Investors often question why they need to become involved in private securities litigation. "Isn't the SEC protecting us?" is a common statement. We then point out that the SEC is an underfunded and understaffed (by at least 400 employees), and has other barriers which prevent it from carrying out its mandate, according to a March 10, 2011 report by the Boston Consulting Group.
Now a report released on May 13, 2011 by the Project on Government Oversight questions the SEC's ability to remain independent in light of the a "revolving door" through which SEC staffers leave the agency for jobs at law and accounting firms that advise the public companies they once regulated, according to a Washington Post review of the report .
"The financial meltdown of 2008 brought renewed focus to the integrity and aggressiveness of federal government oversight of the financial system," the report's executive summary states. "One of the most important agencies overseeing financial markets and investor protection is the [SEC]."
The report is based on the groups analyses of hundreds of SEC documents obtained under the Freedom of Information Act—mainly statements that former employees file post-government employment statements if they plan to represent a client before the Commission within two years of leaving the SEC.. According to the report:
- Between 2006 and 2010, 219 former SEC employees filed 789 post-employment statements indicating their intent to represent an outside client before the Commission, with half (403) coming from the Division of Enforcement.
- Some former SEC employees filed statements within days of leaving the Commission, with one employee filing within 2 days of leaving
- There are 131 entities providing legal, accounting, consulting, and other services that were identified as new employers in the statements. Some entities recruited numerous SEC employees during the five-year period.
- POGO identified instances in which former SEC employees may have been required to file statements during the five-year period but did not
- The SEC Office of Inspector General has identified cases in which the revolving door appeared to be a factor in staving off SEC enforcement actions and other types of SEC oversight, including cases involving Bear Stearns and the Stanford Ponzi scheme
- One recent empirical study uncovered several significant and systematic biases in the SEC's enforcement patterns and found indirect evidence to support the contention that "post-agency employment at higher salaries may operate as a quid pro quo in return for favorable regulatory treatment"
- Some statements indicate that the former employee did participate in or have responsibility for a related matter while they worked at the SEC, but that they discussed the matter with an ethics officer who advised them they could contact Commission staff on that issue on behalf of their new client
The Project on says that its findings lend credence to the concerns of SEC critics wary of the commission's ability to remain independent and notes that the troubling traffic moves two ways. "The revolving door also operates in the opposite direction, where individuals come from entities regulated by the SEC to work for the Commission," states the POGO report. "The general concern is that a conflict of interest could bias SEC oversight and undermine public confidence in the SEC's work, as acknowledged by the current SEC Chairman."
But as lawyers who must sympathize with those underpaid SEC staffers, we do feel it is our civic duty to list your "new employers" found in the report. According to the following table, taken from the report, these firms are standing by to offer you a job:
Table 4: Top 11 New Employers | |
Firm | Statements Listing Firm as New Employer |
DLA Piper[ | 40 |
Deloitte & Touche LLP | 34 |
Paul, Weiss, Rifkind, Wharton & Garrison LLP | 32 |
O'Melveny & Myers LLP | 30 |
Merrill Lynch | 28 |
Wilmer Cutler Pickering Hale and Dorr LLP | 28 |
Ernst & Young | 27 |
Davis Polk & Wardwell LLP | 21 |
Reed Smith, LLP | 19 |
Sidley Austin LLP | 19 |
Stradley Ronon Stevens & Young LLP | 19 |
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