The Derivative Project

“Dangerous Liaisons”: How They are Harming the Retail Investor

“Dangerous Liaisons”: How They are Harming the Retail Investor

The Project on Government Oversight, “POGO”  released a report today, “Dangerous Liaisons: The SEC Revolving Door”.   The report states:  “A revolving door blurs the lines between one of the nation’s most important regulatory agencies and the interests it regulates.
Former employees of the Securities and Exchange Commission (SEC) routinely help corporations try to influence SEC rulemaking, counter the agency’s investigations of suspected wrongdoing, soften the blow of SEC enforcement actions, block shareholder proposals, and win exemptions from federal law.”
“POGO’s in-depth analysis of the SEC’s revolving door found many examples of where the line between regulator and industry was blurred. For example, several former SEC staffers were part of the successful lobbying effort last year to block tightening of regulations for money market funds, one of the top priorities of former SEC Chairman Mary Schapiro.”
In sum, critical money market reform was blocked by this incestuous relationship between Wall Street and former SEC employees.
In sum,  retirement investors lost over $2 trillion dollars in retirement savings and Dodd Frank mandated  a new SEC Investor Advocate be appointed to represent the interests of the average retail investor.  Wall Street has blocked this appointment, now delayed for over three years.
Here is The Derivative Project’s report on Wall Street’s blocking of the new SEC Investor Advocate Office, mandated by Dodd Frank law, enacted in July 2010.  It is now 2013.  It is a result of what POGO describes in their report, “regulatory capture.”
As The Derivative Project reported last December, Wall Street’s influence on our regulatory agencies necessitates a truly independent appointment for SEC Chairman to right the imbalance of power that has stalled our economic growth through an unnecessary financial crisis, caused by greed, regulatory capture and lack of private action in the securities industry.
The Derivative Project wrote in this December 8, 2012 Blog Post:
“Wall Street Blocked the Dodd Frank Mandated Office of the SEC Investor Advocate”
Appoint the SEC Investor Advocate mandated by Dodd Frank in 2010.  Wall Street has prevented this.  Why?  They are afraid of debate.  They are afraid of competition.  They are afraid of the democratic process of allowing everyone to have a voice to allow honest debate and compromise. 
 If there is any doubt as to why the SEC has not followed the law established by Congress’ Dodd-Frank law, ask President Obama why did a former SEC Commissioner stonewall Chairwoman Shapiro’s appointment of an SEC Investor Advocate?  Here is a summary from a September 2012 NY Times article, Amid Public Backlash, Bankers Maintain Influence in Washington.
Annette Nazareth, a former SEC Commissioner who is now a securities lawyer for Davis Polk, according to a Freedom of Information Report by Bloomberg, influenced SEC Chairman Shapiro. Nazareth’s communication with the agency was extensive, “Nazareth’s messages asked for meetings, offered her firm’s products and opined on the debate in Congress. She…wrote that the prospect of a consumer finance protection agency made her “feel ill” and that she’d asked SIFMA, the Wall Street trade group to “trash” a proposal for a investor advocacy office at the SEC.”
Congress mandated this new Office and Congress has re-appropriated the funds to establish the Office.  One can only conclude that Ms. Nazareth is also lobbying for her husband’s Wall Street firm. According to this Bloomberg article Nazareth is married to former Federal Reserve Board Vice Chairman Roger Ferguson Jr., now chief executive officer of TIAA-CREF, the manager of retirement funds for employees of nonprofits. Some e-mails refer to a party they host during the December holidays, where regulators and lawyers mingle.”
Here are The Derivative Project’s previous posts on regulatory capture, the SEC and Wall Street. It is a significant factor in limiting a return to sustainable economic growth.

  • September 26, 2012:  The Derivative Project wrote to the SEC and New Dodd Frank SEC Advisory Committee on Regulatory Capture and Money Markets.  This  “Advisory Committee”, supposedly representing individual investors, refused to discuss pros and cons of this reform for individual investors.  Why?

“In sum, retail investor advocates work for Wall Street and are the “mouth pieces” in the media and Congress for retail investors.  This goes beyond “regulatory capture.” 

Congress, please consider this concept of regulatory capture and the February 13, 2013 Project On Government Oversight’s report on regulatory capture,  when examining the appointment of President Obama’s appointment for the SEC  Ms. Mary Jo White.  Based on POGO’s analysis and based on the damage to the economy in the 2008-2009 financial crisis, must Congress take critical steps to ensure there is separation of power and influence, and appoint a new SEC Chairman with no previous work experience and ties to Wall Street?
If not, why not?