Times Softens SEC Bashing
posted by Lawrence Cunningham
On Monday, I posted my opinion that people should be cautious in rushing to rebuke the Securities and Exchange Commission for any failures leading to the Madoff Ponzi scheme. Also on Monday, the New York Times engaged in such a rush. In today’s paper, the Times softens that stance. These views may have some bearing on whether the SEC survives, is dismantled or reconstituted in coming financial regulation reform.
My post said charges against the SEC for failure in the Madoff case should be looked into but that it was equally likely that the charges would prove incorrect. Above all, I opined that talk of SEC blame for the Ponzi scheme risks distracting from manifestly pressing matters of systemic significance arising in the general financial crisis.
In Monday’s Times Stephen Labaton painted a very unflattering piece on the SEC, emphasizing its alleged failures to interdict the Madoff scam, and quoting Chris Cox, current SEC Chair, as acknowleding some fault. The story, which ran on page B6 and spanned 876 words, called the Madoff episode the “latest black eye” for the SEC. It also mentioned the SEC’s failure to anticipate the problems at Bear Stearns, and cited SEC inspector general reports on “several major botched investigations” (although without noting that those reports have been contested by other SEC officials).
The Monday story also reported on other rumor-based and word of mouth complaints about morale among SEC staff, even assertions of a “hollowing out” of the agency under Bush administration directives.
In today’s paper, Mr. Labaton offers a different view.
Today’s piece, a page B1 story of 680 words, consists mainly (198 words) of quotations from or views attributed to Arthur Levitt, SEC Chair during the 1990s. These, based on an interview conducted Monday according to the piece, flatly reject any notion that the SEC is any way culpable in enabling or not preventing the Madoff scam. Today’s piece also allocates about 96 words to views of Mr. Cox, current Chair, now said to have “softened his criticism somewhat” when quoted as saying: “there is no evidence that anyone is aware of at this point that any personnel did anything wrong.”
One suspects that today’s story may have been prompted by a telephone call from Mr. Levitt to Mr. Labaton, in response to Monday’s story. Whether that suspicion is correct or not, such stories are important because these disputations and public perceptions of the SEC will play an important role in coming discussions of financial regulation reform as the Obama administration takes office. The entire system of financial regulation faces renovation, including in the fields of banking, insurance, securities and commodities. There is a good chance that many agencies will be terminated or reconstituted and others merged and consolidated.
If talk of a terrible SEC continues without balance, you can be sure that this will increase the chances that the SEC will be a casualty of the current crisis. SEC-bashers will cheer. But for those, like me–and evidently Mr. Levitt–who regard the SEC as a vital and historically effective agent for investor protection, its demise would be a real loss. This week, Monday’sTimes’ story was bad for the SEC; today’s is better. Best would be stories that provide impartial appraisals of the agency’s strengths and weaknesses.