Hindsight & the SEC

The official role of the Securities and Exchange Commission is to execute seven major laws that govern the securities industry.

While that is a simple sentence to write, the sentiment behind it is anything but, mostly because those seven laws cover a broad range of areas that often meet at the crossroads of ‘careful insight’ and ‘decisive action.' Determining which should take precedence is somewhat of a gray area.

Two recent news items represent a perfect example:

This week, Harry Markopolos, the Bernie Madoff whistleblower, will release his new book "No One Would Listen" which tells the inside story of how he uncovered the $65 billion fraud. In it, he targets the SEC for their inaction. Here is how the Huffington Post is reporting it:

“Markopolos wields a bludgeon when it comes to the Securities and Exchange Commission, which effectively ignored his several complaints about Madoff, even after he provided the agency with detailed files of his findings. He goes into detail to describe his frustrating encounters with SEC employees, who usually didn't understand what he was talking about. And he even places ultimate blame with the agency if anything dangerous happened to him or Madoff.”

The article goes on to discuss other examples of cases in which the SEC as seemingly apathetic to documented crimes. Obviously this is a scathing timeline of situations that affect people who expected this organization to protect them from such crimes. However, juxtaposed to this story is one in which inaction by the SEC on an issue is being praised. Businessweek’s David Reilly commended the SEC this week in his commentary regarding their role in the decision to switch the U.S. accounting system to be more globalized. In it, he writes the following:

“The SEC shouldn’t foist massive change onto markets unless we know what we’re really getting into. Until then, it makes sense for the U.S. to go it slow and alone for at least a while more.”

“Until the SEC can provide investors and Congress, which is sure to weigh in at some point, with an answer to how it will deal with that fundamental flaw, the agency would be crazy to rush to switch.”

These two examples are clearly very different types of issues and investigations. However, the broader point is that decisions by the SEC as to whether to be aggressive or prudent are often determined to be correct only in hindsight. Hopefully, the SEC knows that the complexity (and therefore, the ability to exploit the complexity) of the global economy will not get any easier, so their ability to stay ahead of the curve and make the best decisions will be vital. This will be easier to accomplish, though, if individuals and organizations continue to cooperate with the SEC, whether voluntarily, or simply by meeting compliance regulations.