Critics Say SEC Is Not Tough Enough On Lawbreakers

Critics of the Securities and Exchange Commission (SEC) have often charged the regulatory unit with taking a tougher stance with those who violate the securities laws, according to an article in Huffington Post. The article cited several examples, one being the case where Wachovia allegedly misled investors by hiding the fact that it had marked down the value of collateralized debt obligations (CDO) on its books and then sold the same products to investors at an inflated price during the height of the housing boom. The penalty was $11 million for one of the world’s largest investment firms to avoid trial, not having to admit to wrongdoings and to be able to profit off of similar deals. The contrast is stunning. Investors lost million and the firm pocketed far more in profits than the fine.

The article said that market experts have agreed that the amount of the fine did not meet the severity of the crime. The same situation arose with problems at Citigroup, Goldman Sachs and Bank of America, among others. Citigroup misled investors in 2007 about its exposure to subprime mortgages. Bank of America failed to tell investors who were voting on the 2008 merger with Merrill Lynch that it had authorized $4 billion in bonuses to employees at the firm, which lost $28 billion that year. Finally, Goldman allegedly helped to set up a mortgage linked investment for a favored client that was designed to fail, yet sold it to other investors, reaping the favored client $1 billion in profits. Citi settled for $75 million, Bank of America settled for $33 million and Wells Fargo, which assumed Wachovia’s liabilities, settled for $11 million.

Joshua Rosner, managing director for consultant Graham Fisher & Company, said “The SEC may as well just, like on the back of a parking ticket, list the fines so that firms can do a cost analysis as to whether it’s worth breaking the rules.” He commented further saying, “based on what we are seeing out of the Sec, it appears to generally be in the interest of the corporations to break those rules.”

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