A Call for Independence for the Securities and Exchange Commission

Posted by on October 18th, 2013

After recently scoring a string of successes and appearing to have the wind at its back, the Securities and Exchange Commission (SEC) took one on the chin earlier this week when a Dallas jury cleared Mark Cuban of insider trading charges. While this is not a big case in terms of scope or dollar amount, anytime you go up against a high-profile individual—whether it’s Martha Stewart or in this instance, Mr. Cuban—exposure and scrutiny increase dramatically.

When all was said and done, the SEC had far more to lose than Mr. Cuban.  Already known for his outsized and bombastic personality, the most that could have happened to him was a few million dollar fine and a smudge on his reputation— but no jail time.

Conversely, the SEC walks away battered and bruised, once again failing to win big against a formidable opponent.  With that said, I tip my hat to the SEC for at least having the guts to proceed with this case, which is more than we tend to see from government agencies.

And therein lies the problem: Because the SEC is an agency of the U.S. government, I believe it is impossible for it to act independently of the government influence. Time and again, we have seen examples where the SEC has chosen to turn a blind eye to potential malfeasances that have been committed within the scope of the capital markets.

While I don’t purport to understand the nuances of each example, the Monday morning quarterback in me can’t help but conclude that government, including state and federal agencies, has unfairly influenced the decision-making process of the SEC: i.e. which cases to pursue and which cases to offer a free pass.

For the sake of the reputation of the SEC, and to empower them to effectively do its job, I suggest that the SEC be “spun out” of the federal government so as to be able to maintain its true independence.  While cutting these ties won’t completely eliminate or deter illegal behavior, it’s certainly a step in the right direction.

Anyone who has seen a good Western film knows that when the bad guys becomes too much for the Sherriff to handle, he often turns to bounty hunters and the like to clean up his mess.

While I’m not prescribing anything so drastic, I do believe that if the SEC was truly independent, it would be far more successful in bringing down the bad guys.