Due to this partial shutdown of the federal government, the SEC is currently working with a skeleton crew and cannot perform its essential job: protecting markets and investors.
“Powerful Thursday, Dec. 27 and until further notice, the agency is going to have an extremely limited number of staff members available,” according to the SEC’s site. The SEC has recruits on hand to respond to emergencies entailing protection of investors, market ethics as well as law enforcement.
This type of statement fails to exude confidence. Investors are clearly less protected than they were prior to the work stoppage.
The SEC’s current condition is harmful for both the financiers as well as the investment information industry, which took a huge blow to its prestige following the enormous Bernie Madoff Ponzi scheme and is still struggling due to this titanic fraud.
The authority’s shutdown implies that Ponzi schemes the SEC was going to Bust will remain open for business, continuing to damage the elderly. The authorities’ shutdown means SEC cases against financial institutions responsible for scam will not be registered.
The timing could not be worse. As this column noted in October, major investment fraud is back.
Only last month, The SEC stated it charged 13 individuals, such as a former financial journalist, together with unlawfully selling the securities Woodbridge Group of Companies, a $1.2 billion Ponzi scheme that dropped in December 2017 and filed for bankruptcy. In November, the SEC penalized Robert Shapiro, the previous CEO of Woodbridge with $120 million to resolve claims that he deceived financiers from the strategy.
The U.S. Attorney’s office and the SEC in July stated they were investigating a supposed scam known as Global Capital, a firm that raised $283 million from shareholders to produce short-term small business loans. The money was increased, at least in part, through a network of unregistered brokers and financial advisors.
(Please note that the 1 Global Capital loan business is another company and is not related to first Global Capital Corp. which is an independent bondholder established in Dallas.)
A call was made to the SEC’s office seeking reply on Wednesday afternoon but the call went unanswered.
The government shutdown, which began on Dec. 22, seemingly had an almost immediate impact on the SEC. According to the bureau’s site, it has not filed a police action against a firm or person since Dec. 26.
Rep. Maxine Waters, D-CA, chairperson of the House Committee on Financial Services and not a favorite of many, who operate in the investment services sector, said on Wednesday the government closure gave the poor actors who were planning for committing a fraud an opportunity.
Ms. Waters said in a declaration that the president closed the doors of the SEC, dismissing 94% of the firm and giving schemers and fraudsters and schemers a free pass to con small businesses and financiers. She further added that with less than 300 employees, the SEC could not completely monitor the activities of over 26,000 enlisted entities, which includes stock markets, brokers and investment advisers.
She also stated that the SEC is incapable in holding bad actors liable via several enforcement actions, obstructing harmed financiers from getting relief.
If the SEC can get back to work over the next week or two, the risk to the public could be real but much less serious if it stays closed for the next several months, one attorney said.
“When the SEC is shut down for many months, then there will be severe Issues in the securities market,” stated Brandon Reif, managing partner of his eponymous law company. “You will see a good deal of fraud and the commission will not have the time or resources to research. The rest of the employees will not be able to pick up this workload. It is very dangerous not to possess the watchdog keeping your eye on the securities markets.”
If the SEC’s staff does not get back to work soon, investors and the financial information industry are sure to suffer. A government shutdown, especially one that goes on for weeks, has only one result.
Tom Barron has Bachelors Degree from Michigan State, MBA from University of Miami and worked as equities trader for Bank of America. When he is covering investment news, he is spending time with his family. Hobbies include golf and travel.