LEAN SWEEP AT SEC
By CHRISTOPHER BYRON
The New York Post
January 6, 2003
nypost.com
A $100 million increase won't even buy the SEC a new generation of computers to replace its wheezing stock. It was great to read the other day that Senate Republicans have found a freebie comeback from the Trent Lott fiasco, informing some pals in the press that they plan to double the White House's proposed budgetary increase for the Securities and Exchange Commission in the fiscal year that begins next autumn.
"We're going to give the SEC all the money they can use," crowed New Hampshire Republican Judd Gregg of the Senate Appropriations Committee, striking a pose that made him seem fiscally cautious while simultaneously waving what amounted to an open checkbook of retribution in the general direction of Wall Street's "corporate evildoers," as President Bush likes to call them.
But before we all get swept up in a collective national swoon over our gutsy guardians of national virtue on the Potomac, a reality check seems in order.
To begin with, the money the Senate Republicans say they plan to spend - roughly $100 million over and above what is now in the budget for the current fiscal year - isn't actual "money" at all. It's really pretend money, which we may properly call Washington wampum. It represents nothing but an opening bid by some Senate Republicans to increase funding for the SEC, at the expense of some other agency or department of the federal government.
More importantly, it also brings down the curtain, finally and decisively, on one of the most entertaining and diverting - but ultimately pointless and short-lived - scandals of recent times: The so-called CEO crime wave of the 1990s.
IT was fun while it lasted, folks, but it's time to face facts: It's over, and it accomplished nothing. And nothing drives home the point more clearly than when politicians like Sen. Gregg start sticking asterisks on their outrage - as, for example, when he said Washington would pay any price so that the SEC could do its job effectively and well (so long as the price was reasonable).
The truth is, the CEO crime wave never got beyond the media freak-out stage. And once investors had been offered a few piñatas to swat in order to help them forget that the public itself had played a key role in creating the bubble, the scandal itself went pfft.
To suggest, as Senate Republicans have now done, that Wall Street can somehow be cleaned up by giving the SEC "all the money it can use" - namely, $650 million in total budgetary spending for the 2004 fiscal year, which begins next October - is simply to acknowledge how profoundly oblivious the lawmakers really are to the white-collar rioting and lawlessness that now pass for business as usual on Wall Street.
A $650 million SEC budget for 2004 represents an increase of roughly 9.25 percent annually over the decade of the 1990s, and when inflation is taken into account, the real increase doesn't amount to much more than 3 percent.
Over the same interval, average daily trading volume on the New York Stock Exchange increased roughly seven times that fast, while daily volume on the out-of-control Nasdaq soared at 16 times the rate at which the SEC's budget was increased.
Numbers like these make the very notion of a $100 million increase in the SEC's budget a joke. A funding increase of that size won't even buy the agency a new generation of computers to replace the wheezing contraptions it's got now.
These machines - the very lifeblood of the entire operation - can't even compile lists of data-specific categories of financial information, let alone track trends in the data. As a result, the agency's watchdogs never know whether a company's filings contain suspicious information - because no one at the SEC knows what the "norm" actually is.
And that's just the technology problem.
The manpower situation is even worse. This 3,000-employee agency has barely half the employees of the Federal Deposit Insurance Corp., which oversees the activities of the nation's 13,000 FDIC insured or supervised banks. Yet at the height of the 1990s stock market bubble, the SEC was responsible for overseeing and safeguarding more than twice as much wealth as was held on deposit in all FDIC member banks combined.
Worst of all, during the boom 1990s it became increasingly difficult for the SEC to hire bright and talented people to replace staffers who'd left. This created an inevitable dumbing-down of the entire organization, which has wound up increasingly staffed by overworked, inexperienced employees who lack many of the basic accounting and securities analysis skills needed to do their jobs.
With the SEC's best remaining people now consumed, day and night, by high-profile cases like Enron, WorldCom and Adelphia, the day-to-day work the agency ought properly to be doing is simply not getting done.
CONSIDER the SEC's so-called Corporation Finance department, which is responsible for reviewing annual reports and other financial filings by U.S. public companies. The department has no more than about 500 employees on its payroll, which is hopelessly inadequate to the volume of paper flow.
As a result, few filings actually get read at all. But it hardly seems to matter much one way or the other, since most departmental employees don't seem to have much sense of what to look for in any case.
The results are so embarrassing as to be almost funny. Last month a California investor named Robert Chapman filed a so-called Form 13-D with the SEC, declaring his ownership of shares in a New York telecom outfit named NWH Inc. Attached to the filing was an "exhibit": a letter Chapman had sent to NWH's president and CEO, one Terrence Cassidy, purporting to memorialize a telephone conversation between the two men.
Since the New York Post is a family publication - meaning this column may be read by your children - I'll refrain from quoting verbatim as to what Chapman claimed Cassidy said during their conversation. But I'd barely be hinting at the truth of the matter if I said the words and phrases in question could easily have been machine-gunned from the lips of any filthy-mouthed wannabe rapper on the make for a recording contract.
In other words, the NWH Inc. 13-D filing is about as clear a case as anyone could ask for of an effort to blacken someone's name through the use of a public record filing in a government database. Yet no one at the SEC seems to have read the filing at all, nor recognized it for what it was.
We may say the same, more generally, regarding a press release issued only last week by a New Jersey company named Medi-Hut Inc., which was recently the subject of an SEC investigation and an FBI raid. The press release said the company has hired a new executive president for marketing, named "C. Arnold," and described his career in glowing terms - without giving either his first name or any of his previous employers. Do you think this curious press release, with its oddly missing key details, will tweak the interest of anyone at the SEC? (I don't.)
ON Wall Street, this is the way it always goes. In bull markets, no one wants the SEC to have any budget at all. Then, when the bull market develops into a bubble and finally pops, everyone looks for a dog to kick.
But by the time the discussion swings around to the need for real reform, anger and denial have given way to acceptance, and everyone realizes that the best solution is for the market to go back up again. So the SEC gets thrown a bone and the cycle starts anew.
Get used to it, William Donaldson. The SEC chairman-designate is walking into the worst job in Washington, by a mile.
NEW YORK POST is a registered trademark of NYP Holdings, Inc. |
