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SEC "WAIVERS" AND "FAVORS" FOR WALL STREET

U.S. District Court Judge Jed Rakoff threw light on the Securities and Exchange Commission's longstanding practice of allowing firms that it has accused of fraud to buy their peace without admitting wrongdoing. He refused to approve a settlement agreed to Citigroup and the SEC in which Citigroup consented to, but expressly neither admitted nor denied, the charges. Judge Rakoff found that to be against the public interest. Both the SEC and Citigroup appealed the decision to the court of appeals.

In another case, this time against UBS, which "reads like a 'how-to' primer for bid-rigging and securities fraud," according to the SEC's complaint, UBS requested, and the SEC readily agreed to, a waiver from a rule that would have prohibited it from participating in certain securities offerings. In its letter requesting the waiver, UBS pointed to nine instances where the SEC had granted similar waivers. These waivers are significant concessions given to big firms that the SEC has repeatedly charged with significant wrongdoing, including fraud. The repeated granting of waivers supports the widely held belief that the SEC is a captive of the industry it is supposed to regulate.

Susan Antilla's recent Bloomberg column summarizes the securities regulatory enforcement activity in 2011 as a series of breaks, favors and waivers doled out by the regulators to big Wall Street banks. To be sure, the regulators often lower the boom on the small players, but Wall Street is another matter. ("Wall Street's Big Swingers Get the Biggest Breaks: Antilla," Bloomberg).

The revolving door between the SEC and Wall Street also caught Ms. Antilla's attention. The presence of so many former SEC senior attorneys on Wall Street defense teams fosters a club-like atmosphere. It exists unseen under the cover of the SEC's public charges, and is thought to be largely responsible for the favors and waivers and "neither admit nor deny" settlements.

The Financial Industry Regulatory Authority (FINRA), an organization entirely funded by the securities industry, whose senior executives receive 7-figure compensation packages, has primary responsibility for regulating its member brokerage firms. As Ms. Antilla points out, it can be tough and tenacious with smaller firms, but a big swinger, like Jon Corzine, former CEO of defunct MF Global, got a waiver from a requirement that anyone who has been out of the securities business for over two years must take applicable licensing exams. Corzine took over MF Global in 2010 without taking any exams, after having been out of the business since 1999.

Fewer favors and more firmness from regulators - even to the point of digging in their heels to enforce rules - would be a good idea, according to Ms. Antilla.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.