Author William Cohan did a writeup of the Darcy Flynn story yesterday, and couched it in the form of a call to dissolve the SEC and remake it with new structure and new rules. I was initially skeptical – I’ve been getting a lot of, “See, we were right all along, there shouldn’t be any government regulation” letters since my SEC piece came out – but I like Cohan’s idea:
A new SEC would pay its top officials much higher salaries (in line with top private-sector attorneys) but not allow any of them to have previously worked on Wall Street or to go there for five years after they leave the agency. It would have genuine law-enforcement power, as opposed to the SEC’s civil-suit-only mandate, and be able to indict a firm and its top executives for wrongdoing. In other words, the agency would have the chops to regulate a powerful industry badly in need of it, free of conflicts of interest.
It’s now crystal clear -- and beyond unconscionable -- that the SEC stopped doing its job long ago. We need to rebuild it on a more secure foundation.
Cohan’s proposal would do an awful lot to clear out two of the agency’s main problems, the revolving door and its impotence to properly (and speedily) combat criminal wrongdoing. As it is, the SEC can only refer criminal cases to the Department of Justice for prosecution, which a) slows down an already slow enforcement process to an absurd degree and b) is one of the reasons that people like ex-SEC enforcement lawyer Jacob Frenkel can claim with a straight face that the SEC is “not a law enforcement agency.”
Frenkel said this yesterday in an on-air discussion with me and Michael Smallberg of the Project on Government Oversight on the Kojo Nnamdi show in Washington, and to me this symbolizes the attitude among some people in the agency. If even people from the Enforcement Division deny they’re in the "enforcement" business, you know the agency has issues.
But Cohan’s plan seems to make a lot of sense. A five-year window would weed out a lot of “qualified” appointees, but it would also vastly reduce the temptation among top SEC officials to help out future employers in enforcement cases.
As it is, ex-SEC officials don’t have to wait even ten minutes to start whoring for the banks after they quit the SEC. Incidentally, Frenkel had an amusing answer when asked about that yesterday on the Nnamdi show by Washington Post reporter Marc Fisher:
Fisher: In the past five years, there have been more than 400 cases of SEC enforcement employees going right to work for outside companies that had business before the SEC. Jacob Frenkel, is there a problem with that?
Frenkel: Well, federal regulations permit it.
If “federal regulations permit it” is the best justification for allowing instant-lobbying by former SEC officials, that’s a pretty clear signal that it’s time for the policy to change.