In yesterday’s post, we talked about a new report by the Project on Government Oversight that reveals the true extent of the revolving door from Wall Street to the SEC and vice-versa. Well as I’ve dug further into the report, I’ve picked out some interesting anecdotes to share with you that really demonstrate how bad this problem is, and how it has influenced the outcomes of many investigations into the criminal activities of Wall Street.
Mary Schapiro’s Money Market Investigation gets Derailed
The POGO report (click here to read the full report) starts off with a story about former SEC Chairman Mary Schapiro and her efforts to tighten regulations in the money market industry, to create a safety net that would prevent investors from losing their money if a money market fund were to crash. She ran into some harsh and immovable opposition that ultimately caused her to give up on creating new regulations.
Schapiro knew she was up against a wall because three of five SEC commissioners were against her proposal. One of those three commissioners was Luis A. Aguilar, who had gained a reputation for wanting to reign in the excesses of Wall Street. In most cases, he would have been on Schapiro’s side, but why wasn’t he behind her this time?
The POGO report states that Aguilar had actually worked in the mutual fund industry before coming to the SEC, when he was an executive VP at a company called Invesco. When Schapiro proposed her reforms, lobbyists came forward to oppose her, sometimes even asking for an audience with SEC commissioners to plead their case. During that time, Commissioner Aguilar actually met privately with Invesco, a privilege not granted to other lobbyists.
Some time after this meeting, Aguilar formally announced his opposition to Schapiro’s reforms, and according to POGO, the statement he made went along very closely with the arguments that lobbyists in the mutual fund industry had used. The similarity between Aguilar’s statements and mutual fund industry rhetoric made it seem plausible that the SEC Commissioner could have been influenced by lobbyists working on behalf of his former employer.
In the end, the ruling went the way of the mutual fund industry, which was allowed to continue operating without a safety net. The fact that this could lead to investors losing money was less important to the SEC than it was to ensure the best interests of the mutual fund industry. While it’s not certain that Commissioner Aguilar was influenced by lobbyists from his former company, the bonds there are too strong to ignore. And the worst part it, this sort of thing isn’t uncommon at the SEC.
Keep checking back for more Revolving Door Horror Stories, as the POGO report is full of them. Maybe after reading, you’ll think twice about investing in securities. If you’d like to find out which SEC officials have ties to the financial industry, check out POGO’s “Revolving Door Database.”
Phil Cannella is the founder and CEO of Retirement Media, Inc.