The SEC is taking a new approach to uncovering nefarious dealings within the financial markets: bar hopping.
In its new strategy to root out any underhanded dealings, the SEC is making an effort to attend more Wall Street conferences. The overall plan: catch Wall Streeters with their guard down at the bar in hopes that after a few drinks everyone will begin to ramble on about just how much screwing of the general public they are doing. Of course, nobody from the SEC is drinking at these conferences, that’s against policy.
Like a skunk at a garden party, the SEC has been moving in on the fun-loving Wall Street conference circuit in hopes of getting a better handle on who’s up to no good in the world of finance. Officials scour attendee lists to spot the biggest players in advance and, properly wearing name tags, schmooze over drinks. Of course, they don’t accept any – that’s a no-no under SEC policy.
The current focus has been on bond conferences, specifically ABS East and ABS Vegas according to Bloomberg. Which is telling, because that’s what helped to spark the last financial crisis.
The SEC has focused on bond conferences including ABS East and ABS Vegas, said people with knowledge of the matter who asked not to be named because the regulator’s efforts aren’t public. Held at luxury hotels in Miami as well as Las Vegas, the four-day conferences bring together investors and originators of debt backed by everything from car loans to jewelry.
The SEC also trolls online networks where people go to discuss who will be in attendance at such conferences, sometimes even spoiling all of the bar scene fun and emailing attendees to try and carve out time to chat at the conference.
Most industry gatherings have online networks where participants can communicate with each other and see who plans to attend. The SEC has used those lists to e-mail attendees, asking whether they might be free to chat at the conference, said the people.
As the SEC steps up its “efforts” by flying around to nice conferences and schmoozing over drinks waters, it is also having closed door meetings with investors from companies such as Vanguard Group and BlackRock, trying to get them to feel comfortable sharing information with regulators, particularly when they strike them as inappropriate.
With those covert operations going on at the SEC, the CFTC is taking a stab at the conference scene as well, only it is more open about it. Amusingly, in an apparent attempt at making people take regulators even less seriously than they already do, it hands out whistles and mouse pads with a toll-free number on it from a booth set up right at the conference.
Of course, the concern that more frequent interaction between regulators and Wall Street will lead to relationships that potentially mean overlooking some elements of what is learned in exchange for a job at the higher paying firm down the line, or perhaps even more interesting, lead to a double revolving door as we saw when Buddy Donohue went from the SEC, to Goldman, and back to the SEC.
Where will all of this lead? Well, aside from the aforementioned revolving door issues, based on history even if critical information is learned by these investigative tactics it won’t be prosecuted. At best, a scapegoat will be jailed and banks will simply pay a fine and admit no wrongdoing a la Fabrice Tourre and Goldman. There is also the minor issue of the government not willing to even go after big banks at all, as they are simply “too big to prosecute.”
Confirming just this was an article from the WSJ overnight which found that even on those rare occasions when the SEC does get its perp, proceedings against individual bank employees are rare, and authorities have had difficulty winning cases
The Wall Street Journal examined 156 criminal and civil cases brought by the Justice Department, Securities and Exchange Commission and Commodity Futures Trading Commission against 10 of the largest Wall Street banks since 2009. In 81% of those cases, individual employees were neither identified nor charged. A total of 47 bank employees were charged in relation to the cases. One was a boardroom-level executive, the Journal’s analysis found.
The analysis shows not only the rarity of proceedings brought against individual bank employees, but also the difficulty authorities have had winning cases they do bring.
Most of the bankers who were charged pleaded guilty to criminal counts or agreed to settle a civil case, with those facing civil charges paying a median penalty of $61,000. Of the 11 people who went to trial or a hearing and had a ruling on their case, six were found not liable or had the case dismissed. That left a total of five bank employees at any level against whom the government won a contested case.
We assume corruption, manifesting itself in the infamous “revolving door” between the SEC and Wall Street is the reason for the SEC’s woeful record in prosecuting banker crime.
As for the CFTC, and why crime is rampant in the trading of commodities – and especially oil – the reason is even more absurd. As Reuters wrote last week, the financial regulator charged with overseeing U.S. commodity markets has just one specialist examining oil trades. The reason? It does not have enough money to hire any more, according to U.S. Commodity Futures Trading Commission Chairman Timothy Massad.
We won’t even bother to ask how much time that lone, solitary CFTC oil regulator spend at bars with oil traders.
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