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SEC Consent Decrees Are Meaningless Acts

August 04, 1985

Your story, "Anatomy of a Stock Deal Turned Sour" (July 21) about people in a Texas town following the lead of newcomer Thomas W. Reid by buying into a stock while the market was allegedly manipulated to affect the price--all to their ultimate disaster when the price bubble burst--raises an issue that has bothered me about regulatory enforcement activities.

Your story was prompted by a settlement with the Securities and Exchange Commission in which the defendant consented to a boilerplate court order. Reid does not admit or deny the charges but is prohibited in quite general terms from future securities fraud.

The SEC staff, for its part, announces another "victory" in protecting investors. They have again proven that their jobs are important.

This same Reid has twice enriched the SEC's statistical enforcement record. To the staff, he is almost worth cherishing as a provider of future employment. But the facts might be of some discomfort to investors who thought the SEC was protecting them (assuming that the SEC's allegations are true).

Long before the computer age, the most backward police departments kept some sort of index on crime activity in their areas and had probation and parole officers checking on those who violated the law. Surely somebody from the SEC should have been following up on Mr. Reid to remind him that he was subject to a court injunction.

Early in their history, it seems, staffs at the SEC and other federal and state "protective" agencies found it tiresome or beneath their dignity to go after alleged law violators in a meaningful way. It was easier to get a meaningless injunction. In order to sell this injunction to the defendant, the wording had to be so vague that the defendant, in case of future violations, could argue that terms of the court order had not been violated.

So, we get the standard consent order which says little more than, "Go, my child, and sin no more." There is really no cop (or probation officer) on the regulatory beat to protect you from getting mugged.


Newport Beach

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