The Revolving Door at the SEC

The report was prepared by the Project on Government Oversight (POGO), an independent, non-partisan watchdog that “champions good government reforms,” according to its website. It’s the second report the group has made related to employees of the SEC.

For the ten years between 2001 and 2010, some 400 former SEC employees filed nearly 2,000 disclosure statements indicating that they planned to represent an employer or client in a case to be heard by the SEC. POGO notes that such disclosures are only required during the first two years after an SEC employee leaves the agency, so the total is likely to be very much larger.

For example, POGO looked at waivers for firms that stood to lose their status as a “well-known seasoned issuer” of securities due to a fraudulent actions. The waivers are time- and money-savers for companies issuing securities. Losing the status could make it harder to raise capital and put the companies at a competitive disadvantage.

Of 64 waivers granted from 2006 through 2012, more than half were requested by former SEC employees. POGO concludes:

[T]he mere fact that so many waiver requests involve former officials could influence the way people at the agency think about regulatory relief, regardless of who asks for it. If an SEC official used to represent companies seeking waivers or envisions himself doing so in the future, it’s hard to see how he could remain completely neutral in evaluating such requests from others. He could identify with corporations seeking relief, and he could have a stake in the agency’s willingness to grant it. In that sense, the revolving door could shape the environment in which all SEC employees work and the institution’s mindset, to the benefit of companies accused of wrongdoing.

The revolving door also feeds employees from the private sector to the SEC, employees that former SEC Chairman Mary Schapiro said “tend to be vigorous defenders of the public interest.” And an academic study issued last year found that concerns that the revolving door at the SEC undermines enforcement activities are “inconsistent” with the study’s findings.

To the public mind, though, there is certainly the potential for coziness between regulators and those they regulate. If it looks like a duck and it quacks like a duck, then …

The POGO study is available here.

The academic study is available here.