At the consumer-friendly OIEA, investors can currently get information and file complaints. But although Wall Street’s titans are courted in Washington, Wall Street’s smaller customers aren’t. Wielding the pending budget bill as an unconcealed weapon, Gramm hopes to kill the OIEA and wipe out its pro-consumer work.
Gramm’s snuff attack, and others like it, should put investors on alert. Congress is showing a fondness for bills that would make it easier for Wall Street to cheat, harder for unhappy customers to get the government’s ear and tougher to bring a successful class-action lawsuit for securities fraud.
Objectively, it’s dumb to dump on the SEC’s little OIEA. Its 25 staffers fielded 40,000 letters and phone calls last year. If you have written proof that a stockbroker did you wrong, this office might even get the firm to pay you back. It also tracks patterns of complaints, to earth brokers or firms that may be committing fraud. Around 18 percent of the SEC’s investigations last year were triggered, at least in part, by individual complaints.
When Arthur Levitt arrived to chair the SEC two years ago, he expanded the work of the OIEA a little bit. It now publishes some educational pamphlets; seeks comments from small investors on SEC rules that are going to affect them, and runs town meetings around the country to help people learn how markets work. To head this office, he appointed Nancy Smith, the former securities commissioner of New Mexico and a sturdy foe of Wall Street fraud.
But Gramm is no fan of this new approach. In a phone interview, the senator said that the job of educating consumers belongs in the private sector, not in the SEC. What’s more, he said, investors don’t need the OIEA to answer questions and field complaints. He wants that work spun off to other offices in the SEC.
But why strangle an effective public-response system, just to revive it in some other form? You’re smelling politics at work– maybe a tug at Levitt’s chain to curb his pro-consumer views, or to quiet his opposition to the bill that would limit class-action suits.
Levitt hopes to save the OIEA, to serve as your port of entry into the SEC. If Gramm prevails, the message will be: less government advice and help for small investors who’ve been burned. If you’re robbed by a broker, you’ll have to duke it out yourself.
As for the SEC’s total budget, Gramm aims to shrink it by 10 percent. That would dent the commission’s ability to fight investment fraud, but Gramm says it’s just a matter of priorities. The SEC competes for funds in a budget pool that includes three government departments: Justice, Commerce and State. The Senate is slating the Justice Department for a 19 percent raise, to prosecute the war on drugs and violent crime. So the SEC, which fights “nonviolent” white-collar crime, has to take less.
I put quotes around “non-violent” because, if you’re rolled by a sales spiel, you can feel pretty bruised. A street thief may lift your wallet; a soulless brokerage firm can steal everything you’ve got. Bilked customers may spend their final years in penury. Some have even killed themselves. Where is the outrage a decent society ought to visit on these crimes?
Worst of all, the perps in dirty Wall Street deals often seem to get away with it. For a book to raise your blood pressure, read Kurt Eichenwald’s “Serpent on the Book” (480 pages. HarperBusiness. $27.50). It’s a stunning account of the guile and greed at Prudential-Bache Securities, which deceptively peddled partnership deals in the 1980s–often to trusting retirees. Some investors got their money back, but others collected only pennies on the dollars they put up. The firm’s executives, however, pried up fortunes and lived like kings.
Today’s congressional mind seems indifferent to the plague of white-collar crime. Securities fraud can only grow, as boomer savings pile up. Yet the proposed class-action bill can protect even stock promoters who tell you deliberate lies.
That bill’s backers (of whom Gramm is one) say that private lawsuits should be replaced by tighter SEC enforcement. But to bring more cases, the SEC will need an extra $25 million a year, the Congressional Budget Office says–and its budget is going down, not up. “Free the markets” sounds great on a bumper sticker, but not when investors are left hanging in the trees.
It’s not only current law enforcement that Gramm’s tactics could vitiate. He’s blocking future pro-consumer actions, too. Last year he singlehandedly killed two financial bills that the House and Senate had approved:
A bill to make investment advisers more accountable to their clients. Among other things, they’d have had to disclose any conflicts of interest. They also would have been required to recommend “suitable” investments. “I thought ‘suitability’ was vague,” Gramm said–although that’s the standard that stockbrokers currently have to meet. A suitability rule can help you get your money back, if an adviser loaded you up with too much risk.
The bill also raised the minuscule $150 fee that advisers pay when they register with the SEC. The commission would have used that money to monitor the industry. Gramm hates raising fees. He thinks small advisers should be monitored by the states.
A bill that would make it easier to fix mistakes on your credit report. Gramm says he objected to the bill because it put a $3 cap on the price of a basic credit report. A virtually identical bill has been reintroduced, minus the $3 limit. Gramm says he approves, but whether he’ll back it on the floor remains to be seen. More than once, a bill has been tailored to meet Gramm’s objections, only to have him turn against it in the end.
Liberals know in their hearts that Gramm is right to question regulation. But one can go too far with anti-regulation, too.
