The $2,200 Man and The SEC’s In-House Fun-House: A Podcast from The Regulatory Transparency Project

The $2,200 Man got the chance to tell his story in his own words on a national stage:

https://regproject.org/sec-increased-use-administrative-proceedings-2200-man/

Whether you care about immigration, the environment, banking and finance, civil rights, gender issues, police brutality or intelligence gathering, you need to understand the administrative branch, the most misunderstood branch of our government. If you get crosswise to this branch, it will assert itself it ways you can’t imagine,  brandishing powers you never knew it had.

Give a listen:  Free Lunch Podcast Episode 2 – SEC Increased Use of Administrative Proceedings and “The $2,200 Man”

In many federal investigations, a regulatory agency must bring legal action against a company or individual through the traditional court system. However, some regulatory agencies, like the Securities and Exchange Commission (SEC), have a powerful alternative – administrative proceedings. Rather than filing a lawsuit in federal court, the SEC can institute an administrative proceeding, which is presided over by an Administrative Law Judge. In doing so, the SEC can put nearly any company or individual at a distinct litigation disadvantage, depriving them of significant rights and thereby increasing its own chances of success.

Take for instance, the case of Eric Wanger. In 2010, Mr. Wanger ran a multi-family office, employed 11 people, published articles on finance, and campaigned for shareholder rights. The SEC claimed that Mr. Wanger overcharged his clients by exactly $2,269, about $70 per month—possibly the smallest case the SEC has ever undertaken. No charges were ever filed against Mr. Wanger, and no hearings or trial were held. He never pleaded guilty or admitted to breaking any laws. The SEC instead, instituted administrative proceedings which forced Mr. Wanger to shut down his business and layoff his employees, and has since barred him from practicing his profession.

You can also read more about Mr. Wanger’s story on his blog at https://2200dollarman.org.

The Podcast:   https://regproject.org/sec-increased-use-administrative-proceedings-2200-man/


Thanks again to Devon, Curtis and Mike for giving us the chance to present our story as part of the Regulatory Transparency Project in DC.  Regulatory Transparency Project is a venture of The Federalist Society fedsoc.org

cropped-evil-man3.jpg

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Lucia v. SEC Splits D.C. Circuit. Supreme Court Will Have to Decide If SEC ALJs Are Real Judges or Not

The D.C. Circuit Court just split on the issue of whether or not SEC ALJs are real judges or merely SEC staff.

Law360: The D.C. Circuit split evenly on the question of whether the U.S. Securities and Exchange Commission could overrule its own administrative law judges, denying a bid to overturn a decision by a three-judge panel in the case and setting up a U.S. Supreme Court challenge.

A 10-judge en banc panel of the D.C. Circuit split down the middle on the case brought by Raymond J. Lucia and his namesake investment advisory firm in an attempt to overturn an August decision by a three-judge D.C. Circuit panel. Since Judge Garland did not participate, the case faced an even number of justices and will inevitably go before the U.S. Supreme Court.

Due Process may not be dead after all: The SEC’s In-House Fun-House is suspended in Colorado #justice #secreform #dueprocess #civilrights

Maybe civil rights and due process have a chance, after all. For years, we have been saying that what passes for justice inside the SEC is a mockery of the constitutional rights granted to U.S. citizens. Apparently, the federal judiciary is beginning to agree with us.

The U.S. Securities and Exchange Commission has suspended most of its in-house court cases in Colorado, Kansas, New Mexico, Oklahoma, Utah and Wyoming because a Denver-based federal appeals court found the agency had violated the constitution in how it hired its administrative law judges.

The SEC’s order comes after that same appeals court this month declined to reconsider the ruling that found the SEC’s hiring of its judges violated the constitution’s appointments clause.

This is a small victory, but we’ll take what we can get. We knew this was going to be a long fight.

