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WHY THE SEC STINKS

When you send the SEC commissioners or their general counsel suggestions as to rules on enforcement, you get a uniform answer. A letter acknowledges receipt of your letter and, as a standard answer, thanks you for your interest.

The SEC was created in 1934 by Congress to supervise the issuance of new securities. This jurisdiction was expanded to regulate the marketing of securities by legal definition. Over the last decade, there was a huge scream about “employee stock options” being backdated. Of course, the “employee” word is really “executive.” The big boys lined their pockets with stock options they issued that were attractively-priced.
Filing registration statements with the SEC is burdensome and costly for companies and the agency. Filing stock options would therefore be prohibitive. From my years in the securities business and the SEC, I came up with a cost-free solution.

Since issuance of options of publicly-traded securities comes under the SEC’s jurisdiction, I offered a cost-free pricing solution. This proposal would cost literally nothing but a postage stamp and a clerk. All stock options would have to be sent and logged in at the SEC. That filing would be dated by the SEC clerk. The option price at which it can be exercised would be limited to the stock’s market price in the 72 hours after the registration date.

In effect, stock options could not be backdated. The “enforcement” would be the job of the public stockholder who could begin a class action lawsuit against a fraudulent option by the executive in his company.

Of course, the SEC sent me their automatic letter acknowledging receipt. They have told Congress that they are understaffed and underfinanced. They cannot afford the salary of a clerk? Should we merge the SEC with Citi or Bank of America and have them on the TARP funding channel?

Better still, if the SEC cannot perform with its current funding, close it down and save the money.

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