The Derivative Project

Regulatory Capture and the Critical Role of “Poverty Stricken” Consumer Advocates

Regulatory Capture and the Critical Role of “Poverty Stricken” Consumer Advocates

The Project on Government Oversight (POGO) held a debate on their excellent recent report on the revolving door, “Dangerous Liaisons” at the SEC last week, in New York City. 

At this Debate, Susan Antilla, journalist and columnist for Bloomberg, Highlighted Plight of “poverty stricken consumer advocates.”
“If you look at the rulemaking information that the SEC puts on its website, particularly if you look at the Dodd-Frank Act, you’ll see the preponderance of the meetings that the SEC has is with the industry or the Financial Services Roundtable or fill-in-the-blank with the bank’s name,” she said.
“Every once in a while you’ll see some poor, literally poverty-stricken consumer advocate in there too,” Antilla added, “but I can promise you, they are not at the cocktail parties with the SEC alumni and the current SEC people. You can just look at those filings and you’ll see there’s no [consumer] voice.”
Poverty-Stricken by Choice – The Positives

The Derivative Project is an investor advocate, “poverty stricken” by choice.  We do not want to be beholden to any other group or entity that would cause a conflict that would comprise the objective and outcome for the advocacy work. 
The positive is that we seek to advance an Agenda that is in the best interest of the individual retirement investor, who lost over $2 trillion dollars in the most recent financial crisis, without conflict. 
Poverty-Stricken by Choice – The Negatives
Big money and main stream media fund today’s public “investor advocates.” Currently, all the “consumer advocates’ work for Wall Streeet, such as Barbara Roper of the Consumer Federation of America and Mercer Bullard, Fund Democracy.  There is a reason Fund Democracy has disappeared from the internet, but is still the “go-to” for main stream media when they seek comment from a “consumer advocate.”  Ms. Roper has worked hand-in-hand with Mr. Bullard for many years as representatives for “investors”.  They have done excellent work on disclosures on 401k fees in mutual funds, however, on the most critical issues, they represent Wall Street.
For example, they worked hand-in-hand with the SEC to:
  • Appoint a Wall Street employee for the Dodd-Frank congressional mandated SEC Investor Advocate position. 
  • Present congressional testimony on money market mutual fund reform that benefited Wall Street, without disclosing their critical conflicts of interest with Wall Street.
  • Refuse to bring to light the most crucial retail investor protection issue, enforcement of the breaches of the Investment Advisers Act of 1940 by Wall Street today, that is harming and causing significant losses to retail retirement investors.
Wall Street was All Set to Have the New Dodd Frank Advocate be A SEC Employee

