Interview: SEC understaffed, overwhelmed

By SAM VAKNIN, UPI Senior Business Correspondent

An attorney licensed to practice in Florida and the District of Columbia, Gary Langan Goodenow worked at the Miami office of the Securities and Exchange Commission's enforcement division for six years. Goodenow also has a Web site, Following are excerpts from an interview conducted by United Press International.

UPI: The SEC is often accused of lax and intermittent enforcement of the law. Is the problem with the enforcement division -- or with the law?


Goodenow: The problem lies with both. SEC rules and regulations remind me of an old farmhouse that has been altered and adapted, sometimes for convenience, other times for necessity. But it has never been just plain pulled down and rebuilt despite incredible changes around it.

(In the case of fraud), the commission typically alleges that these fraudsters have lied through their teeth in securities sales but is forced to accept their word in an affidavit swearing that they have no money to pay the disgorgement. So the waivers are based on an assumption of credibility that has no basis in experience and possibly none in fact.

Moreover, the division of enforcement has no mechanism in place to check if the fraudster has, indeed, lied. After the waiver, the files of the case get stored. The case is closed. I don't know if there's even a central place where the records of waivers are kept.


Q: Internet fraud, corporate malfeasance, derivatives, offshore special purpose entities, multi-level marketing, scams, money laundering -- is the SEC up to it?

A: The staff is overwhelmed. The longest serving are often the least qualified because the talented usually leave.

The U.S. Department of Justice does not have the person power to pursue enough criminal securities cases in the Internet age. Commission attorneys have the expertise, but not the legal right, to bring criminal prosecution. The afore-described waiver system only makes the fraudsters more confident that the potential gain from fraud outweighs the risk.

Q: Is the SEC -- or at least its current head -- in hock to special interests, e.g., the accounting industry?

A: By unwritten bipartisan agreement, the chairman of the SEC is always a political figure. Of the five SEC commissioners, two are always Democrats, two Republicans, and the chairman is from the president's political party. I am curious to see if this same agreement will apply to the boards established under the Sarbannes-Oxley Act.

Q: Do you regard the recent changes to the law -- especially the Sarbanes-Oxley Act -- as toothless, or an important enhancement to the arsenal of law enforcement agencies?

A: It remains to be seen. The act establishes a public accounting oversight board. It reflects one major aspect of SEC enforcement practice: unlike in many countries, the SEC does not recognize an accountant/client privilege, although it does recognize an attorney/client privilege.


Regrettably, in my experience, attorneys organize at least as much securities fraud as accountants. Yet in the United States, one would never see an "attorneys oversight board."

For one thing, Congress has more attorneys than accountants.

Latest Headlines


Trending Stories


Follow Us