The Revolving Door at the SEC

If you don't think Wall Street insiders have captured the SEC, read this from a Michael Smallberg report:

If you’re looking for evidence of the revolving door that spins between the federal government and Wall Street, look no further than Daniel Gallagher, President Barack Obama’s recently announced nominee for Securities and Exchange Commission commissioner...

Obama’s nomination of Gallagher to help lead the agency during a critical time in its history is also the latest example of the agency’s coziness to the industry it oversees.

Gallagher is currently a partner at WilmerHale. The pricey law firm’s high-profile clients have included Goldman Sachs, JPMorgan Chase, Citigroup and other Wall Street giants regulated by the SEC. If the Senate confirms him, this would be Gallagher’s second spin through the revolving door — he previously left WilmerHale to join the SEC in January 2006, only to return to the firm in 2010. And he would be the latest on an ever-expanding list of WilmerHale alumni at the SEC, including the current general counsel, deputy general counsel, associate general counsel, corporation finance division director, enforcement division chief counsel and deputy secretary.

Of course, the revolving door spins in both directions. Many former SEC employees leave the agency to join WilmerHale and other legal, accounting and consulting firms that represent clients in the securities industry. Several recent reports by the SEC Inspector General have raised troubling questions about whether the promise of future employment representing Wall Street causes some SEC officials to treat potential employers and their clients with a lighter touch.

The Project On Government Oversight (POGO), where I work as an investigator, just released a new report and database showing that hundreds of former SEC employees have recently taken jobs representing clients before the SEC.

All told, POGO’s database shows that 219 former SEC employees filed 789 statements between 2006 and 2010 announcing their intent to appear before the SEC or communicate with its staff on behalf of private clients. One former employee had to file 20 statements during this time period in order to disclose all his clients and the issues on which he expected to appear before the SEC. Another former employee filed his first statement just two days after leaving the agency.

Bottom line: Power centers such as the SEC are regularly captured by the elite in the regulated industry. The industry employs former regulators so that they can skate by regulations, while lobbying for regulations which will limit, if not completely stop, those attempting to enter the industry and compete against the controlling giants.

The only solution to this problem is to eliminate the agencies that become the power centers. The SEC seldom catches any fraud at an early stage, the Bernie Madoff scheme is evidence of that. Meanwhile, the agency allows government operated Ponzi schemes to go on without interference and runs blocking schemes for the big boys, like Goldman Sachs and JPMorgan Chase.

The SEC should be among the first agencies to go, if serious budget cutting ever comes about. It's nothing but a training school for future technocrats of the Wall Street oligopoly.