Originally posted on August 4, 2010 on FreedomWorks’ website.
The Securities and Exchange Commission (SEC) whose purpose is to regulate the stock market and prevent corporate abuses has become no stranger to controversy. Recently, a Politico articlerevealed that top officials at the SEC spent a significant part of their day watching pornography on the taxpayer’s dime. Yet, the SEC pornography scandal resulted in zero firings. The former SEC chiefadmits that the commission failed to act when they received “credible and specific allegations” regarding the Bernie Madoff’s Ponzi scheme. Cato Institute scholar Richard Rahn asserts that the existence of the SEC has made us less safe from financial fraud:
The budget for the Securities and Exchange Commission (SEC) grew tenfold (to more than $1 billion) in the past 25 years, but there is no evidence it has made us any safer from financial fraud. In fact, the opposite seems to be the case. The Madoff Ponzi scheme was the biggest financial fraud ever. Yet when knowledgeable people presented evidence of the Madoff scheme to the SEC, they were just blown off. Now the SEC wants a bigger budget as a reward for its failure, and the agency and members of Congress are demanding more power for the SEC. The United States has many laws against financial fraud, so that is not the problem. The problem may be – in addition to SEC incompetence – that the public assumes the SEC is looking out for it and consequently fails to do proper due diligence. In other words, the existence of the SEC may be increasing rather than diminishing risk.
Upon the passage of the Dodd-Frank Financial Regulation bill, President Obama claimed “it will finally bring transparency to the kind of complex and risky transactions that helped trigger the financial crisis.” However, the bill fails to bring transparency to government regulators of the financial market—the same regulators who played a major role in the current financial crisis. The “reform bill” includes a provision that exempts the SEC from disclosing information to the public. According to Fox Business News,
Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act.
The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from ‘surveillance, risk assessments, or other regulatory and oversight activities.’ Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot.
…. Steven Mintz, founding partner of law firm Mintz & Gold LLC in New York, lamented what he described as ‘the backroom deal that was cut between Congress and the SEC to keep the SEC’s failures secret. The only losers here are the American public.’
Last week, Congressman Ron Paul (R-TX) introduced the SEC Transparency Act of 2010, H.R. 5970. If passed, the bill would repeal the amendments made in section 929I in the 2,300 page bill that exempts the SEC from complying with requests under the Freedom of Information Act. Ron Paul asserts that:
It is unfortunate, yet not unexpected, that legislation touted as fixing problems with the banking system actually makes them worse and provides more cover and power for organizations that failed us like the SEC and the Fed. I expect in the coming weeks and months that many more harmful provisions like this will come to light and it will take quite a bit of work to undo the damage from this massive and misguided legislation.
The SEC loophole in the passed Dodd-Frank financial “reform” bill permits the agency to hide vital information from taxpayers. Use FreedomWorks’ congressional directory to call your representatives to demand transparency and accountability in the Securities and Exchange Commission!