“Lawmakers insisted on legislating the committee partly in response to the $65 billion Bernie Madoff investment fraud scheme, which was flagged to the SEC’s attention several times over the years by a whistleblower. The tips were ignored by SEC employees, in part because of Madoff’s clout on Wall Street.”
As the Center for Public Integrity reported in November 2010, Mr. Bullard was rumored as the SEC’s choice for the Dodd Frank required Investor Advocate.    Mr. Bullard, in 2010, worked for a Wall Street firm, which was not disclosed to the public.  The fact that Mr. Bullard was a Wall Street employee was not referenced in The Center for Public Integrity’s article on Mr. Bullard.  Why?
The November 16, 2010 article states, “As the Securities and Exchange Commission considers who will lead a new office giving Main Street investors a bigger megaphone within the agency, the short list is said to include Mercer Bullard, a University of Mississippi law professor and head of a shareholder advocacy group.”
Here is Mr. Bullard’s SEC investment adviser registration, updated February 2009, as taken from the SEC website:
The report summary provides an overview of the Investment Adviser Representative’s professional background and conduct. The information contained in this report has been provided by the Investment Adviser Representative, investment adviser and/or securities firms, and/or securities regulators as part of the states’ investment adviser registration and licensing process. The information contained in this report was last updated by the Investment Adviser Representative, a previous employing firm, or a securities regulator on 02/17/2009.”
The “Investor Advocate” Testifies before Congress without Disclosing he is employed by Wall Street
Mr. Bullard, “Investor Advocate” testified before Congress on “
The Derivative Project’s meeting, Agenda and materials presented to three SEC Commissioners on December 3, 2010 and SEC Chairman Mary Shapiro’s Deputy Chief of Staff were not disclosed per their rules and regulation.  It was conveniently “lost” and not posted on the SEC website.  One can review the list of meetings on the SEC Advocate role in 2010, at the link above. 
SEC and Investor Advocates Refusal to Prosecute Investment Advisers Act of 1940 Violations
When The Derivative Project asked the SEC to post our December 3, 2010 meeting materials, as required, they refused, but posted a August 26, 2011 a telephone call and Memorandum that specifically addresses the request that they reflect the subject matter of The Derivative Project meeting on December 3, 2010.  Here are the Petition for Rule Making per SEC protocol on April 3, 2012 and have tried on numerous occasions to present our rationale for this rule change to protect investors to the SEC’s Division of Investment Management and issues with FINRA and investor access to bona fide constitutional rights for due process that are being breached by the SEC and Wall Street.  They refuse to discuss and address our retail retirement investor protection concerns.
  • Staff of the SEC Division of Investment Management refuses to even return our calls or meet with us to understand our position on why this change is so critical to individual retirement investors.  We have reviewed who the Division of Investment Management is willing to meet with.  Ms. Antilla is correct, it is clear they will only meet with representatives from Wall Street or “consumer advocates” that are hand-picked and groomed by Wall Street or are employees of Wall Street firms.  This is indeed regulatory capture.
Captive SEC Investor Advisory Committee
Further, Dodd Frank required a new SEC Investor Advisory Committee to help the individual investor.  This new committee is comprised of all members hand-picked and affiliated with Wall Street, who have absolutely no experience in day-to-day global capital markets.  They refused to allow on this committee the perspective of a truly independent voice, such as The Derivative Project, experienced in global capital markets or an active retail retirement investor, who:
  • Understands real losses during the May 6, 2010 flash crash where brokerage firms, such as Charles Schwab, allowed retail investors to sell and take losses, but prohibited retail investors from buying at the low that day.  The SEC refuses to deal with critical retail investor issues.
  • Understands real losses from corporate bond spreads that lack transparency
  • Understands systemic risk that OTC derivatives could pose, from direct experience trading them and managing counter-party credit risk for an international bank.
  • Understands from commercial banking experience what potential systemic risks money market funds may pose and how lack of transparency in money market funds is still harming the individual investor.
  • Understands how constitutional rights are being breached through the Wall Street kangaroo court, FINRA, that controls all individual investor complaints of breach of securities’ laws.
In sum, the Agenda at the SEC is controlled by Wall Street. The investor advocates work for Wall Street. One need look no further than the composition of the Dodd Frank required SEC Investor Advisory Committee composition. Barbara Roper, who is the sole “consumer advocate” on the SEC Investor Advisory Committee openly supported the appointment of Mercer Bullard as the SEC Investor Advocate and would not return phone calls to The Derivative Project on the subject of needed additions to individual investor protections concerns.  As the November 16, 2010 Center for Public Integrity’s article on the SEC Investor Advocate position stated:
“Barbara Roper, a financial services expert with the Consumer Federation of America, said in an e-mail that Bullard’s qualifications “would be hard to beat.”  (TDP Note:  Yes, he works for Wall Street–what could be more convenient?)
One needs a large budget and money to have access to taxpayer-paid SEC staff

