Today I will be posting the final portion of my interview with Michael Smallberg of the Project on Government Oversight. For those who haven’t been following along, Mr. Smallberg and I discussed the Revolving Door problem at the SEC, and how it has affected the agency’s ability to regulate effectively.
Phil Cannella: That’s great, I want to congratulate you, you’re saving money with the federal government and the Pentagon, in keeping with your mission. What would be your mission statement?
Michael Smallberg: Generally we investigate corruption and misconduct in order to achieve a more open, ethical, accountable, and effective federal government.
Phil Cannella: Do you think it should be part of your organization’s obligation as a consumer advocacy firm, that it sounds like it is, to also investigate alternatives that could be safe alternatives to the securities industry? Because it seems to me, that if you’re in an industry that’s broken and for 78 years, the federal government agency called the SEC can’t fix it, why would people continue concentrate on changing an industry that doesn’t want to change, that wants to be corrupt? Meanwhile, there are safe alternatives outside that industry that actually perform better with no cost. Do you think that would be something that your firm has an obligation to at least inform people about? That if you don’t like what’s going on with Wall Street, here’s a safe alternative that outperforms Wall Street without the ongoing fees. I would think an organization such as yours would want to take the time, and we would open our doors and be as transparent as a bottle of water, and come down and investigate us, and see what we’re talking about. Do you think that you would have an obligation to the people that believe in your firm?
Michael Smallberg: Sure, we’d be happy to talk to you and learn more about this.
Phil Cannella: We do like to expose these vehicles, and make sure people are aware of them.
Michael Smallberg: Part of our role is trying to get the government to do a better job of cracking down on these other types of products where there is a lot of fraud and abusive trading practices going on, and our role is more to see what the government is doing and offer solutions to improve their operations and their regulatory effectiveness.
Phil Cannella: Is there a government agency that we could go to investigate these other options, that would be willing to educate people about alternatives outside the securities industry?
Michael Smallberg: Sure, I think maybe FINRA would be somebody who could be educating people about this. If there is a role for government to get involved, we would could certainly take a look at this and see if we could bring this to their attention…
… There’s no question the SEC had tremendous failures leading up to the financial crisis and I know there are some people who say it would be better if we just got rid of them and started from scratch. I’m not totally convinced of that; I don’t think its’ totally a lost cause. I think there are a lot of improvements that could be made at the SEC. I think a lot of Kotz’s investigations uncovered problems where there are opportunities for reform. He did a great report looking at their whistleblower program and they’ve now improved that program as a result of his report and they’re now getting tips from a lot of whistleblowers inside these companies who can do a better job of alerting the SEC to these types of problems before they blow up and end up costing retirees and other investors so much money. Again, I think there are improvements that can be made, but there are very long term deep structural systemic problems at agencies like the SEC and it can take a long time to fix those problems and I think that’s where its really important that they continue to have someone who’s as aggressive and as tough and independent as David Kotz has been these last four years.
Phil Cannella: We talk about the SEC, we hear Congressman saying what needs to be done. I think there are a lot of people out there who are tired of hearing about the problem and never are there any solutions or remedies. So why keep talking about the problem, and never bring remedies?
Michael Smallberg: A big part of what we do is trying to bring remedies. That provision I mentioned last year where Congress got rid of this new law that would have allowed the SEC to withhold a lot more records from the public and from investors and from the media. We worked very closely with Congressional offices to make sure that provision went away. We took the time to educate them about the problem and propose the legislation that ultimately undid that provision. It’s very important for the SEC to hear from outsiders such as yourself who have recommendations for how they can improve their work…
… One big problem is, [H. David Kotz] puts out these recommendations and sometimes the recommendation is the SEC should take should take really strong disciplinary action against their employees who have been caught violating their laws and engaging in various kinds of misconduct, but it’s ultimately up to the SEC to actually act on those recommendations. So that can be frustrating I’m sure, if he’s constantly coming up with reforms and they’re sort of slow-rolling it. I hope he continues to be an effective advocate on behalf of whistleblowers and I think he’s left the SEC in a much stronger place to get tips from whistleblowers that will hopefully help them improve their job.
Phil Cannella: Mike, thank you so much for your time. That was Michael Smallberg with the Project on Government Oversight.
That’s all for the transcript of my groundbreaking interview with Michael Smallberg. You can follow these links for the rest of the transcript:
Portions of this interview not pertaining to the main conversation have been edited to preserve the proper flow of ideas. For the full conversation, please refer to the audio recording, taken from the Crash Proof Retirement Show®