Reuters: U.S. SEC suspends some in-house court cases over hiring of judges

Please take a moment to say “thank you” to someone you never knew

Obituary: Miriam Rodríguez Martínez died on May 10th

The campaigner for Mexico’s disappeared was 50

Mother’s Day, May 10th in Mexico, was a date to be treated with tamales in bed and serenades. She had two other children to spoil her, though no Karen, for whom she had done her best. Her day ended when, at about 10.30pm, a hustling band of Zetas called her out of the house. If they had waited a second, she would have told them exactly what she thought of them.

http://www.economist.com/news/obituary/21722139-campaigner-mexicos-disappeared-was-50-obituary-miriam-rodr-guez-mart-nez-died-may

Enough is Enough! Respectfully, Tom Gilson

Dear Senator McCain / Flake:

I’m writing about my good friend Eric Wanger, a Chicago money manager who has had a nightmarish experience with the SEC over the last six years.  

The SEC accused Eric of violating technical rules when he executed 15 transactions over a period of years. The total losses resulting from these claimed violations was $2,200 — a tiny fraction of Eric’s portfolio. The SEC’s enforcement division initiated a legal action that was heard by an Administrative Law Judge — an SEC employee, who, unsurprisingly, ruled consistently against Eric. Believing he could not get a fair shake, Eric agreed to settle the charges without admitting liability. He paid a fine and agreed to a one-year suspension from the industry.  

The one-year “suspension” ended five years ago, but Eric remains barred from the industry. Nobody will hire him, and the SEC’s staff has rejected his pleas for reinstatement.

Pulitzer-prize winning journalist Gretchen Morgenson told Eric’s story in a recent New York Times article: 

https://www.nytimes.com/2017/05/04/business/sec-internal-court.html
As your constituent, I’m outraged that an American citizen — and a good man — has been treated so shabbily. He has been denied due process before the SEC, and has received a shockingly disproportionate punishment for the minor violations he was accused of. I am reminded of the fictional character Jean Valjean, who was hounded for years by a police officer because he stole a loaf of bread. I don’t believe Eric violated any rule, but even if he did, this penalty — a virtual life sentence for a $2,200 violation — is grossly unwarranted and unfair.

Enough is enough. There is a petition now pending before the SEC requesting Eric’s reinstatement to the securities industry. Please do whatever you can to make sure this absurd penalty is lifted. Contact the members of the Banking Committee or the Commissioners themselves, and help bring Eric’s nightmare to an end. 

For years, Eric believed what he was taught in civics class: that the Constitution guarantees due process in administrative proceedings, and that the government acts in the interest of justice. This experience has given him grave doubts. Make him believe again.  

Respectfully,

Tom Gilson

bio: Thomas Gilson

Will You Sign My Petition? Justice Matters. I Should Know, I’m a Criminal Mastermind!

Will You Sign My Online Petition? It’s called:

The $2,200 Man Speaks: No More Kangaroo Courts at the SEC. Give Defendants Access to Real Judges in Real Courtrooms.

I wanted to let you know about a We the People petition and ask for your support. Will you add your name to mine? If this petition gets 100,000 signatures within 30 days of its creation, the White House will review it and respond!

You can view and sign the petition here:

https://petitions.whitehouse.gov/petition/2200-man-speaks-no-more-kangaroo-courts-sec-give-defendants-access-real-judges-real-courtrooms

Thanks for raising your voice!

Here is what the petition says:

The $2,200 Man Speaks: No More Kangaroo Courts at the SEC. Give Defendants Access to Real Judges in Real Courtrooms.

When the Securities and Exchange Commission decides to charge someone with fraud, they may lose their business, their career and reputation in addition to paying crippling fines. Yet, under the current system such defendants do not have the right to defend themselves in a real courtroom in front of a real judge. Instead, they must attempt to defend themselves in front of an SEC staff judge who is not bound by the same rules of evidence, procedure or due process as the real Article III courts. Furthermore, their right to an “appeal” is only a legal fiction, an appeal to the SEC Commission, the same agency that pays the prosecutor and the judge in the case.

This system breeds corruption and unfairness. Small-time defendants lose everything, while “whales” avoid prosecution with huge fines.

 

NYTimes Pulitzer Prize Winner Gretchen Morgenson Publishes Article About $2,200 Man: Eric Wanger at the SEC’s In-House Fun-House.

Gretchen Morgenson, Pulitzer Prize winning financial journalist at the New York Times, just published an article about Eric Wanger, The $2,200 Man, and his Kafka-esque nightmare at the SEC’s In-House Fun-House.

Check it out:

Justice Matters!

