The Derivative Project

SEC Chairman White Thinks a Law Degree is What is Needed to Protect Retirement Savers

SEC Chairman White Thinks a Law Degree is What is Needed to Protect Retirement Savers

In just one month since taking office,  new SEC Chairman Mary Jo White has shown her true colors: an overriding allegiance to the demands of Wall Street over the life savings of retail retirement investors.

Let’s remind Chairman White over $2 trillion dollars of American’s retirement savings were needlessly lost in the 2008-2009 financial crisis.  The Dodd Frank Bill enacted in 2010 required the establishment of an Office to handle the overwhelming issues of retail retirement savers who in their IRA’s and 401K’s have no access to a legal due process when their retirement savings have been taken, when Federal securities laws have been breached.
What are Chair White’s Decisions To Date?

Ignore the need for massive reform of the investment advice system, its regulatory oversight structure and keep it status quo.  The fact that there is now over $4 trillion dollars in IRA’s and the SEC does not make protecting retail retirement savers a top priority is cause for significant concern. 
The SEC’s Number 1 priority will be to increase exams of investment advisers, as defined in her Speech before Congress on May 7, 2013, not bring about fundamental changes that must include:
  • The right of private action for every IRA saver, where Federal Securities laws have been broken
  • An immediate ban to mandatory arbitration for every retail retirement account as Congress has requested the SEC consider
  • An immediate ban to wrap accounts that violate the Investment Advisers Act of 1940, by allowing a blurring of the roles of salesperson and adviser
To continue status quo and just spend more money on investigating all the rogue advisors, SEC Chair White, ignores the simple fact that billions in taxpayer dollars could be saved by revamping the flawed investment advice industry and its current regulatory processes.  Despite Congress’ (Senator Franken’s (D-MN) plea, as described in this AdvisorOne article link, for structural change and a ban to mandatory arbitration, SEC Chair White doesn’t even reference it as a top priority for consideration.
What is Needed to Protect Retirement Investors?

Where were all the SEC attorneys at the SEC during Madoff, Stanford, the financial crisis, and now an unprecdented growth of investment adviser enforcement actions?  Chairman White, doubling down on a failed regulatory process is a complete waste of taxpayer dollars.  Hiring more attorneys is not the solution.  A new model, a new enforcement model is mandatory, along with a complete reexamination of the Investment Advisers Act of 1940′s failure to protect the trillions of dollars in retirement nest eggs.  
The issues are significant, yet received no mention in Chairman White’s Top Priorities:
  • Target Date Funds that lost and are losing billions of dollars in retirement savers’ nest eggs
  • Money market funds that carry systemic risk that may explode when interest rates move up
  • Retail retirement investors lack of access to markets during flash crashes
  • A “fiduciary” model that is fleecing retirement nest eggs by billions of dollars in worthless fees
  • Structured products, with derivatives, that not even the Advisor understands
  • A ban on Wrap accounts that breach the Investment Advisers Act of 1940
  • No Legal Due Process for IRA investors
Chairman White Mandates a True Dodd-Frank Investor Advocate Must Be an Attorney

Can an attorney advocate for what he does not understand first-hand?  A true advocate can only be a retail retirement investor, who understands the limitations of the current regulatory process and the inside of the financial services industry that caused the 2008 crisis and the whys behind it.

To solidify the financial services industry control of the right to transparency for retail retirement accounts and the right to a legal due process, Chairman White immediately eliminated all bona-fide Investor Advocates who were being considered for the Dodd-Frank Office of Investor Advocate, under Chairman Shapiro’s administration and sent them letters last week that they were no longer eligible for the position, despite the former SEC Chairman finding them eligible.
Chairman White believes the only eligible applicant to represent individual investors is another attorney, a Washington Insider.  Chairman White has now officially shown her hand.  There can be no real transparency at the SEC, any retail retirement investor, will continue to have their life savings at risk.
  • Chairman White officially threw out the bona-fide retail retirement investor advocates, who have industry experience, day-to-day retail retirement investing experience, first-hand retail retirement experience in FINRA arbitrations, professionally-trained in all aspects of global capital markets, and fashioned a new job description and replaced the old job description requiring a law degree to be eligible to apply for the investor advocate position, outlined in a new job description that will ensure the SEC can place a “Washington Insider attorney” in this advocate position.
Remember Congress passed the Dodd-Frank Act in July 2010.  Since then the SEC has run the application process twice.  SEC Chair White is starting the application process for the third time, since they just can’t quite figure out how to legally eliminate those that truly qualify, but Wall Street doesn’t want employed by the SEC.
The first time a Washington Insider, a former SEC attorney, who also is currently a Vice President of a asset management firm and is a SEC registered investment advisor, was on the short list.  The Derivative Project alerted the SEC that an “Investor Advocate” should not also be employed by a Wall Street firm, as it was most certainly a conflict of interest.  The fact that the SEC could not appoint an “insider” caused them to start the process all over, waiting over two years, with the hope that perhaps these “gad-flies” would find another cause.
The second time, a bona-fide retail retirement investor advocate was on the short list.  The financial services industry prohibited the SEC from making this appointment, as rumored in this media report:
  • Here is a summary from a September 2012 Time 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.
Now, the third time, the SEC has made it clear, it will not hire some “advocate” who actually understands the financial services industry and the needs of retail retirement investors and what bona-fide, structural changes are necessary. The SEC will defer to Inside the Belt-way and go with an “approved” advocate attorney who will not push the envelope too far…just a little protesting to satisfy those in Congress that wanted the new “Office of Investor Advocate.”
Oh, what a waste of taxpayer money.  Take cover retirement investors.  Time to take control of your savings. Bona fide investor advocates have the structural changes coming soon to help you protect your retirement nest eggs, since the regulators have failed you, once again.