The Securities and Exchange Commission is rife with turmoil. Changes in leadership along with other agency reforms must occur in order to restore public confidence in the agency and strengthen the SEC as a regulatory body.
The Securities Act of 1933 and the Securities Exchange Act of 1934 created the SEC in response to the 1929 stock market crash. The SEC was established to protect investors and to maintain the integrity of securities markets.
The SEC was designed to make sure that companies, which traded securities publicly, told shareholders the truth about not only their businesses, but also the securities they were selling and the risks involved in investing.
Presently the SEC has come into question on whether the agency is still capable of protecting investors in this way.
Recent accounting fraud accusations and corporate scandals have weakened confidence in both the government and the SEC in their abilities to protect Americans from corporate malfeasance.
A strong SEC signifies a strong economy. An SEC in limbo, an SEC clouded in fraud and controversy cannot regulate the U.S. economy at a high standard. The economy at the present time, according to Federal Reserve Chairman Alan Greenspan, is in a "soft patch."
The only way to get out of this patch is to strengthen the economy from within, rid consumers of their malcontent, and restore confidence lost in the wake of the corporate scandals.
Congress understood the importance of this and has presently and signed into law the Sarbanes-Oxley Act. The act establishes a means of increasing the security and the legality of audits by creating the Public Company Accounting Oversight Board. This accounting board would be used to set auditing standards and examine the audits done by accounting firms, acting as another set of eyes monitoring the accounting practices of corporations.
The Sarbanes-Oxley Act is a start at reforming the SEC. Reforms to any government agency take time, but one other reform that should be implemented is to increase the term of an SEC commissioner to 10 years.
In addition, each commissioner's term should be staggered to begin every two years. This would allow for every two years a new commissioner to be appointed, which would lessen the partisanship within the agency.
Unfortunately, the SEC has dragged its feet in implementing the Sarbanes-Oxley Act and other reforms. The act, which was supposed to relieve investor concern, has yet to be fully enforced. The bureaucracy within the SEC along with controversial appointments to the SEC has left behind the enforcement of the law. The passage of the Sarbanes-Oxley Act, while desperately needed, also has been the powder keg in recent weeks that have set the SEC aflame.
The igniter of the explosion was lame-duck chairman Harvey Pitt, who resigned as SEC chairman Nov. 5 amid the controversy of his support for William Webster as the head of the Public Company Accounting Oversight Board.
Pitt's reign had been muddled in controversy for 14 months prior to the latest revelations stemming from his pro-auditors stance during an accounting crisis, and from his allowing President George W. Bush to cut the SEC budget by one-third.
Pitt has been a poor chairman. As it turns out, Pitt withheld information about Webster from the other SEC commissioners during the appointment process of Webster. On the final vote of the commissioners on whether to approve Webster for the position as the head of the accounting board, a partisan vote of three Republican commissioners to two Democrats approved Webster for the job.
After the vote, information leaked out that stated not only was Webster the former head of an audit committee at U.S. Technologies that was facing a lawsuit alleging fraudulent practices, but also that Pitt did not disclose this information.
Pitt resigned after this information was made public, with Webster following suit one week later.
Pitt was obviously not the man for the job as chairman of the SEC, but Rudy Giuliani is.
The SEC should not be a partisan agency, divided by politics. It should be an agency whose main goal is the protection of the U.S. economy, nothing more, nothing less. Rudy Giuliani will bring direction in a non-partisan way to an agency that is sailing without a rudder.
Giuliani would be an excellent chairman because, although he is a strong leader and a smart politician, he also has experience in the area of protecting people against white-collar crime. Prior his post as New York City mayor, Giuliani was the U.S. attorney for the Southern District of New York.
Some of his greatest triumphs in a career that saw him gain 4,152 convictions while only receiving two dozen reversals were in the area of white-collar criminals, including the prosecution of insider traders. He was on the forefront of cracking down on corporate fraud and crime in the 1980s and there is no reason why he couldn't do the same now.
The SEC needs an influential leader who will bring about changes to the agency, but who will not cower and bend to partisan politics in Washington. Rudy Giuliani is a man of principle and a no-nonsense leader who will once again bring stature to the SEC -- stature that it has lost in recent years through poor leaders and a lack of accountability to the American public.
(Jordan Levy is a first-year College student).
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