New SEC anti-fraud team

Good morning folks!

Today brings good news from the Securities and Exchange Commission (SEC). Recall that I have been calling for regulators to become more proactive in their regulation of financial institutions and markets. I have specifically said that it is important that they have transparency into the market as a whole. I have also called for Congress to better fund the regulators, too. And lastly, I have called for more active management of in terms of rooting out fraud and other types of corporate malfeasance.

Specifically what has happened is that Robert Khuzami, the SEC’s enforcement chief, has announced the creation of a team of specialists who focus on specific types of wrongdoing. This is a tectonic shift for the SEC which has typically employed generalists; or if you prefer: “jacks of all trades,” but “masters of none.” The disconnect of course is that fraudsters do become expert at what they do – that is how they elude detection.

Another change that is afoot, that is efficient, yet sad to me, is that the SEC is considering a plan to review current investigations that are inactive, old or that don’t have a deterrent effect to developing criteria so that that those cases can be dropped. The reason this makes me sad is that this is a choice born of resources that are too limited. The Commission says that it is undertaking this action so that investigations can be brought in a more timely manner so that the actions undertaken serve as a strong warning against potential wrong-doers.

And the last change that is afoot is the elimination of some mid-level management that is believed to hinder expeditious investigations and that drain the SEC’s budget. I don’t know enough about the SEC’s inner-operating structure to say whether I believe this is a good thing or not.

In conclusion, this announcement from the chief watch dog of U.S. corporations is a welcome one. A more effective watch dog hopefully results in wagging markets and not barking markets!

Jason