• You can cut a diamond only with a diamond - Old Anonymous Saying.
In October 2006, the ' New York Times' reported that the SEC was under an investigation by a senate investigation committee for its handling of the issue of 'insider trading' by hedge funds. It was felt by the government legislators that SEC might not have put in adequate action and efforts on the issue. This means an investigating and a regulating body itself is being investigated. It is rather a sorry state of affairs. It must be acknowledged that SEC is doing a fairly good job under a lot of constraints and difficulties. The problems it faces are many. First, there are too many players, investors, companies, hedge funds, mutual funds, and financial instruments like ESOPs, CPs, Bonds and finally stock exchanges. SEC has no doubt a number of divisions and departments to look the into the various aspects.
It is a well known fact that SEC just does not have an adequate budget and manpower to police all the activities, in depth, with the financial markets expanding so fast. SEC is experiencing manpower constraints. It does not have a crystal ball to forewarn it. Investment companies, Mutual funds and Hedge funds will have to carry out self regulation. There is no alternative to self regulation. The alternative to non compliance should be very severe punishment. SEC can give guidelines and carry out regular audit like the Federal Bank and Central banks such as BoE in Britain and RBI in India do, and proceed legally against suspected cases. The punishment for non compliance must be very high like 50 years in prison or till death, along with freezing of all assets, so that people will think many times before committing such crimes and offences.
The second problem also pertains to manpower. SEC's pay structure is not high to attract top notch talent. People who join regulatory bodies must have an unique psychological profile. They should not be overly attracted by money, but it is equally important. They should be paid very well so that they carry on with their jobs with a missionary zeal and without the need not to worry about their daily bread and how to maintain their families decently. They should have very high moral and ethical standards. They should have an unimpeachable character. They should be 'Untouchables'. Remember the Oscar winning movie by the same name with Kevin Costner, Sean Connery and Andy Garcia acting in it along with Robert De Nero playing the role of the mafia chief. The characterization and casting was superb. Regulators must be like that. You can cut a diamond only with a diamond. Their families must be protected, both physically and monetarily by the state. I just cannot forget the scene and the eerie background music when Kevin Costner rushes home in great anxiety to see whether his wife and kid are safe.
The third problem is 'insider trading' just cannot be eliminated. It will go on all the time. To expect to eliminate it will be utopian. The only way you can eliminate it is by stopping all stock market activities. Will that be desirable and possible? Lastly but not the least, it is reported in the New York Times issue of October 30, 2006, that top executives in many companies have been back dating or adjusting the dates of allotment of their ESOPs to show smaller gain and paid lower income taxes when they exercised their options. This is the latest scandal that has surfaced and has been uncovered by SEC with IRS also in the picture for tax evasion. The readers are requested to please see our article on executive compensation where the problems with ESOPs have been covered.
Instead of flogging SEC for some mistakes and slipups, which are bound to occur in any organization that is overloaded, the government must help and support it, so that it becomes a better and fitter organization to fight white collar crime and control it. The number of white collar crimes have increased so much that SEC is unable to cope with it. We are witnessing a strange phenomenon these days. In every country, when such scams or scandals surface, a committee consisting of senior members of the judiciary or parliament is appointed. These committees spend a lot of time and tax payers’ money and give recommendations but no follow up action is taken by anyone. Then it is of no use. It is a sheer waste of time and taxpayers money. Implementation is the key to good management and governance in any field. If I understand the system correctly, if anything is wrong in regulation, the judiciary comes in first and points it out. Judiciary is not responsible for framing laws. They can only interpret it, whether it is right or wrong. After that the law makers come in and amend it or frame suitable new laws. The regulators in their executive capacity have to implement them. We seem to be putting the cart before the horse all the time.
This is an abridged and revised version of the original editorial and written for www.evancarmichael.com
© Copyright. Written on June 16, 2008. Without Prejudice. All rights reserved.
SEC Frauds and Insider trading - To learn more about this author, visit Madhavan T Gopalachary's Website.
Like this article? Share it with your friends
 |
Related Articles |
|
 If You're So Dumb, Why Aren't You Rich? Part II
|
| |
 About a year ago I cited a study showing the weak -- okay, nonexistent -- connection between wealth and intelligence.
|
|
Protecting Your Business Name
|
| |
One of the best marketing strategies is to have a recognisable and well respected business name. Word of mouth can bring you much work. So how do you protect your business name from a competitor using that name, o...
|
|
Evaluate Traders by Their Stories
|
| |
Emanuel Derman relates a Fischer Black observation on trading from 1994 that is worth pondering.
|
|
Work at Home Business Entrepreneur: Forex Trading Made Simple
|
| |
Forex (also known as FX) is the term used to describe the trading foreign exchange or currency. In the past, only large investors like banks and multinational corporations were able to trade currency and take advant...
|
|
4 Tips to Avoiding Affiliate Fraud
|
| |
As long as there are internet businesses, there will be people trying to steal your income. Affiliate theft and fraud are on the rise. More than ever merchants need to monitor the actions of their affiliates and arm...
|
|
|
Madhavan T Gopalachary
(Visit Madhavan's Website)
Madhavan Gopalachary, nick name "madgopes"
(g pronounced as in go) given by IIT
classmates, is a Mechanical Engineer and
an alumnus of Indian Institute of
Technology, Madras having passed out
specializing in IC Engines &
Thermodynamics.
He has nearly 35 years of experience in
the Corporate World. He started off as a
trainee and handled sales, marketing,
manufacturing, product management, profit
center management, strategic planning and
corporate development including R & D in
various organizations and at various
levels before becoming a CEO. His last two
professional assignments were at CEO level
before embarking to start management
consultancy business on January 01, 1998.
He has worked for British, Swedish MNCs as
well as very large Indian business houses.
He has spent a large portion of his time
from June 1998 till date in East African
Countries practicing as an independent
Management Consultant.
More details can be obtained at the
following web sites:
mmg.name/
mtg.html
mmgconsu
lting.biz/
Madhavan's articles can be accessed at www.madgopes.com
.
|
|
 |
|
|
|
|
![[Get Copyright Permissions]](http://license.icopyright.net/images/icopy-w.gif){kind=small}
