Taking The Gloves Off
The time has come to bring out the heavy artillery. The SEC has proven to be at best a paper tiger, and at worst complicit in aiding and abetting the fleecing of American companies and investors. Certainly, one can’t argue that they have taken no meaningful steps to enforcing their own rules and regulations. They acknowledge as much in the Euromoney article, where the arrogance and disdain displayed borders on contemptuous.
So, I was sitting around last night wondering what to do when the regulators aren’t doing their job – how do you get justice?
Answer: You take the ball away from them. You eliminate them from the loop. You render them trivial, or non-essential, to the justice process.
How do we do that? The answer is breathtakingly simple.
We take the process and we move it to the state level, as Elliot Spitzer did with the mutual funds.
In each state, there is an Attorney General and a head of the Department of Commerce or a Secretary of State, who oversees the state securities board. These entities can be used to remove the blocking that the SEC effectively mounts to any sort of effective action. They can file subpoenas and secure the information on the fails from the DTCC/NSCC – the DTCC/NSCC can’t just say no to a criminal investigation subpoena, and the DTCC/NSCC does business in every state, via the presence of their SMART software, which is used every day at the brokers in every state, and which is the property of the DTCC/NSCC, per the license agreement. So nexus and jurisdiction are easy to establish, and one doesn’t even require knowledge of who the perpetrator is – the data will tell the state that, as well as offer other vital data requisite to doing the diligence in a reasonable investigation. And it won’t be securities abuses, necessarily – it will be fraud, and racketeering - simple, easy stuff that doesn’t require or involve the Federal mechanism.
There is a certain level of art to the deal, and it is not a good idea to go rushing in blindly, using individual action and making demands. The state regulators are not required to pursue every criminal complaint filed, and one has to craft the case and articulate the merits of the complaint with a certain finesse, a sensitivity, if you will. And some states are going to be more receptive to moving on this than others. But some will move, and once they move, the game is over – the Federal mechanism that has been used to construct a wall of denial and lack of enforcement simply is not in place to run interference at the state level.
I will be working very hard over the next few weeks to think through the best mechanism to bring the states into the mix, and eliminate the requirement for any Federal involvement – it worked in Massachusetts in the Putnam fund case, wherein the Secretary of State filed subpoenas and within hours the SEC suddenly was there with their subpoenas. It works with Spitzer. And it will work here.
We will not be denied due process and justice by a regulatory arm that has unilaterally confused its mandate with running interference for the bad guys. It is unacceptable, and the data from the NSCC, once it is obtained at the state level, can easily become part of the public record. The SEC may feel that protecting the trading secrets of the hedge funds and brokers that are violating the law and manipulating our stocks is a good idea, but my sense is that the states won’t see it that way. And once the data is part of the public record, their ability to block us from knowing it is over.
The SEC just became an ineffective shield for the bad guys. They are rendered immaterial.
And it’s about frigging time. This just makes it official.