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New Sheriff at the SEC: Wall Street Lawyer Jay Clayton. Experienced Industry Hand or Wall Street Shill?

Depending on whom you choose to believe, Sullivan and Cromwell partner Jay Clayton is either a smart and experienced member of the securities industry elite or simply a shill for Wall Street. I doubt Senators Crapo and Warren will see eye to eye on this, now or ever. Clayton’s client list reads like a Who’s Who of full-contact Wall Street finance and the Goldman Sachs conspiracy theorists are burning a hole in Twitter.  Personally, I’m more hopeful. The one thing I know we do NOT need is more trigger-happy, “stop-and-frisk” prosecutors running an administrative agency.

If I could communicate one message to Mr. Clayton it would be this: Seek justice, not scalps.

Jay Clayton’s job is to oversee a financial system, not to be either Eliot Ness or Franz Kafka. I hope that he can bring the agency back to a rational and efficient place, one that vigorously polices disclosure and the telling of truth, while allowing capitalism to provide the vigor and dynamism we need. The SEC’s job is to referee the game, not to pick winners and losers.

I hope that he will work diligently to steer both the SEC and FINRA back onto the rails. Both organizations traded respect for fear in an attempt to capitalize on the profit potential of huge fines. Mary Jo White and Andrew Ceresney perfected a system of  “policing for profit” that punished the smallest infractions and ignored the most severe (cucu, eccomi qua!). We need to put that era into the rear-view mirror.

I wish Mr. Clayton Godspeed on his new role.

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NY Times: What the Future of S.E.C. Enforcement Holds Under Jay Clayton

Reuters: Jay Clayton Confirmed as SEC Chairman

 

Justice Matters: Illegal Immigrants Commit Less Crime, Not More 

Illegally entering this country is a crime.  So, by definition, all illegal immigrants have committed crimes. And, without doubt, some of these illegal immigrants then commit other crimes.  However, the idea that illegal aliens go on to commit more crimes than the rest of us, or even anywhere close as many, simply doesn’t hold up to legitimate scrutiny.

Serious people on both sides of the aisle agree:  The best data we have show that illegal immigrants commit less crime, not more.

Cato Institute

Both “illegal immigrants and legal immigrants have incarceration rates far below those of native-born Americans.” (Source: https://www.cato.org/blog/immigration-myths-crime-number-illegal-immigrants)

The Police Foundation

“The perception [is] that the foreign-born, especially ‘illegal aliens,’ are responsible for higher crime rates … [but] these perceptions are not supported empirically, instead, [they are] refuted by the preponderance of scientific evidence. Both contemporary and historical studies have instead shown that immigration is associated with lower crime rates and lower incarceration rates.” (Source: https://www.policefoundation.org/wp-content/uploads/2015/06/Appendix-D_0.pdf)

Breitbart (without intending to)

Even the clown princes of xenophobia can’t find legit data to show that illegal aliens are a disproportionate source of crime. Instead, they choose to attack the GAO, FBI and DOJ data, because, as we all know, those groups have a long history of tilting the scales in favor of illegal immigrants.

Quoting from Breitbart’s website:

“A lawsuit has been filed against the Department of Justice (DOJ), the FBI, and the Bureau of Prisons to force the production of records that demonstrate accurate illegal alien crime rates.”

“Although the Government Accountability Office (GAO) published a report in 2011 admitting that over 20,000 U.S. citizens and legal residents were killed by illegal aliens, [the group filing the lawsuit says] it is “far higher.” ( Source: http://www.breitbart.com/texas/2016/11/03/federal-lawsuit-seeks-flush-true-illegal-alien-crime-rates/)

New York Times

If you’re truly interested in a relatively balanced survey of the complexities of this issue, this is a solid read:

Here’s the Reality About Illegal Immigrants in the United States

“Illegal immigrants can be many of these things, and more. Eleven million allows for considerable range, crosshatched with contradictions.”

(Source: https://www.nytimes.com/interactive/2017/03/06/us/politics/undocumented-illegal-immigrants.html)

One last thing:

It is simply a fact that illegal immigrants have broken the law, whether or not they possess documents. The solution to the problem is immigration reform, not lying to ourselves about the definitions of words. Let’s get to work, people! The only way laws get changed is when people work to change them. Immigrants are our past and immigrants are our future.

