I am sure investors across the country will all sleep much better at night knowing that these Machiavellian independent advisor culprits are finally being brought to justice. I shudder to think what might have happened to Lehman principals if they had inadvertently kept only four years of archived e-mails rather than five! The mind reels at imagining the severity of sanctions they would now be facing had they mistakenly failed to disclose a product or service obtained through soft-dollar arrangements. Clearly a cell next to Bernie Madoff at the Butner Federal Correctional Complex would be in the offing.
The absurdity of the SEC's selective pursuit of small independent firms as it seemingly turns a blind eye to the massive fraud being perpetrated by large global financial services firms is so blatant as to be laughable. Many have speculated about the reason for the double standard. It could be that enforcement officials see larger firms as places where they might work one day, so they tend to be more lenient. It's also probable that the SEC is outmatched by the big firms in resources and talent.
But I think the SEC's motives are much simpler, and that they have learned what Finra did some time ago: Smaller firms will settle quickly and not mount a significant defense. It's a case of style over substance; cranking out 10 actions in a month against a spate of small independent firms means multiple press releases, a steady stream of press coverage and an overall padding of enforcement statistics. Compare that to the months of effort necessary to unearth, track and unwind the devastating but vastly more complex infractions at large financial services firms, and it's no surprise why the small, independent practitioners now find themselves squarely in the SEC's crosshairs.
Brian Hamburger, JD, CRCP, AIFA, is the founder and managing director of MarketCounsel, the leading business and regulatory compliance consulting firm to the country's pre-eminent entrepreneurial investment advisors. He is also the founder and managing member of the Hamburger Law Firm.
1. Full disclosure: The author is an alumnus of the University of Miami. He did not, however, receive any impermissible cash payments or other prohibited benefits during his time of matriculation. Nonetheless, as an avid UM football fan, he is not advocating for sanctions against their storied football program.
2. Source: The SEC and the Financial Industry: Evidence from Enforcement against Broker-Dealers, Stavros Gadinis, Harvard Law School, August 2009