Is It A Shakedown When The Gov't Does It? SEC Much Less Likely To Prosecute You If You're A Big Campaign Funder

from the nice-business-here.-wouldn't-want-to-see-an-sec-investigation-happen-to-it dept

In the past, we've highlighted some questionable activities by the SEC, which is supposed to be stopping financial fraud, but often seems to be both arbitrary and capricious in its activities. However, reporter David Sirota is highlighting how the SEC is much less likely to prosecute a company if that company happens to be a big political contributor, because, well, duh. This is based on some recent research by Maria Correira at the London Business School on Political Connections and SEC Enforcement, which found that there's a pretty clear correlation.
If, as the saying goes, justice is blind, the data would show little correlation between firms' political expenditures and their likelihood of being prosecuted. Instead, Correira found that "politically connected firms are on average less likely to be involved in an SEC enforcement action and face lower penalties if they are prosecuted by the SEC." Specifically, Correira discovered that firms that increased their PAC contributions by $1 million over five years ended up halving their probability of being prosecuted.
Yes, correlation is not automatically causation, yada yada, but that doesn't mean there isn't a causal relationship here. I guess it's possible one could argue that a company that increases its PAC contributions is somehow less likely to be also engaged in financial shenanigans, but I'm not sure anyone would actually buy that.

There are some other bits of data that don't speak particularly kindly to the motives of SEC folks, such as that old revolving door:
Data from the Project on Government Oversight has documented that since 2001, more than 400 former SEC officials filed disclosure forms documenting their plans to represent firms before the SEC. Correira's report shows that this revolving door also influences financial prosecutions, as companies that employ lobbyists who once worked for the SEC "experience a larger reduction in the probability of enforcement and in penalties than those that do not."
Of course, it might not be entirely the SEC's fault. As Correira suggests, the SEC may be responding to basic incentives itself, in noting that investigations and prosecutions of politically "friendly" firms may create "political consequences for itself and its budget." Sirota more or less got a former SEC official to admit that this all goes into the thought process:
In an interview with IBTimes, former SEC counsel Scott Kimpel acknowledged that the agency does have to weigh how to best maximize its limited resources.

"At the end of the day, the SEC only has about 1,000 enforcement officials, so they can't possibly go after every single case of wrongdoing," he said.
As Sirota again notes at the end of his article, this issue is not just for the SEC, but for other federal agencies as well, including the DOJ, which more or less admitted that it wouldn't prosecute Wall Street firms connected to the 2008 financial mess, because it might have "a negative impact on the national economy."

It's not clear how you directly solve this issue, but it certainly does seem like a very real problem. Between the revolving door and the power of campaign contributions, it's been quite clear for a long time that the government is not the people's representatives any more (if they ever were).

Reader Comments (rss)

(Flattened / Threaded)

  1.  
    identicon
    Anonymous Coward, Aug 12th, 2014 @ 9:01am

    Forgetting Something

    What "prosecutions" do occur mostly result in slap-on-the-wrist type settlements.

     

    reply to this | link to this | view in thread ]

  2.  
    identicon
    Anonymous Coward, Aug 12th, 2014 @ 9:34am

    Justice is Blind....

    I have always hated this saying... it only reminds me of how stupid humanity will get in its quest to be cool sounding!

    Justice's Eyes are indeed wide open and eventually will come for us all. Justice delivered by other Humans is not blind, it see's well, but is most often blurred by ignorance and stupidity.

     

    reply to this | link to this | view in thread ]

  3.  
    icon
    John Fenderson (profile), Aug 12th, 2014 @ 9:50am

    Re: Justice is Blind....

    I think perhaps you misunderstand the meaning of the phrase. "Justice is blind" means that it is applied equally regardless of the social status of those on the receiving end of it. If that's not how it works, than it is not justice.

     

    reply to this | link to this | view in thread ]

  4.  
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    Mason Wheeler (profile), Aug 12th, 2014 @ 10:36am

    As Sirota again notes at the end of his article, this issue is not just for the SEC, but for other federal agencies as well, including the DOJ, which more or less admitted that it wouldn't prosecute Wall Street firms connected to the 2008 financial mess, because it might have "a negative impact on the national economy."

    This drives me nuts. As if leaving them intact hasn't hurt our economy?

    Look at the last 5 years. Unemployment and underemployment drags onward, climbing slowly higher. They say we're in a "recovery," but all the shuttered stores along Main Street and empty storefronts at the local mall tell a different story.

    A pernicious debt bubble began to pop, and instead of letting it happen and working to clear out bad debt so we could reset and get back to normal, the government has doubled down on it, stepping in when it was only halfway finished with the full might of the Federal Reserve behind moronic efforts to reinflate it! And we've all seen the results with our own eyes. The stock market is rallying, but ordinary Americans are getting ground down by the millions.

    The systemic problems remain in place exactly as they have been, and only when we stop propping them up and allow nature to take its course will we get back to real propserity. If we continue on this path... well, just look at Japan over the last couple decades. They had the same problems in the 90s that we had in 2008, and we've responded the same way they did. Do we really want to end up with their economy?

     

    reply to this | link to this | view in thread ]

  5.  
    identicon
    Anonymous Coward, Aug 12th, 2014 @ 10:50am

    There are some other bits of data that don't speak particularly kindly to the motives of SEC folks, such as that old revolving door:


    The "revolving door" can be a problem, but the alternative is the same people staying in government their entire lives without any experience in the private sector. That comes with its own problems.

