[ by Melanie Gretchen ]

Everyone has opinion about the SEC - good or bad - including this former SEC enforcement attorney who worked for the Commission from 1975 to 2006.  Throughout his 31 years at the SEC, Robert Fusfeld had served as an enforcement attorney and managed the SEC's Denver office trial unit for 15 years.  

Currently, Mr. Fusfeld is on the faculty of the Institute for Public Policy Studies at the University of Denver where he teaches graduate and undergraduate courses.  He also publishes a blog commenting on SEC administrative proceeding decisions - at www.secteaparty.blogspot.com.  

His disdain for the SEC's enforcement program and its misguided futility is unfortunate - though perhaps serves to validate the position of critics who effectively force Mary Schapiro to resign.   Bluntly stated, Mr. Fusfeld stated:

"Why does the SEC persist in its misguided enforcement priorities in the face of overwhelming evidence that the program has failed in a basic measure of success - the ability to deter future wrongdoing?"

Case in point:   Mr. Fusfeld notes that in the SEC's settlement with JPMorgan Chase, pertaining to the recent mortgage bond fraud case, the bank itself will face a "significant financial penalty," but no individuals are expected to be charged.  "It is time that the SEC commissioners ask themselves and their enforcement staff some hard questions about the nature and direction of the agency's enforcement program."

Specifically, Mr. Fusfeld Would Ask the SEC:

• Is there any evidence that serial "significant financial penalties" deter future wrongdoing by major financial institutions?

• Why has the enforcement staff not recommended that the Commission seek significant limitations on the activities of a major firm that is a serial violator of the securities laws such as a bar from underwriting for a lengthy period?

• Do major firms that have proven themselves to be serial violators have some unwritten exemption from the type of enforcement penalties routinely applied to "mom and pop" firms with a single violation — namely a revocation of registration?
   

Double Standard. Mr. Fusfeld asserts that big and wealthy firms, which can afford a huge penalty, have "become immune from meaningful standards."  In a recent case in which the Commission issued a sternly worded appellate opinion, upholding a FINRA bar, based on a 7-year course of conduct by a registered rep who failed to disclose various judgments, bankruptcies and tax liens.

The SEC applied the "grandmother" test in its decision: would you want someone with this history of bad conduct having a license to manage your grandmother's money?  However, Mr. Fusfeld argued that the language contradicts Section 15(b) of the Exchange Act, in which the SEC " shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding twelve months, or revoke the registration of any broker or dealer if it finds … that such censure, placing of limitations, suspension, or revocation is in the public interest… "