The now-notorious financier Bernie Madoff is far from the only one who made off with a lot of other people's money--Madoff is just the most recent instance of the SEC's not-so-benign neglect. The United States Securities and Exchange Commission, in truth, has been negligent and incompetent for decades. During my twelve years as a regional manager of a major worldwide securities firm, I found the alleged SEC regulation of the U.S. securities industry to be a pathetic farce. After leaving my position, as a whistle-blower, I failed to convince the SEC to do anything to stop abuses I had seen firsthand.
To begin at the beginning--for all professionals working in the securities industry, consider the tests which the SEC and the National Association of Securities Dealers (NASD), which is supposed to self-regulate securities sales, require of all professionals in the field. Coming from an academic and teaching background in economics, management, and finance, I found these tests to focus more on trivial technicalities than on fundamentals vital to the regulation of the sale of securities. At one point in the 1990s, a new test was required of managers of securities firms and branches. We were sent down to a Wall Street training outfi-- specializing in prepping those who needed this new credential, via actual questions asked on the new test, obtained from those who had already taken it. Not only that, we trainees were told that, upon taking the new test, we were to call the training firm within an hour to tell them any new questions on the test, which would then be provided in advance. I refused to make such a call, telling the trainers that doing so would dishonor them, their firm, and me also. Coming to my firm in 1983, I had high hopes that the funds we raised through the sale of debt securities would be used for economic and social development--but I soon learned that my firm dreamed up projects as springboards to raise funds, without any real chance that those projects would ever be implemented. Catchy slogans were favored over substantive information, appeals to emotion took the place of reasoned cases for buying various securities, promises were made but not usually kept, and other abuses abounded. It took me a few years to realize the full extent of deceptions practiced by my securities firm, and when that realization did come, I began a campaign seeking internal change. I became a leader in our company organization representing professionals, serving two terms as its president from 1988 to 1992. In that capacity, at both private meetings and at conferences, I raised concerns about our serious violations of SEC rules and regulations. Those concerns fell on the deaf ears of our top executives--but not totally deaf, as I was denied promotions to Philadelphia and Boston for being a "troublemaker." My boss was fond of telling me, and many others, that I was a "wise guy" for raising legalities and requirements such as fiduciary responsibility, which requires securities firms to manage other people's money as if it were their own. Instead of behaving prudently, as was required, my firm often played fast and loose with the facts and with the truth. We were often asked, for example, the exact uses of our funds--a question we were told to avoid if at all possible, or to dissemble if total avoidance was not possible. The reality was that the vast majority of the funds we raised by selling our securities were merely used to replace previous issues of those securities which were maturing or coming due. Those former issues had to be repaid to the lenders, mostly with new funds raised under false pretenses. Our customers were led to believe that our new funds were used for economic and social development, not merely to pay off maturing issues of our securities.
Then there were the emotional appeals used to sell our investments. Our advertisements played up the good deeds customers would be doing by investing with us, whereas in reality our funds became part of an overall budget and their uses were unidentifiable. As a professional economist, I shuddered at such misrepresentation, and wondered why it was tolerated in our prospectuses, which had to be approved by the SEC. After trying to get these abuses corrected internally and without any publicity, I approached the SEC as a whistle-blower to determine what, and when, forceful corrective actions would occur. The SEC's reaction reminded me of the old story about two men walking down the street. One man asks, "Don't you think the two worst things in the world are ignorance and apathy?" The other man replies, "I don't know and I don't care." That was the SEC; they didn't want to know, and when knowledge was forced upon the agency, they did not care.
After trying for years to bring about change within my company by internal means such as appeals both to ethical considerations and the risk of our misconduct coming to light, I resigned after twelve years to operate an old-age home I had purchased in Vermont. For a change, I wanted to do something of which I could be proud and which improved lives. Immediately upon leaving the securities industry behind, I escalated my whistle-blowing to the SEC, several other Federal and State agencies, and the National Association of Securities Dealers. Prior to making the move, I had lengthy discussions with my firm, to try to convince them to mend their ways one final time. Surprisingly, they showed little concern about the likelihood of formal complaints of many types of wrongdoing to those agencies. In fact, the head of their legal department smiled, saying, "Nobody will listen." And, sadly, it turned out that the legal eagle was right: no agency really listened, or cared, although billions of dollars were involved. There were polite replies along the lines of "we'll look into your allegations" and "we share your concerns." But nothing ever happened. When I approached members of Congress, I was told "forget about it, the SEC won't care, and we can't help." Now, everybody cares -- but for the SEC, it's far too late.
