The new SEC Who?

The SEC (American Securities & Exchange Commission) appointed a new man to oversee the $7 Trillion mutual fund industry. This is the kind of fanfare that comes with such an announcement these days:

But investors hoping to learn about Donohue's views directly will have to wait. Donohue through a Merrill spokeswoman declined to be interviewed ahead of his official appointment. The SEC also declined interview requests. And neither the SEC nor Merrill would provide detailed biographical information or a photograph of the new regulator.

That is Andrew "Buddy" Donohue.

I must say how much I love nicknames being used for government officials. But that aside, this kind of announcement is frightening. Why? Well I had a run in with Charles Schwab recently where they forced a short position in my account on the sale of shares in a company that had just split. According to the company prospectus and official documents, until the “new” shares were delivered (Viacom, in the case, was split into Viacom (new) and CBS) the “old” shares were to be considered to represent 50% of each new stock.

Well, I sold my entire holdings of the Old shares before the delivery of the two new shares took place so in effect I sold my rights to both of the new shares. Schwab however, forced the sale to represent only one of the two new shares (the Viacom new shares) causing me to go short those shares while retaining my rights to the 50% of CBS shares.

This short position was not allowed in the type of account I held and when I pointed out their mistake, they refused to reverse the trade or make me whole on the transaction and instead bought back my short position at a loss and told me if I did not like it I could “Write the SEC”.

Now, the SEC is supposed to be there to protect investors & regulate the securities industry. They are a public institution. The Securities Exchange act of 1934 states:

Often referred to as the "truth in securities" law, the Securities Act of 1933 has two basic objectives:

* require that investors receive financial and other significant information concerning securities being offered for public sale; and

* prohibit deceit, misrepresentations, and other fraud in the sale of securities.

The full text of this Act is available at: http://www.sec.gov/about/laws/sa33.pdf.So

I wrote the SEC. They write Schwab. Schwab tells them they had every right to do what they did. The SEC sends me a letter with Schwab’s statement. Now I have to sue Schwab. The SEC does nothing.

During the 1990’s the SEC did nothing. The only person doing his job with respect to gross violations of the law in the securities industry has been Eliot Spitzer, the New York State Attorney General.

In fact when Mr. Spitzer came to Washington to have some words with our impotent government, the SEC went out of it’s way to bash Spitzer. Why not? He made them look like what they had become, impotent regulators appointed by an impotent government run by potent corporate entities.

The moral of the story: The institution created to “prohibit deceit, misrpresentations, and other fraud in the sale of securities” has found it convenient to withhold information about an appointee who will oversee a division representing over $15 Trillion in assets, $7 Trillion primarily held by individual citizens in their retirement accounts. Go Figure.