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.The Securities Exchange Act of 1934 further regulated the exchange ofom wwwsecurities, and created the SEC with vast powers to register and controlstock exchanges (which, up to then, had been voluntary private associations),regulate transactions on those exchanges, require regular filings from listedcompany, compel production of documents with subpoenas, and so forth.yright material frThe original 30-page law had been expanded to 259 pages by 2007.As itCopstood before the economic crisis, the law also regulated securities futures (con-tracts to buy or sell securities at future dates at previously agreed prices), andbroker-dealers (persons engaged in the business of effecting transactions insecurities for the account of clients or for their own accounts).The SEC hadacquired the power of barring or suspending market participants and corpo-rate directors, issuing cease-and-desist orders, and asking courts to impose upto 20 years in jail—compared with two years in the original 1934 law.610.1057/9780230118478 - Somebody in Charge, Pierre LemieuxFebruary 7, 201120:44MAC-US/CHARGEPage-849780230112698_06_ch04The Laissez-Faire Scapegoat●85The Sarbanes-Oxley Act of 2002 further increased the SEC’s powers.Thislaw created the Public Company Accounting Oversight Board to overseeaudits of companies regulated by the SEC, mandated more disclosure of cor-porate information, imposed codes of ethics for financial officers, increasedpenalties for so-called white-collar crimes (which are often nothing but reg-ulatory violations), and criminalized some accounting mistakes.“Very fewstart-ups have gone public in recent years, thanks in part to the multimillion-dollar compliance costs imposed by the Sarbanes-Oxley law in 2002,” wroteJames Freeman in the Wall Street Journal.7 Some argue that Sarbanes-Oxleymotivates companies to list in London instead of New York.The SEC’s 2006 Performance and Accountability Report declares: “TheUS Securities and Exchange Commission serves you by working to securethe trust in our markets.”8 The expression “our markets” stands in opposi-veConnect - 2011-04-01tion to the Hayekian idea of an abstract society with impersonal markets thatdo not belong to anybody.More directly interesting for our purpose here isalgrathe enormous claim that the SEC was securing “trust in our market,” justh - Pas confidence was about to crash.In 2006, the SEC spent about $900 mil-lion, brought procedures in 92 criminal cases, initiated more than 500 civilenforcement actions (most of which have nothing to do with fraud in thetraditional sense), and sought orders barring 97 individuals from officer ordirector positions at listed companies.Ironically, during that same year, theSEC forced AIG to pay an $800-million accounting fine, and imposed a fineof $350 million on Fannie Mae as well as a smaller technical penalty on BearStearns, the investment bank that was going to go bust less than two yearslater.This is how the SEC was “working to secure the trust in our markets.”veconnect.com - licensed to ETH ZuericThe SEC has been increasingly involved in controlling what listed cor-porations must disclose and how they must disclose it.Listed corporations.palgramust publish regular quarterly information, plus any new information thatcan affect the price of their shares.This information must be availableom wwwto all investors at the same time.Since these controls also apply to theInternet, there is much concern that corporate blogs and tweets “can runafoul of Securities and Exchange Commission regulations on corporatecommunications.”9 Intel avoids corporate blogs and tweets altogether becauseyright material frof such concerns.A look at the mandated reports on the SEC’s website showsCophow egalitarian disclosure is impossible: understanding the documents dis-closed often requires a financial lawyer.Perfect or equal information is amirage.Much of the control over corporate speech is meant to enforce the pro-hibition of insider trading.For several decades now, it has been a crime tobuy or sell securities on the basis of material nonpublic information, whichis what insider trading is.“Material” means important enough to influence10.1057/9780230118478 - Somebody in Charge, Pierre LemieuxFebruary 7, 201120:44MAC-US/CHARGEPage-859780230112698_06_ch0486●Somebody in Chargethe price of a security.“Non-public information” is simply information thathas not been divulged under the forms prescribed by the SEC.Not only doesthe Justice Department prosecute insider trading as a crime, but the SEC filescivil suits.When effective, the prohibition of insider trading simply replaceswhat would be a slow change in share prices as inside information filtersthrough the market by an abrupt change when the information is officiallydisclosed.Many economists think that insider trading that does not violateconfidentiality agreements or job contracts should not be criminalized, andthat civil suits—or perhaps simply job dismissals—by the owner of the stoleninformation would be sufficient to provide the optimal amount of insidertrading.10 In many cases anyway, the information targeted by the law is notstolen.11The American banks’ heavy regulatory burden has a long and tragic his-veConnect - 2011-04-01tory.During most of its history (especially after the Civil War) and in mostplaces, the United States distinguished itself from other countries by legalalgraprohibitions on intrastate and interstate branching—the “unit banking” sys-h - Ptem.State-chartered banks were forbidden to branch intrastate within moststates.Nationally chartered banks were prohibited from interstate branchingby federal regulation after the Civil War.12 Local business and agriculturalinterests, which wanted a captive local bank unable to lend to anybody elsethan themselves, were the force behind these strange prohibitions
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