Corporate Governance

Government Accounting Office Finds Additional Deficiencies At SEC

By Josh Silverman

For the second time in as many months, the Government Accounting Office (GAO) is set to release a report criticizing the Securities and Exchange Commission (SEC) for serious operational deficiencies.  According to The New York Times' Gretchen Morgenson, the report will indicate that the SEC frequently ignored referrals of trading violations from this nation's stock and options exchanges. 

The GAO investigated the issue at the request of Iowa Senator Charles Grassley, who called the report "disturbing."  Grassley said that the SEC's failure to set up technological systems to take advantage of the referrals generated by the exchanges was "like working with one hand tied behind your back."  He also noted that "it was kind of shocking to know that the SEC doesn?t review the exchanges? internal audits. That?s inefficiency and there is no excuse for it."

The report comes on the heels of another GAO investigation which found material weaknesses in the SEC's own accounting.  That report found "significant control deficiencies in SEC?s financial reporting process[es]."

Grassley is right -- there is no excuse for the SEC's deficiencies -- but he misses the broader point.  For the past twelve years, corporate lobbyists have successfully waged war on investors' rights in large part by arguing that private recourse should be limited in favor of broad agency authority.  The mounting evidence of internal SEC problems undermines the lynchpin of that argument.  With the SEC in disorder, investors need to look out for themselves. 

Update:  The GAO report is now available: summary or full.

Full post as published by PomTalk on December 17, 2007 (boomark / email).