Susan Antilla is indeed correct.  If one is a “poverty-stricken” consumer advocate, you will not be allowed to meet with SEC staff, it is just that simple.  Wall Street’s hand-picked  “Consumer Advocates” will not return your phone calls to discuss increased investor protection.  They control the Agenda on what the individual investor requires. Money buys access and controls the Agenda for Wall Street.
The Results of a “Poverty-Stricken” Advocate’s Meeting with the SEC
We were finally able to schedule a meeting with SEC Commissioner Aguilar on our Petition for Rule Change on July 19, 2012.  We spent money for hotel and airfare and taxis to come to Washington D.C. to discuss the rationale for our Petition for Rule Change. We also tried to meet simultaneously with the Division of Investment Management, to minimize costs, but they refused to meet with us, with no explanation.
Yes, we are aware most lobbyists would find it “quaint” perhaps laughable, that our budget is so small that airfare and taxi costs actually matter.  What does matter is that our budget is tiny, but our ideas are independent and do present needed systemic change, that are worthy of public debate.  Because we are “poverty stricken” we do not have access to meetings with taxpayer-paid SEC staff or access to debate on bona-fide, material investor protection issues with SEC Commissioners.  
On July 19th, the Commissioner and his Chief Legal Counsel showed up twenty minutes late for our meeting, gave us but a minute to discuss our Petition for rule change, and simply stated they had not read it and therefore could not discuss it.  It was a complete waste of t
ime and taxpayer- money for all parties.  Further, the SEC Commissioner then posted on the SEC website the implication that they had a conversation about this petition for rule change which is not the case.  They would not comment on it, its pros and cons, and would not discuss it.
“Rachel Barkow, a professor at NYU Law School, said the problem is not the revolving door per se, but rather the idea that “regulators are really on the same team or focused in the same way as the entities they’re supposed to be regulating. I think that’s a valid concern.”
This statement sums up the issue.  In sum, the attorneys at the SEC have been and are working hand-in-hand with Wall Street, the Judicial system, the Executive Branch and the Department of Labor.  They are prohibiting valid strategies to prevent a potential reoccurrence of the systemic issues that caused the unconscionable loss of over $2 trillion dollars in American’s retirement savings to air publicly.   Why?  It would impact Wall Street’s profit model.
Simple regulatory changes can prevent the scope of these losses from happening again.
Thus, the issues are far more systemic than a “revolving door at the SEC”.  POGO’s report is excellent, but only hints at the far greater issue.  The issue is a broad-based legal or judicial system regulatory capture that has permitted an entire industry to block an individual investor’s access to the Judicial system. It is embedded in the nature of our securities’ laws and in the essence of ERISA protection for IRA’s.  In sum, this “regulatory capture” is not only at the SEC, it is at Congress, the Executive Branch and within our Judicial system.  
Securities’ laws are being breached and broken on a daily basis and the individual retirement investor has no access to the courts to plead their case.  There is no “private right of action”. Class action lawsuits are prohibited for individual retirement accounts, which now represent a segment with more assets (over $4 trillion) than in 401k’s. 
There are significant investor protection loop-holes in ERISA for IRA’s that Wall Street is fighting to ensure they remain.  Both Democrats and Republicans in Congress support Wall Street on their intent to save their phenomenal loophole in ERISA IRA legislation. The Derivative Project’s congressional representatives, Senator Klobuchar and Senator Franken refuse to meet on these most critical issues.  They, too, are captured by Wall Street and are afraid to take a stand, as they would not want to become “poverty stricken” when reelection time comes.
The revolving door at the SEC is just a small part of the “regulatory capture.”  The scope of this capture is indeed beyond the imagination of what most American’s envision of our democracy and the “balance of powers” engrained in our souls from fourth grade social studies.
The Impact of Washington Ignoring “Poverty-Stricken” Advocates 
Here is a Worksheet from Congressforkids,net, that requires a long-over due correction for our nation’s children. Congress for Kids needs to add a box on their Worksheet that presents the issue of “regulatory capture” where money now is power.  Money has eliminated our nation’s constitutional intent that no single branch will become too powerful.  Money now controls all three branches.
Checks and Balances Game

The U.S. Government is made of three equally powerful parts: the Executive, Legislative, and Judicial branches. Each branch has some authority over the other two, ensuring that no single branch becomes too powerful.