Tuesday, May 13, 2008
SEC v Spitzer
"Say what you will about his personal life, but a new study finds former [NY] Attorney General Eliot Spitzer was a successful advocate for investors harmed by mutual-fund trading abuses. Investors received five to 10 times more in mutual-fund settlements that Mr. Spitzer took part in, according to a comparison of 20 settlements with federal and state regulators between December 2003 and January 2007. Regulators recovered an average of 77% of estimated investor losses in settlements when Mr. Spitzer was involved compared with 7% when he wasn't noted the study. When penalties are included, the recovery rates are 125% and 25% respectively. ... What accounts for the gap? ... [Eric Zitzewitz, an associate professor at Dartmouth College] found one difference: Mr. Spitzer was just more aggressive in pursuing and settling cases than the SEC. SEC spokesman John Nester declined to comment on the research. ... Spitzer insisted that settling funds pay hefty penalties, make restitution to harmed investors and lower fund-management fees, an aggressive approach that his critics attributed to a desire to gain publicity and advance his career, even at the expense of the SEC", my emphasis, WSJ, 30 April 2008.
Why do Spitzer's critics complain? What do SEC staffers do, if not "advance [their] careers" at the expense of investors? Spitzer appeared to seek public approval, SEC staffers appear to seek the approval of the companies they purport to regulate. Either way, Spitzer and SEC staffers each pursues private ends. I conclude the critics' problem with Spitzer is that his interests were more closely aligned with those of investors than the SEC staffers are.