The U.S. Securities and Exchange Commission claims they want to protect retail investors, but time and time again, they’ve failed to do so.
There are dozens instances where their actions (and inactions) have led to massive losses for retail investors. Many have questioned the legitimacy of this agency based on their failures to provide reasonable help.
Ignored Bernie Madoff for Years
Many people have read the stories of Bernie Madoff, and how he created one of the largest Ponzi schemes in history. According to prosecutors, it’s estimated his fraud was worth around $64.8 billion as of late 2008.
This hefty number could’ve been easily avoided had SEC taken swifter action against Bernie Madoff. For years, SEC received dozens of whistle blower complaints, and detailed blueprints for how the scam worked, but SEC ignored it.
Dysfunction and Incompetence at SEC
In 2010, 56-year-old Kathleen Furey, a senior lawyer who worked in the New York Regional Office (NYRO), the agency outpost with direct jurisdiction over Wall Street, filed a large whistleblower complaint against SEC.
Furey’s complaint is full of startling revelations about the SEC, but the most amazing of them is that Furey and the other 20-odd lawyers who worked in her unit at the NYRO were actually banned by a superior from bringing cases under two of the four main securities laws governing Wall Street, the Investment Advisors Act of 1940 and the Investment Company Act of 1940.
According to Furey, her group at the SEC’s New York office, from a period stretching for over half a decade through December, 2008, did not as a matter of policy pursue cases against investment managers like Bernie Madoff. Furey says she was told flatly by her boss, Assistant Regional Director George Stepaniuk, that “We do not do IM cases.”
They let the scheme run for decades, barred any agency oppositions, and took action only after millions of innocent victims had lost everything in the scheme.
SEC Wrongfully Targeting Ripple
On December 22, The Securities and Exchange Commission announced that it has filed an action against Ripple Labs Inc. and two of its executives, who are also significant security holders, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.
Immediately after the SEC filed its complaint, XRP has lost almost half of its market value, many XRP holders were furious.
Ripple claims that the SEC has distorted the facts to build its case, using cherry-picked quotes to draw conclusions that are “unsupported by both the facts and the law”.
To make things even shadier, the day after SEC announced the lawsuit, Chairman Jay Clayton resigned from his position.
Andrew Ceresney, outside counsel to Ripple from law firm Debevoise & Plimpton, states: “The SEC’s case is unprecedented and ill-conceived. The SEC has ignored XRP’s clear status as a virtual currency, contradicting not only the findings of other U.S. regulatory agencies, but also international regulatory regimes. Over the last eight years, the XRP market, independent of Ripple’s activities, had grown to a massive scale- trading on over 200 exchanges worldwide. The SEC is now stretching the concept of an ‘investment contract’ beyond its breaking point. We look forward to presenting our case in Court.”
While there is a strong chance Ripple will win the lawsuit, it’s still sad to see corrupt agencies attack them, while ignoring real fraudulent companies.
GameStop: Protect Wall Street, Forget Main Street
After Robinhood, and other platforms halted GameStop buy orders during the buying frenzy to protect hedge funds short positions, Instead of going after them, they went after retail traders.
SEC announced they were combing social media and message board posts for signs that fraud played a role in dizzying stock swings for GameStop Corp., AMC Entertainment Holdings Inc. and other companies.
Hertz — another bankrupt company — is the poster child of this bubble madness. Last year, the rental car company’s stock price had risen over 400% despite shares potentially going to zero on completing its Chapter 11 filing.
Market analysts, spectators, and realists thought they had seen it all, but the situation grew even more bizarre when Hertz issued a further stock offering. The company’s stock price soared 68% on the news, even though the newly-issued shares could also become worthless.
Hertz has claimed they will use the stock issuance to raise cash to fund the company’s reorganization. This, however, is corporate speak. The company plans to capitalize on novice investor’s poor financial education and use the $1 billion dollars worth of stock to ease bondholders’ pain: the greater beneficiaries of the bankruptcy process.
In the case of Hertz’s insolvency, bondholders are next in line to receive any kind of payout before common stockholders, but the bankruptcy court overlooked this obvious attempt to fleece Robinhood traders and allowed Hertz to proceed with the 255 million share offering.
Elon Musk, whether you love him or hate him, gets one thing right: The SEC cannot be trusted sometimes. After all, their website’s “what we do” page states that “their mission is to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.” It doesn’t take a genius to recognize that allowing bankrupt companies to issue worthless stock to vulnerable investors is a policy violation, but the SEC representative attending the hearing simply ignored the blatant conflict of interest between the company and potential stockholders.
Why would a government body overlook such an obvious miscarriage of justice? Apparently, the SEC favors Hertz’s bondholders. Guess who: The Federal Reserve. The U.S central bank owns $80 million dollars of Hertz’s bonds: $50 million via the $HYG ETF and $30 million via the $JNK ETF.
Ironically, this means that the Fed is now a major stakeholder in Hertz’s bankruptcy process, and the Robinhood investors who continue to load up on potentially worthless shares will happily buy into the latest issuance, ultimately bailing out the Fed’s failed junk bond purchases. A completely bizarre scenario, but also an absolute disgrace. How could the authorities let this happen in a society based on excessive regulation?
At the end of the day, The Securities and Exchange Commission should potentially rebrand to The Securities and Exchange of Corruption. Their failure to serve the public is more clear than ever, and people are finally speaking out about it.
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