Mutual Funds and the Regulatory Capture of the SEC

Forthcoming: Journal of Business Law

48 Pages Posted: 19 Oct 2016 Last revised: 18 Apr 2018

See all articles by Stewart L. Brown

Stewart L. Brown

Florida State University - Department of Finance

Date Written: November 20, 2016

Abstract

Regulatory agencies are created to act in the public interest but often end up acting in the interests of those regulated. This is known as regulatory capture. The mutual fund industry is the custodian of massive levels of wealth of the investing public and is regulated by the Securities Exchange Commission (“the SEC”). Mutual fund assets are currently in the neighborhood of $16 trillion and these assets generate revenues in excess of $100 billion per year for the firms that manage mutual funds. The investment management industry is incentivized to influence the regulators by whatever means available to maximize profits for their owners. This paper documents how the investment management industry has captured the SEC in certain key policy areas. As a result, the industry is able to siphon off billions of dollars per year in excessive and often hidden fees. The SEC has within its power to unilaterally blunt some of the worse abuses if it were willing to act in the public interest.

Keywords: Mutual Funds, Regulation, Regulatory Capture

JEL Classification: G23, G28, K22, K23, L51

Suggested Citation

Brown, Stewart L., Mutual Funds and the Regulatory Capture of the SEC (November 20, 2016). Forthcoming: Journal of Business Law . Available at SSRN: https://ssrn.com/abstract=2854312 or http://dx.doi.org/10.2139/ssrn.2854312

Stewart L. Brown (Contact Author)

Florida State University - Department of Finance ( email )

Tallahassee, FL 32306-1042
United States
(850) 576-6329 (Phone)
na (Fax)

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