     

    reply to this | link to this | view in thread ]

  6.  
    identicon
    Anonymous Coward, Aug 12th, 2014 @ 11:06am

    Re:

    Problem is that ordinary Americans would have been screwed by a pure 'let the banks fail' strategy while the ones who engineered this crisis would have been just fine. A better solution would have been to utilize the bailout to effectively break said banks up. But then we'd hear cries of 'activist investment'

    Mind you I don't support policy bailing out bad actors. But once you cross that line I have no qualms about the gov acting like any other investor would and using its shareholder abilities to direct things...

     

    reply to this | link to this | view in thread ]

  7.  
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    John Fenderson (profile), Aug 12th, 2014 @ 11:10am

    Re: Re:

    "Problem is that ordinary Americans would have been screwed by a pure 'let the banks fail' strategy while the ones who engineered this crisis would have been just fine."

    But that's the result that we ended up with anyway.

     

    reply to this | link to this | view in thread ]

  8.  
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    John Fenderson (profile), Aug 12th, 2014 @ 11:12am

    Re:

    "The "revolving door" can be a problem"

    I think you misspelled "is a problem."

    "That comes with its own problems."

    The main one I can think of is that it's more difficult to bribe them that way. What are the others?

     

    reply to this | link to this | view in thread ]

  9.  
    identicon
    Michael, Aug 12th, 2014 @ 12:22pm

    Re: Re:

    I think it would be just as easy to bribe them.

     

    reply to this | link to this | view in thread ]

  10.  
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    John Fenderson (profile), Aug 12th, 2014 @ 12:47pm

    Re: Re: Re:

    Well, right now they can be bribed in a way that doesn't raise that many red flags (and isn't illegal) by paying them off with a job after they leave office. If they couldn't do that, they'd have to bribe them with means that are more likely to be noticed by people or to be illegal.

     

    reply to this | link to this | view in thread ]

  11.  
    identicon
    Anonymous Coward, Aug 12th, 2014 @ 1:03pm

    Re: Re:

    The revolving door is a thorny issue. Are we going to forbid people from making a living when they decide to leave government? Are we going to forbid people who want to publicly serve from doing a job that they know how to do?

    I have no desire to work in the government, but if I did, I'd sure hope I could do a job that I know something about - i.e. one that I can contribute to. And then if I subsequently decide to leave that job, I'd also hope that I would be allowed to go back doing what I know.

    As bad as the revolving door is, I don't know if having an FCC full of people who know nothing about the telecom industry would be any better.

     

    reply to this | link to this | view in thread ]

  12.  
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    John Fenderson (profile), Aug 12th, 2014 @ 1:56pm

    Re: Re: Re:

    "The revolving door is a thorny issue."

    There are issues there to be sure, but it's not nearly as thorny as is portrayed by those who strongly desire the revolving door to persist (namely, the corporations). I think that a substantial cooling-off period -- say 10 years -- would go far. But, really, my preferred answer would be "yes, if you work for a regulatory agency, you may not subsequently take a job for any of the companies you used to regulate."


    "As bad as the revolving door is, I don't know if having an FCC full of people who know nothing about the telecom industry would be any better."

    That's a false choice. It's completely possible to know how the telecom industry works without having been an employee of it. Lots of people manage that.

     

    reply to this | link to this | view in thread ]

  13.  
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    Mason Wheeler (profile), Aug 12th, 2014 @ 2:14pm

    Re: Re: Re:

    Precisely. Behind almost every societal problem is the problem of short-term thinking. Bad things were going to happen no matter what; the question is, do we make a clean break of it, get it over with, and start rebuilding, or draw things out and make them worse?

     

    reply to this | link to this | view in thread ]

  14.  
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    art guerrilla (profile), Aug 12th, 2014 @ 4:14pm

    Re: Forgetting Something

    cost of doing bidness...

    i asked this online, and was *told* (insert grain of salt here) that -of course!- the fines/etc will be tax deductable...

    as the saying goes: i hate it when we lose, but i hate it even more when we win, and we still lose...

    the game is rigged...

     

    reply to this | link to this | view in thread ]

  15.  
    identicon
    Kronomex, Aug 12th, 2014 @ 5:45pm

    The golden rule, slightly paraphrased: He who has the gold has politicians and governments kissing the gold member.

     

    reply to this | link to this | view in thread ]

  16.  
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    Coyne Tibbets (profile), Aug 12th, 2014 @ 8:06pm

    Not a shakedown

    If it's government, the term "shakedown" is not used. Instead, it's called taxes...the only taxes many corporations are willing to pay

     

    reply to this | link to this | view in thread ]

  17.  
    identicon
    Anonymous Coward, Aug 12th, 2014 @ 9:57pm

    This shows, yet again, how dangerous, selective prosecution is. If they don't have enough resources to investigate all cases, then decision by lottery is the most sensible option as that doesn't let the rich, powerful, and connected to skate.

     

    reply to this | link to this | view in thread ]

  18.  
    identicon
    Frank, Sep 10th, 2014 @ 1:38pm

    Justice is Blind

    "Justice is not only blind, she's deaf and dumb and has a wooden leg."

     

    reply to this | link to this | view in thread ]


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