The sleeping watch dog: aka the Securities and Exchange Commission
Purpose - The purpose of this paper is to expose inefficient regulatory policies and organizational weaknesses at the Securities and Exchange Commission (SEC) that have contributed to a series of regulatory oversights that have produced some of the largest fraud schemes perpetrated on investors. Design/methodology/approach - Sources of information consisted of scholarly articles and articles retrieved from the web. Findings - Findings suggest that although weaknesses that have been exposed at the SEC may not account for any one securities fraud oversight, cumulatively, the weaknesses create negative synergy that increases the probability that a regulatory oversight will occur. Originality/value - This paper serves as a useful guide to alert and educate securities regulators and enforcement, regardless of the country they may operate in, to examine their own regulatory policies and organizational structures for weakness that may be similar to the SEC.
Financial Fraud: A Game of Cat and Mouse
This thesis models rational criminals and regulators with flawed incentives. In it we develop a rational model of crime and regulation that we use to show the SEC’s current incentive structure is ineffective at preventing fraud. Under our model, criminals balance the monetary rewards of larger frauds against an increased chance of being apprehended; and regulators design regulations to minimize either the damage caused by fraud or some other metric. We show that under this model, the SEC’s focus on “stats” and “quick hits” leads to large frauds and a large social loss. We argue that regulators need to focus not just on successful prosecutions, but also on harm reduction and deterrence.
Harsh default penalties lead to Ponzi schemes
Abstract In the presence of utility penalties, collateral requirements do not always eliminate the occurrence of Ponzi schemes. Harsh utility penalties may induce effective payments over collateral recollection values. In this event, loans can be larger than collateral costs and Ponzi schemes become possible.