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 In 67 years, the SEC hasn't found a way to protect investors from their own stupidity. I'm not sure that you can outlaw stupidity. I'm certain that it can't be done by 20,000 Government lawyers.
The SEC has created the illusion that American stocks are credible investments. This benefits the American brokerage community. The core of the stock fraud problem are some of these brokerage firms. Like J. Edgar Hoover's refusal to investigate the Mob, the SEC doesn't seriously investigate major brokerage firms, the NASD, or the Depository Trust Company (DTC).
If the SEC charged Michael Miliken, why weren't the owners of Drexel charged? Why is the Federal Reserve charged with investigating the DTC? The Feds own sixty percent of the DTC. It's like asking the fox to investigate the murder in the hen house. The Law and SEC policies usually protect the crooks on Wall Street.
The SEC's goal in ending shell sales is to stop stock promoters from defrauding the public. Their theory appears to be that increasing costs will discourage the crooks from going public. It won't work. It will only drive up the cost of raising money for honest business owners and entrepreneurs. Higher costs means more crooks in the Market and fewer real business investments. The crooks will move to spin-offs long before most honest business people realize that spin-offs are the last low cost option to going public. The SEC will pressure Congress into ending spin-offs.
Unlike shells, spin-offs are protected by Section 12 of the 1934 U. S. Securities Act. Congress must change the Law to close the spin-off option. However, excluding honest business people from the Market creates pressure on Congress to reverse the SEC's regulatory policies. Eventually, Congress will liberalize listing requirements. The cycle will repeat itself. The crooks will continue to "Pump & Dump." Some brokerage firms will steal billions from the public. The farce will continue.
For nearly seventy years, the SEC's mistake has been to focus on form rather than substance. Attorneys believe that you can pass a law or regulation that will protect Society from its crooks. It can't be done. Whatever Law you pass, there is always a loophole. Closing the loophole creates other loopholes. The process is cyclic. It's never ending.
There are good aspects to the American Securities Laws, like full disclosure. However, the Law must serve the best interest of the public. The SEC should ensure that the crooks only get one shot at defrauding the public. They should have policies that reduce the costs of going public rather than be the driving force for higher costs. The SEC should require investors to take a "street smart" course in risk capital investing before they can open a brokerage account. It should be taught by the SEC, after the SEC becomes "Street Smart."
The SEC serves itself. While the Bear won't walk Wall Street now, it will eventually return the size of Gonzilla. By that time, we'll have had eighty years of SEC regulatory failure. I doubt the attorneys working at the "Death Star on the Potomac" will get another chance to serve the public and honest business people.
Common sense isn't common. This axiom is truer inside the Belt Way than in small town America. When you can't afford to raise money for your business, blame the SEC. When you learn that you can't raise money for your private business and can't go public, blame the SEC. When you lose your retirement money in the Market, blame the SEC. The SEC serves itself. You pay them to do it.
About the Author - Who Does the SEC Serve?
William Cate has been the Managing Director of Beowulf Investments since 1981 and is the Executive Director of the Global Village Investment Club |
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