Who Does the SEC Serve?

Who Does the SEC Serve?
By William Cate
Published May 2001
[http://home.earthlink.net/~beowulfinvestments/] [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

In 67 years, the SEC hasn't found a way to protect investors from
their own stupidity. I'm not sure that you can outlaw stupidity. I'm
certain that it can't be done by 20,000 Government lawyers.

The SEC has created the illusion that American stocks are credible
investments. This benefits the American brokerage community. The core of
the stock fraud problem are some of these brokerage firms. Like J. Edgar
Hoover's refusal to investigate the Mob, the SEC doesn't seriously
investigate major brokerage firms, the NASD, or the Depository Trust
Company (DTC). If the SEC charged Michael Miliken, why weren't the owners of Drexel charged? Why is the Federal Reserve charged with investigating the DTC? The Feds own sixty percent of the DTC. It's like asking the fox to investigate the murder in the hen house. The Law and SEC policies usually protect the crooks on Wall Street.

The SEC's goal in ending shell sales is to stop stock promoters
from defrauding the public. Their theory appears to be that increasing
costs will discourage the crooks from going public. It won't work. It will
only drive up the cost of raising money for honest business owners and
entrepreneurs. Higher costs means more crooks in the Market and fewer real
business investments. The crooks will move to spinoffs long before most
honest business people realize that spinoffs are the last low cost option
to going public. The SEC will pressure Congress into ending spinoffs.
Unlike shells, spinoffs are protected by Section 12 of the 1934 U. S.
Securities Act. Congress must change the Law to close the spinoff option.
However, excluding honest business people from the Market creates pressure
on Congress to reverse the SEC's regulatory policies. Eventually, Congress
will liberalize listing requirements. The cycle will repeat itself. The
crooks will continue to "Pump & Dump." Some brokerage firms will steal
billions from the public. The farce will continue.

For nearly seventy years, the SEC's mistake has been to focus on
form rather than substance. Attorneys believe that you can pass a law or
regulation that will protect Society from its crooks. It can't be done.
Whatever Law you pass, there is always a loophole. Closing the loophole
creates other loopholes. The process is cyclic. It's never ending.

There are good aspects to the American Securities Laws, like full
disclosure. However, the Law must serve the best interest of the public.
The SEC should ensure that the crooks only get one shot at defrauding the
public. They should have policies that reduce the costs of going public
rather than be the driving force for higher costs. The SEC should require
investors to take a "street smart" course in risk capital investing before
they can open a brokerage account. It should be taught by the SEC, after
the SEC becomes "Street Smart."

The SEC serves itself. While the Bear won't walk Wall Street now,
it will eventually return the size of Gonzilla. By that time, we'll have
had eighty years of SEC regulatory failure. I doubt the attorneys working
at the "Death Star on the Potomac" will get another chance to serve the
public and honest business people.

Common sense isn't common. This axiom is truer inside the Belt Way
than in small town America. When you can't afford to raise money for your
business, blame the SEC. When you learn that you can't raise money for your
private business and can't go public, blame the SEC. When you lose your
retirement money in the Market, blame the SEC. The SEC serves itself. You
pay them to do it.

To contact the author: Visit the Beowulf Investments website: [http://home.earthlink.net/~beowulfinvestments/] Or, visit the Global Village Investment Club Website:
[http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]

He has been the Managing Director of Beowulf Investments [http://home.earthlink.net/~beowulfinvestments/] since 1981 and is the Executive Director of the Global Village Investment Club [http://home.earthlink.net/~beowulfinvestments/globalvillageinvestmentclubwelcome/]