Background: How the SEC Punted on Supervising Private Equity Firms
Regular readers may recall that Dodd Frank required the SEC to take on the supervision of the fund management activities of private equity firms with over $150 million in assets. Its initial exams found that more than half of the firms were engaged in serious abuses, including what in any other line of work would be called embezzling. And contrary to the agency’s experience in other fields, the scamming was more prevalent at the largest firms.
So what did the SEC do? Despite a series of high profile articles by Gretchen Morgenson, then at the New York Times, and Mark Maremont of the Wall Street Journal, detailing specific frauds and naming perps, the SEC engaged in wet noodle lashings. Its pattern was to file only one major enforcement action over a particular abuse, and went to some lengths to spread the filings out among the biggest firms, which meant it was pointedly engaging in selective enforcement, punishing only “poster child” examples and letting other firms who’d engaged in precisely the same abuses get off scot free.<sup>1</sup>
And the fines and disgorgements were of the “cost of doing business” level.
On top of that, the then head of examinations at the SEC, Andrew Bowden, started air-kissing private equity firms in interviews. …
Much more at the link.
Destruction is easy; creation is hard, but more interesting.