Public Confidence in SEC Sinks to New Low


According to recent surveys, the public now views the U.S. Securities and Exchange Commission more unfavorably than the “always hated Internal Revenue Service,” reported Bruce Canton in his column called “Enforcement Action,” published on In its National Juror Survey, Litigation PostScript found that 55% of the respondents expressed an unfavorable opinion of the SEC compared with a 46% unfavorable rating for the IRS.

The erosion of public confidence in the SEC has continued despite the arrivals of new SEC Chairman Mary Shapiro and Director of Enforcement Robert Khuzami, the SEC’s recent aggressive anti-fraud activities, numerous articles about the reforms that Shapiro and Khuzami intend to implement, and the SEC’s trumpeting of successes on its website.

Most recently, the public’s discontent with the SEC was reinforced by allegations that two SEC staff attorneys had engaged in insider trading, as well as by a critical report by its own inspector general, H. David Kotz, and the agency’s somewhat testy reaction to it. In his report, Kotz said the SEC has “essentially no compliance system” to detect potential insider trading by SEC enforcement attorneys who “spend their entire day learning inside information and trade from their government computer all day,” according to Wall Street Journal articles by Kara Scannell entitled “Insider Trading Probe at SEC” (May 16, 2009) and “The SEC’s Kotz, Watching the Watchdog (May 20, 2009).

Evidently, the Watchdog does not like being watched, and Mr. Kotz’s sometimes stinging reports have drawn rebukes from within the agency. Kotz joined the SEC in December 2007 after being appointed by former Chairman Christopher Cox. Since then, Kotz has criticized the SEC for missing “numerous potential red flags” at Bear Stearns. The SEC called its inspector general’s conclusions “inaccurate, unrealistic and impracticable.” Kotz said: “I don’t think there could be an IG who came into this job, found the things that I found and in the time period where such scrutiny is on the SEC and not written critical reports,” according to Ms. Scannell. In August, Potz is scheduled to release a report on why the agency failed to detect or take against Bernard Madoff.

All of this has led to a new round of editorials calling for the SEC to be demolished and replaced, says Carton.