June 22, 2018
Testimony on "Oversight of the U.S. Securities and Exchange Commission" by SEC Chairman Jay Clayton (Before the Committee on Financial Services U.S. House of Representatives)
As BrokeAndBroker.com Blog and Securities Industry Commentator readers know, our publisher Bill Singer is a self-professed "libertarian" (which he reminds everyone is with a small "l"). Bill is not a Republican or a Democrat. He tends be be a progressive on social matters and a conservative on fiscal issues. He detests the inept and incompetent bureaucrats who waste our tax dollars. Given those biases, Bill is not much of a fan of any "commission," which he views as a cumbersome vehicle that foolishly injects politics into the serious business of enforcement and regulation, and tends to attract to the ranks of commissioners and chairs folks who seem to have little to recommend their service beyond cronyism and the talent for self promotion. There have been exceptions -- but few and far between.
SEC Chair Clayton has surprised his earliest critics and disappointed those who expected a do-nothing regime under his watch. Clayton has brought a focused, sensible, and pragmatic agenda to the SEC. Clayton has refashioned the SEC into a forceful prosecutor of affinity fraud, elder fraud, crypto fraud, Ponzi fraud, and other horrific frauds that devastate the most vulnerable among us. Quietly, Clayton has become one of Main Street's true champions. Under his guidance, the SEC is less about swinging for the fences than it is about fundamentals and small ball. Fewer strikeouts. More runs. Clayton is not without his imperfections but they pale in comparison to many of his predecessors'. Could there be a more robust regulation of so-called too-big-to-fail? Perhaps. On the other hand, in triaging the SEC's finite staff and funding, I would prefer to see the federal regulator aggressively pursue those who prey upon retirees, elderly, and the unsophisticated investors in contradistinction to allocating human and financial resources to file charges against multi-national financial services firms who pay fines out their shareholders' pockets and simply view their misconduct pursuant to a cost-benefits analysis.
Like it or not, there is Realpolitik on Wall Street and with its regulation. You and I may agree that it is unfortunate, even shameful, that large firms and influential folks escape justice. On the other hand, at this moment in history, with the Trump Administration in power, it would be absurd to expect that the SEC will pursue a robust enforcement agenda targeting large banks and broker-dealers. Given the cynical times we live in, I accept, for now, a trade-off in which the SEC reorients itself to small ball on Main Street rather then waste time and resources by going through the motions of investigation and prosecution of vested interests who will inevitably escape meaningful sanctions. It is, after all, an imperfect world we live in -- one that frequently elicits imperfect solutions. As imperfect as the Clayton SEC may be, at least it's erring on the side of getting between the crooks and the little guy. I'll accept the devil I know. Frankly, he doesn't come off as such a bad fellow.
Our publisher Bill Singer urges all serious Wall Street participants to read -- thoroughly read -- Clayton's published testimony before the House Financial Services Committee. Notably missing from the SEC's upcoming agenda is a lot of crap and feel-good idiocy that wasted far too much time in recent decades. Exercise your right to disagree with whatever you wish; however, at least give Clayton credit for focusing his organization on issues that matter. Consider Clayton's introductory observations leading into his more thoughtful remarks:
It is our Main Street investors, and their willingness to commit their hard-earned money to our capital markets for the long term, who have ensured that the U.S. capital markets have long been the deepest, most dynamic and most liquid in the world. Their capital provides businesses with the opportunity to grow and create jobs and supplies the capital markets with the funds that give the U.S. economy a competitive advantage. In turn, our markets have provided American Main Street investors with better investment opportunities than comparable investors in other jurisdictions. We should strive to maintain and enhance these complementary positions, including by being mindful of emerging trends and related risks.
The historic performance and strength of our markets is even more striking when viewed in comparison to world markets and world population. The U.S. population is only approximately 4.4 percent of global population, but of the world's 100 largest publicly traded companies, 53 are U.S. companies, representing 62 percent of the total market capitalization of those top 100 companies. These figures demonstrate the historic importance of our capital markets to the America economy and the American people and also demonstrate that our relative contribution to the global economy is a remarkable, long-term achievement that has been driven, to a significant extent, by our capital markets.
More significantly, at least 51 percent of U.S. households are invested directly or indirectly in our capital markets. This level of retail investor participation stands out against other large industrialized countries. When I engage with my international counterparts, they make it clear that they would like to replicate our capital markets' broad retail investor participation for many reasons, including the competitive advantage it provides to our economy and how our capital markets have made a broad cross section of Americans' lives better. This level of investor participation, opportunity and protection has been a decades-long endeavor involving the SEC, other regulators and market participants and should not be taken for granted.
Zipper Plays Sisyphus To FINRA's Zeus (BrokeAndBroker.com Blog)
For the intrepid few among you who still give a crap about this farce masquerading as Wall Street regulation, Polonius died of his wounds, Rosencranz and Guildenstern were hung out to dry, Ophelia got all wet and did not respond to CPR, Laertes got stuck on a point and bled out, Hamlet took a stab at setting things right and died of his wounds, Gertrude had one drink too many, Claudius had another drink too many, and, well, you know, there's this guy Fortinbras who seems to be taking over but, wow, who the hell names their kid Fortinbras? As such, enter stage right Zipper and Dakota. Enter stage left Horatio (remember him?) and FINRA. The curtain rises on Act XXXIV: In the Matter of FINRA Department of Enforcement, Complainant, v. Bruce Martin Zipper and Dakota Securities International, Inc. Respondents (FINRA Office of Hearing Officers Hearing Panel Decision, Disciplinary Proceeding No. 2016047565702 / June 18, 2018)
Lucia v.. SEC: Supreme Court Finds SEC ALJs Unconstitutional (BrokeAndBroker.com Blog)
After charging Raymond Lucia with securities laws violations, the SEC assigned ALJ Cameron Elliot to adjudicate the case. Following a hearing, ALJ Elliot issued an Initial Decision finding violation and imposing sanctions.On appeal to the SEC, Lucia argued that the administrative proceeding was invalid because ALJ Elliot was an "Officer of the United States" (as that term is used in the Appointments Clause in the Constitution) and he had not been appointed in a manner compliant with the provision. The SEC reject that argument. On appeal, the United States Court of Appeals for the D. C. Circuit rejected the argument by finding that ALJs are mere "employees" whose responsibilities do not rise to that of an "officer." On appeal, the United States Supreme Court found that ALJ are subject to the Appointments Clause as officers of the United States and reversed and remanded. READ the FULL TEXT SEC, DC Circuit, and Supreme Court materials..