The Watchdog

6 Jun 1934

A new law. After the crash of 1929, the Senate Banking Committee held hearings on its causes until May 1934. On 6 June 1934 President Roosevelt signed the Securities Exchange Act, which set up a Securities and Exchange Commission of five members.

2 Jul 1934

The first chairman. Roosevelt chose Joseph P. Kennedy, who had backed his 1932 campaign. The JFK Library notes “widespread qualms about the appointment of an ex-speculator,” and adds that his tenure “proved to be just the start necessary for the new agency.” The FDR Library says he received “high praise” for working with both Washington and Wall Street. He left in September 1935, “believing that he had accomplished what he needed to do.”

13 Aug 1968

A case the SEC won. In 1968 the Second Circuit ruled on the SEC’s suit against Texas Gulf Sulphur and some of its officers and employees, who had bought stock or accepted options after test drilling and before the results were public. Those “apprised of the drilling results” who traded broke Rule 10b-5, the court held. The SEC did not win everything: the court upheld the dismissal as to one defendant, and as to two others for their stock options.

1988

The eighties. The SEC’s 1988 suit followed Ivan Boesky’s revelations, which sent him to jail in 1987. Drexel Burnham Lambert, Michael Milken and others were “cast in judgment” and permanently enjoined. Drexel and Milken also pleaded guilty to felonies in the same affair, in criminal cases brought by prosecutors. A federal judge later recounted that Drexel disgorged $350 million and Milken $400 million.

10 May 1973

The Vesco case. Watergate touches the SEC here. A New York grand jury indicted former Attorney General John Mitchell, Maurice Stans, the financier Robert Vesco and Harry Sears for attempting to impede an SEC investigation of Vesco. The indictment alleged a secret $200,000 contribution to the Nixon campaign. On 28 April 1974 a jury acquitted Mitchell and Stans on all charges. The prosecutors’ report records the SEC’s investigation as what the charge was about; this story has no source for what became of it.

31 Aug 2009

What the inspector found. Harry Markopolos, a fraud examiner, told Congress he sent the SEC written submissions about Bernard Madoff in 2000, 2001, 2005, 2007 and 2008. The SEC’s inspector general, H. David Kotz, reported in over 450 pages that the agency ran two investigations and three examinations of Madoff but never verified his trading with an independent third party. Had a proper examination been done, the report said, the SEC would have been able to uncover the fraud. Kotz also told senators his team found “no evidence of improper influence from the top.”

10 Sep 2009

“In this case, we failed.” Khuzami, who became Enforcement director on 30 March 2009, accepted the report’s findings on Madoff and listed changes, including a cut of almost 40 percent in management levels. He also answered the wider charge: the criticism “should not obscure the 75-year tradition of vigorous enforcement.” He said the SEC had filed 45 Ponzi scheme actions that year, and an SEC statement said that from late January it had filed 458 actions against 359 in the same period of 2008. Tip counts differ in the record: “hundreds of thousands” a year, more than 700,000, or tens of thousands needing staff review. Madoff was sentenced to 150 years on 29 June 2009.

1997

Four times. The inspector general’s report on Allen Stanford, in March 2010, found that the examiners pressed the Enforcement group to investigate after each exam, but the group made “no meaningful effort” until late 2005. It did not find that this came from any improper relationship. The SEC filed an emergency civil action in February 2009. A jury later convicted Stanford, including of obstructing an SEC investigation, and he was sentenced to 110 years. Khuzami told senators in 2010: “We cannot evade responsibility for the handling of the Stanford matter.”

Mar 2009

What a count counts. In 2009 the SEC told the House it brought approximately 600 enforcement actions a year. GAO found its activity “generally been level,” and said two recent penalty policies had “produced fewer, smaller penalties.” The inspector general found that Fort Worth officials “perceived that they were being judged on the number of cases they brought.” Some SEC investigators told GAO that case tallies “can present an incomplete view” and are “vulnerable to manipulation”; GAO does not say any was manipulated. In 2010 the SEC told senators it would stop emphasizing the number of actions filed.

Jul 2011

The revolving door. Dodd-Frank had GAO look at SEC staff who go to regulated firms. GAO said the SEC had not tracked where leavers went, so it could not say how many did. It found the SEC’s controls similar to other agencies’, noted that such moves can help the SEC attract experts, and found its ethics advice not consistently documented; the SEC agreed to write standards. Earlier reports cited by GAO “did not conclude that former SEC employees violated postemployment restrictions.” The Stanford report describes one case: a former head of Enforcement in Fort Worth briefly represented Stanford in 2006, until the SEC Ethics Office said that was improper.

21 Jun 2004

A voluntary program. The commission wrote that the investment banks “lobbied the SEC to devise a system of regulation” that would satisfy a European rule and keep them from European oversight. In June 2004 the SEC published a rule letting the largest investment banks use their own models to work out capital, if their parent companies agreed to SEC supervision. Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley joined. The SEC lacked express authority to require it, so the program was voluntary.

