SEC Chiefs Past and Present at Fordham

Corporate Center in Business Law Prof blog, September 28, 2010

Media Source

Last night, the Fordham Corporate Law Center sponsored a panel on the history and direction of the SEC.  For roughly 75 minutes, current Commission Chair Mary Schapiro and former chairs Richard Breeden (1989-1993) and Harvey Pitt (2001-2003) spoke on topics such as SEC staffing, penalties, and challenges. 

While guarded in his suggestions, Pitt was pointed in his critiques, noting that the far-reaching Dodd-Frank Act may have "set up" the Commission for a fall.  Likewise, the famed securities litigator and former SEC General Counsel stated that it was unfortunate that Congress stopped short of allowing the Commission to self-fund.  Near the end of his remarks, he cautioned againt investigations proceeding for too long, perhaps a veiled reference to the Mark Cuban case (which shall now proceed on facts over 6 years old).

For his part, Breeden was outspoken and verbose, sharing anecdotes about penalty negotiations and the insider trading case behind the notorious "naked, homeless and without wheels" quote once attributed to the SEC's penalty program.  Breeden took shots at Treasury (which was described as having the luxury of more staff), the enforcement efforts of the States (which were characterized as meddlesome and self-interested), and the powers behind the Basel banking standards (who were only half-jokingly described as having gravely damaged wordlwide banking).  He also candidly opined that "It's a bad day [at SEC Enforcement] when no one gets sued."                

For her part, the Chair defended SEC structure and hiring, explaining recent efforts at spending more on staff education and vesting greater discretion with Enforcement attorneys (of particular note is the abolition of the SEC's traditional "Branch Chief" position).  Ms. Schapiro explained that the SEC has expanded its comment process, leading to over 2000 comments on the fiduciary standard harmonization alone.  She also addressed the painful aftermath of Dodd-Frank:  The SEC will be forced to make rules or conduct studies over 100 times.  Thus, Ms. Schapiro explained that priorities will delay consideration of any changes to mandatory arbitration while pointing out that, in general, there will be continued "reliance" on the stock exchanges to handle many matters.

The Panel agreed that the Commission had made a tremendous recovery since the days of late 2008 (when the press was predicting demise).  Conversely, the speakers differed on the import of monetary penalties on corporations, which may primarily penalize present shareholders but without which violations may go unpunished.   

Overall, one couldn't help but feel that the gaps between the standing room only applause were laden with silent recognition of the same obstacles that have plagued the agency from its inception:  Understaffing, shifting priorities, political interference and inter-governmental turf wars.  On a night that may have served primarily to celebrate the Commission's survival, its chief acclaimers (perhaps predictably) sounded entrenched refrains.  Specifically, why pillory efforts at raising net capital standards - wherever proposed - when a large part of the current mess stemmed from leveraged  speculation?   And why decry the "stepping up" of the Treasury when most agree that the alternative was economic Armageddon?  Too often the Panel's quips - while entertaining - served to highlight the diffused data streams, entrenched warfare and questionable policy choices that left the agency marginalized at the outset of the Crisis.

Likewise, while staff education is a good thing, there still exist so many layman questions on the Dodd-Frank Act.  There certainly would be value in more money on programs designed to demystify the reform on topics ranging from hedge fund participation to derivatives regulation, to the limits of the new Consumer Protection Agency.

It's encouraging that practitioners, students and academics crowd a conference hall on a weeknight to glean insight into a long lasting contribution of the New Deal.  Concomitantly, it's a bit depressing that in these precarious and stressful times, this agency  - through both its press and its silence - has not much more to offer than its traditional dual mantras of "Give us time" and "If we catch you, you will pay."  Gramm-Leach-Bliley sounded a competitive death knell for firms reluctant to engage in one-stop shopping.  A decade later, the securities industry's chief regulator similarly faces possible irrelevance as a result of failing to recognize investors' needs for quick, one-stop answers to concerns on banking, securities and corporate health. 

---JSC, 9/28/10