Repealing the Federal Securities Laws: an Essay

Abstract

The recently proposed Department of Government Efficiency (DOGE) will be seeking the removal of government agencies and departments that are inefficient and unnecessary. One likely target of that effort will be the U.S. Securities and Exchange Commission (SEC). That agency has repeatedly failed in its mission of protecting investors and maintaining orderly markets, as evidenced by several financial crises and scandals that occurred on its watch. They include the Enron accounting frauds, the Financial Crisis of 2008 and the Bernie Madoff Ponzi scheme. The SEC is presently pursuing, without congressional authorization, regulation of cryptocurrencies, which is hampering the growth of that asset class and which did not prevent the FTX fiasco. The SEC has also abandoned its investor protection mission in favor of controversial climate change politics that resulted in widespread “green washing” fraud. The agency has also mandated a surveillance system for all stock trades on U.S. exchanges that is highly costly and ineffective. Instead of protecting investors from real fraud, the SEC resorted to headline grabbing, highly dubious, enforcement actions against celebrities such as Martha Stewart, Elon Musk and Kim Kardashian. These regulatory experiments are costly. The SEC’s ESG disclosure rule, as estimated by one SEC commissioner, would increase already burdensome SEC disclosure costs by 21 percent. Those costs do not include the massive attorney fees, fines and civil settlement that are an everyday part of life for public companies. It also does not include the costs of inefficacies introduced by SEC rules and lost opportunities due to regulatory delays. These SEC imposed costs have been accompanied by a precipitous reduction in the number of public companies and initial public offerings (IPOs). Between 1996 and 2023 the number of public companies was cut in half. The essay shows that the justifications for those regulations and their costs are based on investor protection myths promoted by the SEC and its constituencies. This essay identifies and debunks those myths and examines the history of that agency’s mission failures. It recommends repeal of the federal securities laws and the dismantling of the SEC, which has distorted its mission of protecting small investors into one that seeks command and control over the nation’s capital markets.

Keywords: SEC, Artificial Intelligence, Bernie Madoff, Budget Increases, CAT, Consolidated Audit Trail, Cryptocurrencies, Cybersecurity Threats, DOGE, Elon Musk, Enron, ESG, Financial Crisis of 2008, Flash Crashes, FTX bankruptcy, Institutional Investors, IPOs, Kim Kardashian, Martha Stewart, MF Global, Overreaching, Paperwork Crisis, Regulation by Enforcement, Regulatory Costs, Regulatory Failures, Stock Market Crashes, Too Big to Jail