Mar 2008

On site, too late. The commission reported that the SEC never put examiners inside the firms, as bank regulators did. It did meet monthly with each firm, and in 2006 its worry about Bear Stearns’s funding led Bear to reduce its exposure. But the SEC knew of Bear’s mortgage concentration and high leverage and did not ask it to change. In the second week of March 2008, in what the commission calls a “four-day death spiral,” the SEC was on site for its first CSE exam since the entrance exam, more than two years earlier. Chairman Mary Schapiro later said the program “was not successful in providing prudential supervision.”

Jan 2011

The majority’s words. Six of the ten commissioners wrote that regulators “had ample power in many arenas and they chose not to use it.” The report says the CSE program “was widely viewed as a failure,” and that former chairman Christopher Cox called it “fundamentally flawed from the beginning.” Three dissenters, in one statement, agreed that the program failed but argued that no regulator could force the firms to build capital; a fourth, Peter Wallison, wrote that “the SEC’s supervisory process was weak” but that this was not evidence of a cause of the crisis. The program was discontinued in September 2008.

15 Jul 2010

Cases from the crisis. The SEC charged Countrywide’s former chief executive Angelo Mozilo in June 2009. In October 2010 he agreed to pay $67.5 million, neither admitting nor denying, and to a permanent bar from serving as an officer or director of a public company; the SEC called his penalty the largest paid by a public company’s senior executive in an SEC settlement. In July 2010 Goldman Sachs agreed to pay $550 million over one deal, without admitting or denying the allegations, while acknowledging that its marketing materials “contained incomplete information.” The SEC called it its largest penalty from a Wall Street firm. Both cases ended in settlements, not trials.

28 Nov 2011

“Neither admit nor deny.” The SEC alleged that Citigroup sold investors a fund while betting against its assets; investors lost more than $700 million, as the SEC later said. The SEC charged only negligence. Citigroup would pay $160 million in profits, $30 million in interest and a $95 million penalty without admitting or denying. On 28 November 2011 Judge Jed Rakoff refused to approve it, for lack of “any proven or admitted facts.” On 4 June 2014 the Second Circuit vacated his order: requiring the SEC to prove the “truth” of its allegations was an abuse of discretion, because “Trials are primarily about the truth. Consent decrees are primarily about pragmatism.”

14 Oct 2021

The staff report. That week is told in The Week the Buying Stopped. In October 2021 SEC staff reported on it. They saw spikes in failures to deliver GameStop shares, an “imperfect measure of naked short selling,” but found that GameStop “did not experience persistent fails to deliver at the individual clearing member level,” and found no evidence of a gamma squeeze. The report says the link between shorting and price is “more complex than these narratives would suggest.” It states that the Commission itself has “expressed no view” on its findings.

13 Oct 2023

Short selling. GameStop set off the SEC’s short sale circuit breaker twice in January 2021, a rule adopted in 2010 to stop abusive short selling from driving a falling stock down further. Dodd-Frank in 2010 told the SEC to make short sale data public at least monthly. The SEC adopted Rule 13f-2 in October 2023, and said the meme stock events also “highlighted a need for more” such data. In August 2025 the Fifth Circuit sent the rules back without striking them down and otherwise denied the challenge by private fund groups; in December the SEC exempted filers until 2 January 2028, after a first exemption in February 2025.

3 Jan 2023

Payment for order flow. Wholesalers pay retail brokers for the right to fill customers’ orders. In December 2020 the SEC charged Robinhood Financial over statements about those payments; it agreed to pay $65 million, without admitting or denying the findings. In January 2023 the SEC proposed the Order Competition Rule to expose some retail orders to auction. On 17 June 2025 it withdrew that proposal and thirteen others, saying it “does not intend to issue final rules” and that any future action would come as a new proposed rule. That is rulemaking, not enforcement.

27 Jun 2024

The jury question. The SEC had tried an investment adviser, George Jarkesy, for fraud in its own in-house proceeding and imposed a $300,000 penalty. In 2024 the Supreme Court held that when the SEC seeks civil penalties for securities fraud, the defendant is entitled to a jury trial. The Congressional Research Service read the decision as not having “a significant impact on recent SEC practice related to securities fraud.”

20 Jan 2025

Fiscal 2025. Chair Gensler left on 20 January 2025; Mark Uyeda was acting chair until Paul Atkins took over on 21 April. The study counts 29 such actions in the first quarter, a record high, and 3 in the second half, a record low. It says the year’s total is “consistent with prior fiscal years that coincided with transitions in SEC leadership,” and that, “[d]espite the Jarkesy decision,” administrative penalties made up the highest share of settlement money in its data. A co-author called the decline sharp and added: “It remains to be seen if this lower level holds.” It counts only public companies, not the SEC’s whole docket, which this story could not obtain.