The sleeping watch dog: aka the Securities and Exchange Commission
| Pages | 208-221 |
| Published date | 26 July 2011 |
| Date | 26 July 2011 |
| DOI | https://doi.org/10.1108/13581981111147856 |
| Author | Frank S. Perri,Richard G. Brody |
| Subject Matter | Accounting & finance |
The sleeping watch dog:
aka the Securities
and Exchange Commission
Frank S. Perri
County of Winnebago, Rockford, Illinois, USA, and
Richard G. Brody
Anderson School of Management at the University of New Mexico,
Albuquerque, New Mexico, USA
Abstract
Purpose – The purpose of this paper is to expose inefficient regulatory policies and organizational
weaknesses at the Securities and Exchange Commission (SEC) that have contributed to a series of
regulatory oversights that have produced some of the largest fraud schemes perpetrated on investors.
Design/methodology/approach – Sources of information consisted of scholarly articles and
articles retrieved from the web.
Findings – Findings suggest that although weaknesses that have been exposed at the SEC may not
account for any one securities fraud oversight, cumulatively, the weaknesses create negative synergy
that increases the probability that a regulatory oversight will occur.
Originality/value – This paper serves as a useful guide to alert and educate securities regulators
and enforcement, regardless of the country they may operate in, to examine their own regulatory
policies and organizational structures for weakness that may be similar to the SEC.
Keywords Securities andExchange Commission, Fraud, Ponzi schemes,Securities
Paper type Research paper
Introduction
The mission of the US Securities and Exchange Commission (SEC), an independent
federal agency, is to protect investors, ensure efficient securities markets, and facilitate
capital formation. The SEC regulates public companies and public offerings of securities
under the Securities Act of 1933 and the Securities Exchange Act of 1934. The SEC also
oversees other participants in the financial industry, including securities exchanges,
brokers and dealers, investment advisers, and mutual funds. In recent years, however,
the SEC has suffered high-profile setbacks; most notably, it failed to apprehend
Ponzi schemer Bernard Madoff and to anticipate the current financial crisis. Although
this article’s focus is not on Madoff, the Madoff case is particularly instructive because it
amplified in a very public way the weaknesses of the SEC. The SEC’s failures are
symptomatic of a myriad of inter-related problems, such as a culture that discourages
examining frauds that appear complex when they in fact may not be complex, attorneys
who do not have securities industry knowledge to understand how the frauds they
are charged to prevent actually occur, and the impression that the SEC’s staff appears to
be “captive” to private organizations on Wall Street because the people they intend to
regulate are viewed as their future employers once they leave their public service
employment. Consequently, the requirement of regulatory independence, both in fact
and appearance, seems compromised.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JFRC
19,3
208
Journal of Financial Regulation and
Compliance
Vol. 19 No. 3, 2011
pp. 208-221
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981111147856
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