February 10, 2012

The Case for the SEC’s Self-Funding: House Financial Services Chair’s Alleged Insider Trading

I’ve written repeatedly how absurd it is for a so-called independent federal agency – like the SEC – to be subject to the very real political pressures and whims of Congress. And the political pressures faced by the SEC have only grown since the passage of Dodd-Frank a mere two years ago. You may recall that the Senate’s version of Dodd-Frank envisioned a self-funded SEC – a concept to be lost during the House-Senate conferencing leading up to the bill’s enactment (if I recall, House conferees had accepted self-funding but some Senators stripped it from the final bill). Dodd-Frank also was supposed to dramatically bolster the SEC’s resources, a notion that was quickly buried after it became law.

So what to do with the front-page article in the Washington Post today that Rep. Spencer Bachus (R-Ala.), Chair of the House Financial Services committee – the one that oversees the SEC – is being investigated for insider trading by the Office of Congressional Ethics? The case is the first of its kind involving a member of Congress. Although I wouldn’t hold your breath given that the OCE’s powers are limited (egs. can’t compel cooperation with an investigation nor does it have subpoena powers).

But the bigger picture is how can there still be justification to allow Congress to continue playing games with the SEC’s budget when it’s supposed to be operating as an independent agency? A lot of fingers continue to be pointed at the SEC for regulatory failures. But one of the causes for the SEC’s failures rests with those at the top – Congress. More than just a few on the Hill want the SEC to fail, doing their utmost to be a thorn in the agency’s side. Doing the work urged by well-heeled lobbyists. Until this problem is fixed, the SEC will always be faced with strong headwinds in their work to keep the markets safe for investors. Riddle me that, Batman!

House Passes Watered-Down STOCK Act

Yesterday, the House of Representatives passed its version of the STOCK Act in a nearly unanimous vote. However, as noted in this Washington Post article, the House version of this Act omits a few key provisions that the Senate passed last week (S 2038). The differences will be resolved in conference over the next few weeks.

Although the House version of the STOCK Act bars members of Congress from trading on material non-public information like the Senate version, it doesn’t include the provision – pushed by Sen. Chuck Grassley – which would require those in the “political intelligence” world to register as lobbyists under the Lobbyist Disclosure Act. In DC, there are a growing number of specialized political intelligence agencies that collect and sell information about upcoming legislation and regulatory developments to hedge funds, private equity, etc.

The House version would merely require a study into this practice rather than require lobbyist registration. Not surprisingly, those pushing for the study alternative – including Rep. Eric Cantor and House Speaker John Boehner – are among the largest recipients of contributions from hedge and private equity funds, etc. as noted in this spreadsheet from Check out this NY Times article from a few days ago about how these GOP House members claim their revisions to the Senate bill would “strengthen” it…

Corp Fin’s Common Financial Reporting Issues for Smaller Companies

Yesterday, Corp Fin posted these slides that detail the latest common financial reporting issues for smaller companies. The slides were part of a presentation for a small business forum hosted by the PCAOB in December.

– Broc Romanek