SEC Inspector General Asked to Examine to Whom SEC Staff Is Beholden

Whose phone calls do you think the SEC returns first? Investors like you, or industry insiders? How much of their time do you think SEC Commisioners and staffers spend talking to, e-mailing and meeting with�including at exclusive conference venues�industry types? I think that an investigation into these issues by the Inspector General of the SEC would be revealing and I recently wrote to the IG recommending such a review. The goal of such an investigation would not be to merely expose pandering to the industry, but to establish standards that Commissioners and staffers would have to meet annually to demonstrate a commitment to investor concerns at least equal to their responsiveness to industry. While the prospect of employment in the industry will always be an incentive for SEC Commissioners and staffers to fawn over the industry, responsiveness to investors should be a requirement for getting and keeping a job at the agency. Today neither SEC Commissioners nor staffers are required to demonstrate any proven investor protection credentials, or records of responsiveness to investor concerns. In fact, the only track records these guys and gals typically have involve successfully representing industry concerns, as opposed to those of investors.  

Mary Schapiro, SEC Chairman, comes to the agency from FINRA, the brokerage industry�s conflicted and ineffectual self-regulator. Eileen Rominger is the Director of the SEC�s Division of Investment Management. She came to the SEC from the asset management industry, where she worked for the past 11 years at Goldman Sachs Asset Management�a firm not exactly known for its fair treatment of investors. Carlo V. di Florio is Director of the agency�s Office of Compliance, Inspections and Examinations. He comes to the SEC from PricewaterhouseCoopers (PwC), where he was a partner in the Financial Services Regulatory Practice. He replaced Lori Richards who left the Commission to become a principal with PwC�s Financial Services Regulatory Practice�the very same practice which di Florio left. It�s like they switched jobs.

I am well aware, as a former SEC attorney, that the curt, virtually hostile response investors and investor advocates receive from SEC staff is radically different from the SEC�s response with respect to representatives of the financial services industry. This has always been true but it�s gotten worse in recent years under Schapiro, not better. Despite growing criticism of the Commission, especially in response to the Madoff debacle, and promises made to Congress and the general public that the agency would become more proactive and responsive, it�s more difficult than ever to get through to senior staff.     

Today my calls to SEC senior staff (related to multi-million or even multi-billion dollar scams) are often not returned and, when returned, staffers let it be known that they have little time to talk. These bureaucrats seem to forget I used to work at the agency and later was in-house counsel to one of the largest mutual fund companies in the country. I know the difference between the SEC�s investor and industry response. I have resorted to sending emails after leaving phone messages to document my efforts to get staff to return calls. In my opinion, this lack of responsiveness is due to the fact that SEC Commissioners and senior staff are more closely aligned with the industry than ever. But I am willing to acknowledge I may be wrong. 

Rather that speculate as to why the SEC staff seems so unresponsive to investors today, or debate whether such an allegation is well-founded, I have proposed that the SEC Inspector General review records of contacts between staff and the industry and then publish his findings so that the public will know to whom the staff is beholden. I am confident that such a review will reveal that a handful of industry insiders are treated very differently than investors and investor protection advocates. If true, let�s make it a requirement that SEC Commissioners and staffers demonstrate annually what they�ve done for investors who cannot offer them lucrative jobs, but whose interests they are supposed to protect.