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SEC Needs To Get Tough On Wall Street

Former BusinessWeek writer Matthew Goldstein hit the nail on the head in his Aug. 11 blog about the Securities and Exchange Commission’s so-called “scared-straight” campaign to clean up Wall Street. Goldstein appropriately calls the SEC’s latest round of enforcement actions, including those against Bank of America, General Electric and former American International Group CEO Hank Greenberg, “an attempt by regulators to clean-up the docket so the litigation papers can be sent to cold storage.” 

The Bank of America/SEC settlement is a perfect example of what Goldstein is talking about. Under the agreement announced Aug. 3, Bank of America would pay $33 million to settle charges by the SEC that it lied to shareholders about billions of dollars in bonuses promised to Merrill Lynch executives. Judge Jed Rakoff, the federal judge overseeing the case, has now nixed that deal, and on Monday, got BofA’s lawyer to reveal that in agreeing to the SEC’s settlement it didn’t believe it did anything wrong by deceiving shareholders. 

And therein lies the problem – and a very basic flaw in how the SEC operates. By allowing entities like Bank of America and others to simply pay a fine for an alleged offense without also publicly admitting their wrong doing, accountability becomes non-existent. The message is sent loud and clear that actions really don’t have consequences when it comes to Wall Street, and bad behavior, fraud and the like can continue on in full force.

The SEC and its new chairman, Mary Schapiro, purport to have a renewed sense of urgency for righting the wrongs of Wall Street. If that is the case, then the regulator needs to get serious about accountability. That means issuing a new mandate, one that requires individuals to admit liability before the SEC will sign off on any civil enforcement action. If the individuals in question refuse to admit their alleged offenses, then the SEC needs to put tough talk into action and proceed with legal recourse.

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