The Failures of the Securities and Exchanges Commission 

Major Wall Street Banks, such as JP Morgan, have been penalized for conducting business activity and staff communication over restricted personal messaging apps and mobile devices. In this article, Reck discusses the downfalls of the Securities and Exchanges Commission. Photo courtesy of:

The Securities and Exchange Commission has imposed some of its largest fines in recent years, with 13 fines greater than $100 million levied on public companies.  Four billion dollar enforcement penalties have been imposed totaling with other fines to $6.4 billion against Wall Street. The SEC last year had levied $3.9 billion from 679 cases and in 2020 $4.7 billion from 715 cases, both trumped by this fiscal year’s regulatory action by the SEC.   

Germany’s Allianz SE faces a $675 million fine, one of the largest in corporate history, over fraudulent activity, along with a former chief investment officer indicted for fraud. Allianz provided misleading pension funds for teachers, bus drivers, engineers and religious groups and fund managers failed to follow up on promises. Koppers Holdings Inc agreed to pay $1.3 million in fines to the SEC as it did not disclose financial measures relating to reducing its own debt by withholding crucial vendor payments in 2019. Major Wall Street Banks were not without fines, with Bank of America, Barclays, Goldman Sachs and JPMorgan having been penalized for conducting business activity and staff communication over restricted personal messaging apps and mobile devices. 

The recent surge in Wall Street regulation has been attributed to the Biden administration that has been pushing for stronger and more intense regulation and penalties on large businesses. Furthermore, the SEC has a large amount of leverage, defense attorneys say, as they directly regulate and supervise businesses and the stock market. Companies fined by the SEC have no reason to fight out court battles as they pose legal and image risks, thus leading to businesses settling directly with SEC claims.  

The SEC’s enforcement director, Gurbir Grewal, said “the robust penalties levied this year are designed to deter and reduce securities violations, and should not be seen as an acceptable cost of doing business.” Currently, the way SEC fines operate only serve as additional business costs where large businesses may be able to overstep ethical business practices that will ultimately provide benefits larger than the costs of regulation. Andrew Vollmer, former SEC deputy general, said “the places are too big, the financial incentives for their employees are too high and bad things happen” where the SEC only “wants headlines and therefore it needs to have eye-popping civil penalty numbers” as opposed to effective business regulatory policies.  

SEC penalties should not establish a relationship with high fines and deterrence as they are demonstrably ineffective. As Vollmer advocates, the SEC should tailor penalties to a company’s compliance system. If the goal is to deter individual bankers and traders, the SEC must orient their punishment system at the employee level rather than dishing large and erratic fines.  

Dennis Helleher, president of Better Markets, says that more needs to be done to tackle recidivism. “Bragging about being the best toll collector on the corporate crime highway is like a police department bragging about the number of speeding tickets it gives to escaping bank robbers – that approach won’t punish, deter, or stop lawbreaking,” he said in a statement. Criminal activity is endemic to Wall Street and it often can be an expectation rather than an exception.  

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