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Crooked Giants Dodge SEC Penalties

Agency routinely grants waivers for harshest punishments

By Rob Quinn, Newser Staff

Posted Dec 9, 2009 3:25 AM CST

(Newser) – Financial giants accused of swindling investors have been successfully dodging the SEC's harshest penalties by arguing that the law shouldn't apply to them. Firms including Citigroup, Bank of America, and AIG have recently sought and received waivers from regulations requiring lawbreakers to close their mutual fund businesses. Waivers have been granted to repeat regulation offenders and even firms that lied on their waiver application forms, a McClatchy investigation finds.

Experts say that the power to refuse a waiver is a critical weapon for the SEC, although the last time any of its staff can remember one being turned down is 1978. The firms seeking waivers routinely argue that the law in question, drafted in 1940, was meant to apply to the small mutual fund firms of the day and not today's financial giants. During 1940 congressional hearings on the law, however, SEC regulators expressed concerns about the size of a certain Goldman Sachs Trading Corporation.

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The SEC declined to comment on its decisions to grant waivers from harsh penalties for firms guilty of cheating investors. (AP File Photo)

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The SEC has a miserable record of policing and keeping track of recidivism even of prior violations. I think it's not uncommon and I think it's a problem.
- Duke University law professor James Cox

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Crooked Giants Dodge SEC Penalties