shouldn’t, at the same time as we try to rein in the extortionate strike suits, find an extra $10 million or $20 million for the S.E.C. each year — enough to hire and support another 100 or 200 lawyers. (They have 1,070 now.)
You may say, how can you find a competent, motivated attorney to go after market abuses for just $70,000 or $100,000 a year? Unless lawyers have the prospect of earning millions from this job (as the ones specializing in “strike suits” do), they won’t do it well. But that’s not necessarily true. For example, would we really want to turn the job of issuing speeding tickets over to private cops paid on the basis of how many they can give? With no sanctions on the cops if they give you a ticket when you weren’t speeding?
That’s the strike suit game now. It leads to a lot of unjustified speeding tickets that are nonetheless too costly and time-consuming to fight. So they’re paid, the private cops make a fortune — but is the driving public really better off? Wouldn’t it make more sense to have a few more $40,000-a-year highway patrolpersons armed with radar guns?
No outfit is perfect, but as government agencies go, the S.E.C. could be a lot worse. It costs a mere $300 million or so a year — less than a twelfth what Coke spends on advertising — and none of that comes from taxpayers (not to say that it’s free). It comes mostly from corporate filing fees, from a tiny SEC fee you pay when you make a sale on one of the exchanges (grabbing a confirm here I see that I paid 32 cents on a recent $9,450 sale), and from penalties the S.E.C. collects from companies and brokerage firms who (while almost always denying any wrongdoing) get their wrists slapped. All told in 1995, those revenues totaled about $600 million — twice what the S.E.C. cost., with the balance going to the U.S. Treasury.
On top of that, in 1995, the S.E.C. won orders requiring defendants to disgorge $994 million in illicit profits, most of which went back to investors. (When that would be impractical — $2 each, or something — the money goes to the Treasury instead.)
On top of which we get little bonuses, like Edgar, the free on-line access to tens of thousands of S.E.C. filings, and like the S.E.C.’s excellent recent effort to narrow the spreads on the stocks we buy and sell.
In short, while I trust you to write me with examples of awful things the S.E.C. has done, I would say this is a group of government employees who can, by and large, feel proud of their public service. Unlike the lawyers at the strike-suit firms.
No one’s talking about ending private lawsuits — least of all the S.E.C., which welcomes the additional policing the threat of private lawsuits provides. But in a field as complicated as this it’s a matter of balance, not absolutes. As Congress overwhelmingly agreed last year, the strike-suit racket had gone way out of balance. Too easy for the private cops to pull you over and shake you down.
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