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More Madoffs? Report Says SEC's Revolving Door Problem Persists

The U.S. Securities and Exchange Commission is criticized for its "revolving door" problem that can lead to conflicts of interest in regulating Wall Street. Photo courtesy POGO.
The U.S. Securities and Exchange Commission is criticized for its "revolving door" problem that can lead to conflicts of interest in regulating Wall Street. Photo courtesy POGO.
February 15, 2013

HARTFORD, Conn. – The Securities and Exchange Commission (SEC) is under fire again for the numbers of employees who leave the agency and go to work for the financial firms it regulates – and vice versa.

A new report by the Project on Government Oversight says this "revolving door" makes schemes such as Bernie Madoff's less likely to be uncovered, and other corporate fraud more likely to go unpunished.

Michael Smallberg, an investigator for the project, says the report found that during a 10-year period ending in 2010, more than 400 former SEC employees filed disclosure statements indicating they were going to represent clients before the agency.

The potential conflicts of interest, he says, are something the SEC says it's trying to prevent.

"Since the financial crisis and since their failures in uncovering Madoff's Ponzi scheme were exposed,” Smallberg explains, “they say they've made a very conscious effort to hire people with specialized expertise in certain financial issues."

But the "revolving door" between Wall Street and Washington, the report says, helps some of the so-called "too big to fail" firms influence SEC policies and actions. And it calls for greater transparency and longer time limits for those who want to change sides on the regulatory battlefield.

Michael Smallberg says it's not only SEC employees jumping over to business that's the problem. The newly tapped head of the agency is headed in the other direction.


"President Obama's nominee to lead the SEC, Mary Jo White, has spent the last 10 years as a defense attorney at a white-collar law firm,” Smallberg adds, “where she's represented big companies like J.P. Morgan before the SEC. "

White has said if confirmed she would not participate in any matter involving a former client for one year after working with that client, and would not take part in agency work involving her former firm's clients.

Smallberg says Wall Street holds a strong advantage in the form of strong incentives.

"Industry groups are able to put a lot of resources into hiring powerful former senior officials of the SEC,” he says, “to help make their case, to try to delay or water down some of these regulations."

And many other government regulatory agencies, he adds, have "revolving door" problems similar to the SEC's.

Mark Scheerer, Public News Service - CT