Comments on: Is There Really Less Securities Fraud? And If So, Should We Thank the Feds? http://truthonthemarket.com/2007/02/08/is-there-really-less-securities-fraud-and-if-so-should-we-thank-the-feds/ Academic commentary on law, business, economics and more Sun, 12 Feb 2012 23:39:41 +0000 hourly 1 http://wordpress.com/ By: hardy callcott http://truthonthemarket.com/2007/02/08/is-there-really-less-securities-fraud-and-if-so-should-we-thank-the-feds/#comment-6551 Fri, 09 Feb 2007 18:12:01 +0000 http://www.truthonthemarket.com/2007/02/08/is-there-really-less-securities-fraud-and-if-so-should-we-thank-the-feds/#comment-6551 The President’s budget for the SEC for FY 2008 keeps the SEC’s staffing absolutely flat (the agency gets a 3% budget increase which covers only cost-of-living increases). This is after two years of declining SEC staffing in FY 2007 and FY 2006 (a result of cost overruns in the completion of new SEC offices in DC and NY). Admittedly the SEC did get a substantial staffing boost after the passage of Sarbanes-Oxley, although the agency has since lost a fair amount of that increase, and it retains increased responsibilities from Sarbanes-Oxley. We’re now back to the situation in the late 1990s where the SEC’s staffing was flat or down (a result of friction between the Republican Congress and a Democratic administration) while the markets the SEC oversees were growing rapidly. The result then was that the SEC was not able to catch the research analyst scandals, the mutual fund scandals, or corporate scandals like Enron and Worldcom. The Grundfest “government-prosecution-only” position would be substantially more compelling if the SEC had a dedicated funding source that allowed it to keep pace with the markets it oversees.

]]> By: M. Hodak http://truthonthemarket.com/2007/02/08/is-there-really-less-securities-fraud-and-if-so-should-we-thank-the-feds/#comment-6550 Thu, 08 Feb 2007 21:32:29 +0000 http://www.truthonthemarket.com/2007/02/08/is-there-really-less-securities-fraud-and-if-so-should-we-thank-the-feds/#comment-6550 Could it be that there is less fraud simply because of the chilling effect of seeing executives locked away for decades at a time? Could it be that all the ethics courses and corporate seminars led by dour lawyers have made the costs of fraud more visible to everyone?

What’s truly scary is that the mass media assume that the constraining effect of prosecutorial power relies on managers engaging in a kind of cost/benefit analysis with regards to potentially fraudulent behavior, but that prosecutors will use their enormous power based on the public good, without regard to their institutional or personal incentives.

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