In the wake of the Great Recession, the SEC has come in for plenty of criticism from academics and pundits who follow financial regulation. But few critiques have been as blunt and biting as the one recently issued by a retiring SEC lawyer.
James Kidney had joined the SEC in 1986. He made a speech at his retirement party last month that has garnered considerable attention, not least because his audience was composed primarily of SEC lawyers and alumni.
Kidney had campaigned within the agency to bring charges against more executives, especially in the SEC’s case against Goldman Sachs Group Inc. (GS)
According to a copy of his remarks that found its way to Bloomberg News, Kidney said the SEC had become “an agency that polices the broken windows on the street level and rarely goes to the penthouse floors. On the rare occasions when enforcement does go to the penthouse, good manners are paramount. Tough enforcement, risky enforcement, is subject to extensive negotiation and weakening.”
Kidney said his superiors were more focused on getting high-paying jobs after their government service than on bringing difficult cases. The agency’s penalties, Kidney said, have become “at most a tollbooth on the bankster turnpike.”
“I have had bosses, and bosses of my bosses, whose names we all know, who made little secret that they were here to punch their ticket,” Kidney said. “They mouthed serious regard for the mission of the commission, but their actions were tentative and fearful in many instances.”
Kidney’s remarks serve as a reminder that no senior executive at a major financial firm has gone to jail; for that matter, the SEC has brought civil charges against only a handful.
The revolving door between government agencies and those they are supposed to be regulating is an open secret–and a clear impediment to vigorous enforcement of the laws.
Sometimes, it takes an inside guy to remind us outside folks why things aren’t working the way they should.