Public confidence in the Securities and Exchange Commission and Wall Street was broken in the wake of the 2008 financial crisis, according to a recent InvestmentNews article, “SEC needs to remember that investors come first.” The article pointed to the SEC’s failure to detect the Madoff Ponzi scheme, its apparent unwillingness to investigate the warnings of Madoff whistleblower Harry Markopolos, its lack of oversight of credit-rating agencies, and its failures to address the practices that led to the collapse of Bear Stearns, Lehman Brothers and the capital markets.
At one time it was thought that the SEC might be subsumed under the Federal Reserve. But thanks in part to SEC Chairman Mary Shapiro’s “congressional-relations savvy and bureaucratic skills,” that will not happen, according to the article.
Helping the SEC ramp up and redefine its regulatory and enforcement mission seems to be a priority of the Obama administration. The SEC is expected to receive the nearly $1.3 billion requested by the president (a 12% increase over its current budget).
Enforcement is purportedly going to beef up under Director Robert Khuzami. The enforcement unit has established teams to look into structured products and securitization, municipal securities, asset management, foreign cases and market abuses, including insider trading. The SEC reportedly wants to expand its hiring pool beyond attorneys in order to attract those with experience in the financial products that Wall Street is creating and the technology it uses.
In addition, the SEC staff will now have the authority to negotiate settlements with companies accused of violating securities laws, instead of first having to receive full commission approval.
Given the fact that defined benefit retirement plans have largely been replaced by defined contribution plans, in which investors bear the risks, the mission of the SEC to regulate the markets and securities issuers for the benefit of investors is crucial to Americans’ retirement security.