Regulatory Overreach – Pushing Back Against the SEC and FINRA
September 1, 2021
As seen on The DI Wire
Warren Buffett once famously proclaimed, “If a cop follows you for 500 miles, you’re going to get a ticket. And we’ve had a lot of cops that have been following for a long time. And they’re going to write some tickets. You cannot be active in a big business without making some mistakes.” This quote was in reference to Jamie Dimon and the “London Whale” trading losses of 2012. While JP Morgan agreed to pay more than $900 million in fines, the company and their CEO are both doing just fine today.
According to the Good Jobs First Violation Tracker, more than $30 billion has been paid to the SEC and more than $1.3 billion has been paid to FINRA by the financial services industry since the year 2000, with names like Bank of America, JPMorgan, Citigroup, Wells Fargo, and Goldman Sachs all among the top ten offenders. If these large, established institutions with teams of highly paid lawyers so regularly run afoul of the SEC and FINRA’s regulations, what hope do smaller businesses have?
And that is the rub – that although JP Morgan and other large banks are able to pay their “tickets,” the challenging web of inequality and hypocrisy created by the SEC Division of Enforcement remains in full effect, with small and medium-sized financial institutions bearing the brunt of the government’s duplicity.
Buffett claimed that you cannot be in “big business without making some mistakes,” but I contend that, given the SEC’s exceedingly complex and overreaching regulations, you cannot be in any financial business without eventually having a run-in with Uncle Sam. So many small business owners and individuals, with often very limited resources, are then pitted against a system with unlimited resources. This places the business owner in a dubious position where he or she must either (1) pay the exorbitant fine, severely affecting the business’ working capital and essentially “admitting” guilt in the public eye or (2) fight against the U.S. government, a goliath of an institution with endless resources. This is not justice. This is not freedom.
In 2020, the SEC filed 715 enforcement actions, fewer than previous years, but still managed to recover “record-breaking” fines with over $4.6 billion in penalties and disgorgement collected. Additionally, the SEC’s hypocritical whistleblower program was also more prominent than ever before with approximately $175 million being awarded to 39 individuals, both numbers being new records. While the government now seems happy to pay bounties to informants, it was only a few short years ago that the SEC viewed this type of “kickback” as a conflict of interest. Apparently, however, if you are the government, it is perfectly ok to pay off your witnesses.
Similarly, FINRA issued $57 million in fines in 2020, an increase of $19.5 million from the previous year.
Already I can hear some proponents of these institutions proclaiming that we need rules and regulations to punish the bad guys and keep investors safe. Of course, we do need some sort of system in place to protect investors, but when you have the type of uncontested, overreaching control that the SEC and FINRA currently wield, this is not protection. This is tyranny. In Common Sense, Thomas Paine, another author who had to publish his work anonymously, said, “Common sense will tell us, that the power which hath endeavored to subdue us, is of all others, the most improper to defend us.”
Now is the time to cast a light on these issues and begin an overdue dialogue on the proper role of the SEC and FINRA to hopefully work towards improvements in the regulatory enforcement process. The examples of draconian overreach are legion — I will attempt to share them as well as provide thoughtful ideas to change things for the better. It is high time that a thoughtful dialogue and examination begin on the current system and its terrible flaws. How can we fix and improve things?
I will need help. I invite you, dear reader, to share your own stories, thoughts and ideas. How have you, your business, or your investors been affected by governmental overreach? What was your reaction? And how do you think these issues can be resolved?
Please post a blog comment or write to me at Publius.Connect@gmail.com to participate in this important process.
As leaders in the financial industry, it is our duty to create an environment that is fair and equal for all in our sector and allows us the freedom to pursue our goals of providing wealth and prosperity for our businesses, our employees, our investors, and our communities.
