The Wall Street Journal reports todaythat the U.S. Senate is asking the Securities and Exchange Commission (SEC) to review the agencys revolving door, which shuttles many SEC staffers into jobs with the companies they once regulated.
We need to ensure that SEC officials are more focused on regulation and enforcement than on getting their next job in the industry they are supposed to oversee,” wrote Senator Charles Grassley (R., Iowa) in a statement.
The Senate request was sparked by a number of SEC staffers recently leaving for jobs with firms they regulated. And in April, a CBS news reportdrew attention to four dozen former Goldman Sachs employees, lobbyists or advisers now working in the top echelons of the U.S. government (one exception being former Goldman Sach employee Mark Carney, who went to Canada instead and becameGovernor of the Bank of Canada).
Canada has long had a similar situation with revolving doors at securities regulators, as discussed in a Canadian Business Online columnI wrote in 2004. A number of former Ontario Securities Commission (OSC) staffers, such as Joe Groia, are working the other side of the fence — defending persons accused of violations by the OSC.
As noted in the column, money manager Stephen Jarislowsky of Jarislowsky Fraser Ltd. saidthatit seems some lawyers go work at the OSC to get the kind of experience that will come in handy for later building a lucrative private practice — and while at OSC, they are not likely to be overly vigorous prosecutors for fear of alienating prospective employers.
The revolving door problem seems to be yet another explanation in addition to regulatory capture — for regulatory failure in the field of investor protection. Dealing with these issues would seem to be important, and even more so in Canada as this Toronto Stararticle and Montreal Gazettearticleindicate (both mention, for example,a 2006 study that found the SEC prosecutes 10 times more cases for securities violations and 20 times more insider trading violations than the OSC, when adjusted for the size of the stock market).
Until there are some initiatives to close the revolving door, its still caveat emptor for investors. There are other initiativesto consider too.