The SEC is Losing the Battle for Regulation

February 22, 2011

The Securities and Exchange Commission and Commodity Futures Trading Commissions are charged with policing financial matters from Wall Street to Main Street.  They are often blamed not discovering mismanagement and fraud quickly enough and were more recently embarrassed during the country’s financial crisis and even more so with the discovery that Bernie Madoff was running a gigantic ponzi scheme right under its nose.

Although in some cases, blaming the SEC may be warranted, the agency is just simply overwhelmed.  Discovering financial fraud is a complex and tedious process that requires countless hours and funds to decide if the case is even worth pursuing, much less prosecuting against some of the most well-funded entities in the history of the world.

The SEC is simply spread too thin chasing cases that don’t exist and passing on cases that take too many resources to ferret out.  This is where the often vilified securities litigation bar provides an excellent filler to the gaping hole the SEC inevitably creates (The PSLRA, among other laws, have made it more difficult for shareholders to prosecute meritorious claims).

Nonetheless, as and excellent blog, footnoted posted about this week, there is a movement to decrease funding to the already underfunded agencies.  So who is winning here?

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