10 Things the SEC Won’t Tell You

Wall Street’s watchdog isn’t as fierce as you might think.

1. “We will never live up to your expectations.”

“Occupy Wall Street” protestors aren’t livid with just the financial industry. They’re also mad at the people who were supposed to be policing that sector. On that score, the Securities and Exchange Commission is first in the firing line. It infamously missed the warning signs related to some of the biggest financial scandals in history, experts say: The collapse of energy giant Enron in 2001, the bankruptcy of Lehman Brothers in 2008 and Bernie Madoff’s multi-billion-dollar Ponzi scheme in 2009.

To be fair, experts also point out that the agency faces a near-impossible job as the watchdog of Wall Street. Nonetheless, “it’s also up to the SEC to manage that expectation,” says Michael Josephson, former law professor and founder and president of the non-profit Josephson Institute of Ethics in Los Angeles, Calif. “It knows better than anyone what it can achieve.”

Meanwhile, individual investors are learning to do their own due diligence when it comes to choosing brokers and advisers, says Seth Rabinowitz, partner at management consulting firm Silicon Associates. “For those who do feel protected, they are ill advised to feel so safe,” he says. “The SEC regulates what companies disclose, but it often doesn’t do a very good job.”

The SEC is certainly aware of its Sisyphean task. John Nester, a commission spokesman, says the agency is increasing its case load and becoming more proactive, particularly in the aftermath of the Madoff case. As a result, the SEC has offered increased incentives to potential whistleblowers. It seems to be working: Nester notes that the agency took 681 enforcement actions last year, up 8% from five years earlier, according to the latest data available. It also returned $2.2 billion to harmed investors during the last fiscal year, twice the agency’s budget for that year.

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