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The SEC Is Lost in the Political Wilderness. It Is a Good Time to Remember Its Mission

The SEC’s own website could not be more clear:

https://www.sec.gov/files/sec-logo.png

The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.

In a democratic republic like ours, the pendulum of partisan politics swings back and forth, from one political extreme to the other. Usually, the middle proves to be a reasonable place. Administrative agencies like the SEC are staffed by professionals with long tenures, working in a system designed to insulate them from the brunt of partisan politics. Even so, it would be ludicrous to pretend that the people at the top don’t drive policies that percolate through the system. As balanced as the fine words of the SEC’s mission sound, there are very different ways to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.”

We are witnessing another swing of the political pendulum at the SEC with regard to enforcement. As the pendulum swings back from the clearly overzealous and probably unconstitutional “no broken windows” enforcement policies of Mary Jo White and Andrew Ceresney,  we should avoid overshooting the reasonable middle place and swinging to the overly lax “let the mice play while the cat’s away” enforcement style that brought us the Great Recession (see How A Theory Of Crime And Policing Was Born, And Went Terribly Wrong for NPR’s take on the original “no broken windows” policy.)

The most rational and effective mission for the SEC would be to return to making sure that all players in the public markets tell the truth in consistent, standard and comprehensible ways. When real crimes are committed by real people against real victims, the agency has no choice but to police “behavior.” However, this doesn’t happen as often as the agency wants you to believe. What is important is that we recognize that primarily policing disclosure, and not behavior, has proven to be a savvy way to balance the costs and benefits of regulatory oversight with the cost and benefits of caveat emptor capitalism.

The skewed and broken justice we have seen from the SEC is a result of a noble but flawed attempt to make the SEC more “prosecutorial” in policing bad behavior. Securities laws can be very vague and virtually impossible to define outside of a “know it when you see it” standard.  In the hands of a prosecutorial (as opposed to justice-seeking) agency, this standard can tip into the kind of kafkaesque witch-trial justice we have seen from the SEC.

We have just come through a period in which the biggest and wealthiest financial firms could turn over billions of dollars of their shareholders’ money in the form of fines to buy off the government, avoiding prosecution of specific individuals in those firms for securities violations or even crimes. Who could blame the CEO of a big financial firm for turning over vast amounts of someone else’s money to save his or her bacon?  The SEC brought in hundreds of billions of dollars this way over the last decade. The agency made lots of money for itself and the U.S. treasury, but it was a judicial abomination. To maintain the “street cred” necessary to scare big finance into turning over vast sums, the SEC went after hundreds of pissant offenders, jamming them into an in-house, self-policing, administrative justice system that had no intention of ever losing a case.

Once the administrative branch and Congress itself came to understand the gravy train this approach represented, the system went into overdrive. Suddenly, every big financial firm around was hit by the enforcement division. Somehow, the individuals within those firms seemed to always dodge the bullet. By dishing out vast amounts of their shareholders’ wealth, the individuals under attack walked away. And small cases were prosecuted to the full extent of the SEC’s impressive power.

Here’s what I fear: America has finally figured out that the SEC was out of control and had become an extortion racket. We have a president who campaigned on a promise to “drain the swamp.” But the opposite of too-prosecutorial has historically been too-lax. And too-lax would be just as much of a disaster, only in the opposite direction.

America’s securities markets and its regulatory bodies used to be the world’s envy. They really did “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” The genius of the agency was the understanding that both innovation and prosperity are frequently messy. Lawyers are not trained to understand finance, and they frequently don’t.  We understood the impossibility of the government winning an arms race with a healthy and innovative financial services industry.  But that requires regulators who like the industry! We need hard-nosed referees, not ass-kicking G-Men, overseeing our financial future. The New York City police department’s “no broken windows” policy ultimately became a humiliation for the city and was dismantled. It was unfair and punished the people least able to defend themselves, innocent or guilty.

Let’s agree to prosecute real crimes done by real people against real victims. Unless we have one of those, let’s stick to the mission: focusing on disclosure, not behavior. This has proven to be a useful way to balance the need for regulation with the dynamism of caveat emptor capitalism.

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