October 23, 2006
Mr. Chairman and Staff of the Commission,
On October 22, 2006 the NY Times published an article (S.E.C. Inquiry on Hedge Fund Draws Scrutiny by Walt Bogdanich and Gretchen Morgenson) that raises serious doubt about the objectivity of the Commission and the Commission staff. Allegations of cover-up abound as the elite of Wall Street are provided free passes to possible crimes due to political clout and access to the Commission staff.
Regulation SHO, in its original state, has the fingerprints of a similar non-objective cover-up by members of the Commission. Mr. Brigagliano and his team at the Division of Market Regulation have routinely dismissed publicly the issue of short selling abuses and documents show that Mr. Brigagliano misrepresented facts in an inquiry back in 2004 by Senator Paul Sarbanes (http://investigatethesec.com/Sarbanes.htm).
The Commission now expects Mr. Brigagliano to take this issue serious enough to bring an objective solution to a situation he is obviously biased in. How does that work? The NY Times article shows the extent that bias plays in the ability of the Commission to act independent of politics and the investing public certainly question the ability of Mr. Brigagliano to objectively resolve the present issue we discuss here before you under this comment period.
If the Division of Market Regulation does not perceive this as a serious issue, how is a serious resolution to be expected from them?
Prior to the release of SHO the Commission was lobbied by the Securities Industry Association (SIA) to protect the revenues of our Institutions that make up the infrastructure of Wall Street. If you take away their ability to increase revenues, the foundation of our capital markets will crumble was the SIA's argument. The SIA has once again presented the identical argument and this time used the biased data presented by the SEC as ammunition for their argument.
SHO is working so why screw with it?
Such mindset drove away the responsibilities of the Commission to protect the investing public the last go-around and instead became the self-serving justification for market exemptions to those that operate within these markets. The result, as just reported by the financial press, is a flourishing Wall Street enterprise in which the average Wall Street employee averages 5 times that of the average worker. The NY Post stated last week:
The rich compensation packages at Wall Street firms reflect the banner years that the financial services giants keep racking up.
But a result that also showed a continuation to teh fraud itself.
We are now to understand that these rich compensation packages have additional perks such as the buying off of an SEC Investigation using political clout and the juice of high-powered lawyers. The free pass only increases exponentially the ability to continue to defraud the investing public as a mechanism to increase revenues year over year. If Wall Street executives make enough money they can buy enough top lawyers and politicians to be able to have any indiscretion removed and every exemption created.
The Commission becomes captured
Regulation SHO is about trade settlements. Our Securities laws have an intended rule to force the prompt and accurate settlement of every trade and not just those that are financially convenient. Certainly our laws are not intended to put the financial profitability of one business class above that of every small investor in our capital markets. Yet that is what has transpired and based on all reports, been rather successful.
In 2005 this same SEC Commission Staff blocked an investigation into financial journalists despite the belief and background investigation of the SF Office of the SEC that there was something to be investigated. It was about politics and not securities fraud. Today, the NY Times brings to light serious questions regarding the integrity of the Commission to challenge those Institutions and the executives who run these Institutions when matters of breaches in securities compliance exist at the top levels.
There is always a low level employee the Commission can send down the plank but rarely is the executive management accountable.
The Commission staff continues to protect the largest criminals in our markets, the financial institutions. Enron was a disaster that left many investors reeling. But if you add up the fraud of the Wall Street Institutions since Enron, Enron as a pimple that left many more in deep financial stress. Settlement abuse in itself has stolen multiples more from the investing public, teh local communities, and the business issuers than any one Enron implosion.
In speaking to Lawranne Stewart (aide to Barney Frank) back in 2004 she informed me that she spoke frequently to the team Mr. Brigagliano created to draft SHO and informed that team that the grandfather clause "made no sense." Stewart had access as a member of the House Financial Services Committee and congressional oversight of the SEC.
The SEC ignored such commentary from Stewart and effectively built in a loophole that continues to be a tool used for abuse today. Stewart also identified, at that time, that State regulators would be required to step in and address this issue because of the conflicts at the federal levels. The federal government was too far removed from the individual investor to bring this issue to serious light. There was no compassion for the retail investing class in Washington circles.
The State of Utah and the NASAA have spoken and spoken loudly in response. They do not trust the Commission and have set up a floor to the levels of irresponsibility you will be allowed to continue with regarding SHO. For that the investing public and business issuers can be thankful. They want and expect a responsible solution to this "irresponsible mistake" the SEC created.
The growth of our capital markets can no longer be based solely on the strength of the financial services sectors ability to continually increase revenues off the ill-gotten gains of fraud. The capital markets will grow through confidence from the investor and business class and clearly the SEC has lost that confidence.
The Commission has hundreds of letters from the business and investor community and a select few from those financial service operations who do not want their cash cow disturbed. These letters differ as they did the last comment session with the SEC responding last time to the wishes of the minority respondent the financial institutions. The mistakes made were clear. I would urge you today to learn from the decade of mistakes this agency has made and to start the healing process.
Cost of compliance is not a valid discussion if not properly weighed against the cost of fraud to the investing class. Wall Street executives do not need $30 Million annual compensation packages Mom and Pop need food on their table, adequate shelter for their families, and the ability to adequately educate their children. It is time you protected those rights from the fraud of the greedy.
Dave Patch