Thursday, January 20, 2011

The "Swindlers' Encouragement Commission" Strikes Again

Today brought a warm rush of joy to my heart when I read Jonathan Macey's commentary in the Wall Street Journal about the "SEC's Facebook Fiasco."

This government agency has been on my mind quite a bit recently, because I'm writing the biography of my father, economist and investment adviser Edward C. Harwood, who spent five of the last seven years of his life fighting the Commission back in the 1970s.

Harwood gave this grave-faced government body the nickname "Swindler's Encouragement Commission," due to the fact that the public thinks the SEC is protecting them from evil people but in reality, as we have seen most recently from the Madoff case, it is not.

My Dad won, in effect, his case against the Commission. In the end, the SEC had to back down from its claims. This is rare: usually the very rumor of the agency's presence in the room is enough to cause most investment advisers to turn to dust. The business is built, after all, upon reputation. Once that's gone, it's over, at least for most people.

Not for my Dad. He stood up to the SEC challenges, and alongside him, believe it or not, were his very courageous investors. Together, with Judge Gerhard Gesell's help, they proved that a contract is worth more than the paper it's written on--at least back then.

My version of the story will come out, for those who are interested, within the next few months. I'll keep you posted. Meantime, may the gods smile upon brave souls like Jonathan Macey who have the courage to tell the SEC like it is.

Here are a few excerpts:

"...[T]he commission's rules regarding stock sales are crippling for U.S. investors."

"Thank to SEC regulation and the litigious atmosphere it fosters--not to mention Sarbanes-Oxley's onerous burdens on corporate executives--the whole capital formation process is moving offshore."

"The SEC's fundamental approach to regulation involves depriving investors of opportunities in order to protect them." [Oh, how this rings true. But it lost one of those battles in 1978.]

"... [A]ccording to the SEC, all investors large and small must be protected against the danger that they will succumb to a feeding frenzy of enthusiasm when given the opportunity to invest in a new deal. For example, the SEC rules governing the Facebook offering until Goldman pulled the plug include the requirement that the stock being sold 'cannot be the subject of advertising, general promotional seminars or public meetings in connection with the offering.' The concern here is that publicity about a deal might, heaven forbid, create interest among investors."

Read the whole commentary (subscription required). It's really a hoot, and right on target.

My father would be pleased to see that there are those who follow in his faded but indelible footsteps.

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