SEC enforcement chief applauds their billions in fines, but to what end?

November 15, 2022

This article should wake up investors.

https://www.investmentnews.com/sec-collects-record-penalties-in-fy-2022-enforcement-actions-229214

As long as we must live with the Securities Act of 1933 and the related ones that followed in 1934 and 1940, there is no stopping fraud in the capital markets.

I could write books, but nobody in Washington or Ottawa will hear when the proverbial tree falls in the forest. The powers that be will only be listening to the sound of the cash register.

Thirty-six years ago, I was invited onto a prestigious ten-person securities industry task force with a mission to clean up the unlisted markets in Canada. It wasn’t fifteen minutes into our first meeting when our committee numbers dropped to nine. I personally refused to accept the lack of integrity of one committee member. He was the Director of Prosecutions of the Ontario Securities Commission. I asked him to repeat his introduction. Most of the others had known him for years — people like the OSC Executive Director, the Exec VP (regulation) of the Toronto Stock Exchange, and the General Counsel of the TSX. When he repeated that he was Canada’s chief securities cop, I asked him what day today was. I recall he said it was Tuesday. I then told the room that my research had identified this man as having departed employment with the OSC four days earlier but that he had already incorporated a commercial business with the same name as our task force. I called this ethics backbone of Canada’s securities industry a liar to his face. That was the first time I met him or most others in the room. I didn’t know him, but I know ethics or, in his case, the lack of them. He was immediately dismissed.

In later sessions, there was a call for more regulation against the bad guys in the capital market, and I reacted as I usually do. I said that the problem was internal. I asked them to point fingers at our securities industry instead. I said that most of the reprobates our prosecutors go after are taking their lead from securities lawyers and the most intelligent people in our industry. These are the people we needed to chase out of business.

To a regulator, the nail is best never hit by a hammer because white shoes may be stepped on. That needn’t be, which was a point I made in the boldest way my committee peers had seen in their careers in the first 15 minutes they had met me.

Fines mean nothing to people like JPM’s Jamie Dimon or Morgan Stanley’s Jim Gorman. Their clients, their staff, and the shareholders pay for those fines. They know it, so in every prosecution, they respond with a No Contest letter and pay the fines. Billions and billions, and it matters not. The business must go on, reputations intact, and the cash registers ringing. No lawmaker or regulator wants to hold the hammer and do what needs to be done. They would prefer to give speeches right before cocktails.


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