The SEC Just Opened the Floodgates to Fraud
In this news:
Key takeaways
- The article criticizes the SEC's recent rule change regarding enforcement.
- It explains the structural differences between cabinet and independent agencies.
- It highlights the role of political appointments in regulatory commissions.
Even in the best of times, Republican administrations are much less keen than Democratic ones to enforce the nation’s securities laws. But Trump is taking moral laxity to stratospheric new levels. Perhaps Trump became more hospitable to white-collar felons after becoming one himself. Perhaps Trump is neutering the SEC so he doesn’t have to look over his shoulder whenever he trades stocks on insider information or uses his office to reward investors in his crypto business. Whatever the motive, going forward, our unitary executive will be able to indulge financial criminality more freely with a unitary SEC.
To help you understand how appalling this SEC rule change is, bear with me while I explain how the regulatory process works. You have Cabinet agencies like the Commerce Department or the Interior Department and you have independent agencies like the SEC, the Federal Trade Commission, and the National Labor Relations Board. Cabinet agencies are always headed by a single political appointee who answers to the president. Independent agencies are usually headed by a commission, or board, typically consisting of five Senate-confirmed commissioners (or board members). These commissioners serve staggered fixed terms, typically five years. When a sitting commissioner’s term ends, the president nominates a new one, but in doing so he must limit to a bare majority (typically three) the slots filled from his own party. For the remaining slots, he must nominate a person from the opposing party.
In practice, a president seldom must wait very long before an independent agency is controlled by a majority from his own party. An unfriendly Congress may resist confirming some commissioner or other on partisan grounds, but such standoffs are typically resolved when an additional commission slot opens for the opposite party. You want your guy? Then vote for my guy.
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