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"Where the hell is the SEC on this?" - From an article by Bill Mann, TMF September 5, 2003, on the latest mutual fund scandals, .

I'll start my note with a story. About a year and a half ago someone from TD Waterhouse canceled and open order in my account which need not have been canceled, for any reason. The loss to me was very small, so legal action was not practical. I complained to them. I got answered with a lie which would have been very easy to check. I complained to someone else. I got answered with another lie which would have been very easy to check, which contradicted the first one.
Annoyed by the lies and their well-known style of speaking to clients with contempt - if at all - I decided to complain to the NASD and the SEC. using the online forms. I got autoresponder responses, and a later response from the SEC saying that my complaint had passed some kind of initial screening by a human being, and would be formally investigated.
After a while, I got a letter from a Waterhouse employee saying that he was responding to my letter, 'which I submitted to them through the SEC'. (A paraphrase; I don't have that letter in front of me.) I hadn't submitted the letter to Waterhouse; I had asked the SEC to investigate through the SEC's online form. The letter from Waterhouse included some more falsehoods, extremely obvious ones and once again very easy to check, as well as some evasive language. I decided to wait for a more formal response from the SEC itself. I didn't receive one for a few months, so I again submitted an online form to the SEC. I received an email, not signed or otherwise containing any name or title, saying that the SEC had sent a response to my earlier complaint by regular mail, and that if I sent to whomever-it-was my name and address by return email, he would arrange for me to get another copy of their response. The return email address was in the NYSE domain, meaning that the sender was associated with the NYSE in some way; he may have been an employee of the NYSE, or he may just as well been a trader for TD Waterhouse working at the NYSE. It seemed to me to be odd that he could route a copy of the response to my complaint, but that he couldn't find the name and address in the original complaint or the SEC response. I explained politely by return email that I preferred to know the name and position of the person I was dealing with before sending personal information which the SEC already had. I never received any response, either from my mystery email correspondent or from anyone else representing the SEC. I never did receive a response to my complaint to the NASD, except for an initial autoresponder acknowledgement.

First, the SEC. I think that it is clear from my example that the SEC does not respond to consumer complaints in a professional manner. From what I have seen on the Web, this is probably not an isolated incident. I once saw some investment journalist explain on the Web that the SEC is not responsible for protecting the investing consumer, and, in fact, that no government body is so responsible. Even though the SEC has occasionally investigated matters of interest to private investors (often while playing catch-up with Eliot Spitzer), they often seem more interested in protecting the interests of executives in the investment industry. This is hardly surprising, since most of them usually are executives in the investing industry.
If investing by individuals in private enterprise is good for the American economy, then it is in the interest of the American economy that investors should feel that they are well protected from illegal, dishonest, or just plain bad behavior by those who handle their investments. In such related fields as banking, the government has set up authorities to help consumers feel that way. The SEC doesn't do that job, and apparently can't and never will. It should be replaced by a different authority with a different assignment and a different structure.

Now for the NASD. It has often been pointed out that this is purely and admittedly an industry organization, which feels no interest in protecting the consumer from improper behavior by its own paying members. There are other industries, including the doctors and lawyers, who are allowed to police themselves. However, a lawyer once pointed out to me that there is a difference. The bar associations know that if they behave with gross bias, they will be overruled by the courts in individual cases, and if they continue too obviously, they will forfeit completely to the courts the right to police their own profession. All NASD brokers, as far as I know, have a clause in their contract with the consumer which prevents the consumer from suing his broker in an objective court run according to rules of procedure which society as a whole accepts as fair. One can only argue against a broker in an expensive arbitration procedure where several of the arbitrators will normally be employees of the security industry. This can hardly be considered a matter of private contract, since the government seems to allow the NASD a monopoly on handling most investments: only brokerages who are members of the NASD can trade most securities. In similar cases where a service provider has a government-protected monopoly, such as some regulated utilities, the government also provides an independent, governmental body for protecting the consumer. The government should provide an independent consumer-protection body here also, or eliminate the NASD's protected monopoly. This is especially so since the NASD has long since proven itself unwilling to honestly protect the consumer from the dishonesty of some of its own members. Once again, it is a question of whether investing by private individuals is good for the American economy, and whether individuals should therefore feel protected in law and in practice from dishonesty by investment professionals.

Apologies for the length.

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