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Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

When a regulator like Rick Fleming sounds more like a politician, it could be a good thing

Apr 14, 2014 @ 11:27 am

By Mark Schoeff Jr.

Investors, SEC, state regulators, fraud, Dodd-Frank
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New Securities and Exchange Commission's Investor Advocate Rick Fleming.

When the new Securities and Exchange Commission's investor advocate introduced himself publicly last week, he sounded more like a politician than a regulator. For investor protection, that could be a good thing.

In his first public statement, Rick Fleming, talked about being raised by a single mother who was taking care of four kids while working as a school secretary.

“I grew up poor,” Mr. Fleming told an April 10 meeting of the SEC Investor Advisory Committee.

Like many politicians who debate at the U.S. Capitol, a few blocks away from the SEC headquarters, Mr. Fleming put his office in context by telling a story and establishing the narrative of helping the common person.

“Going from a place like that to a place around the table like this — if you've done that, you know the American Dream is not just some sappy sentimental idea. It's something that I believe in,” Mr. Fleming said. “Investing is an important part of that, if we want people in this country to have upward mobility.”

A former general counsel for the Kansas Securities Commission and former deputy general counsel for the North American Securities Administrators Association Inc., Mr. Fleming highlighted two cases that he said illustrate his approach as a regulator.

In Kansas, he filed criminal charges in a churning case, a rarity in securities regulation. He was moved by the fact that the victim was a patient in a mental institution.

In his first jury trial, he won conviction of a defendant who had stolen about $250,000 — most of the life savings — of an elderly man. Mr. Fleming pressed for jail time even though the perpetrator was a woman with two young children at home.

“It is a legitimate function of a government in a capitalist society to make sure that once a person has done the right things to save a few bucks, and they're getting ready to invest, that we make sure that they are treated fairly in the marketplace — that they're not abused by people who have more money and more power,” Mr. Fleming said.

He may be able to add substance to his words because he runs a six-person office that Congress created to be independent of the SEC. He must file two annual reports to Congress.

Whether Mr. Fleming will be successful depends largely on his personality, said Scott Kimpel, a partner at Hunton & Williams.

“The danger is being perceived as an internal gadfly or a second inspector general,” said Mr. Kimpel, who was a counsel to former SEC Commissioner Troy Paredes. “It’s all a function of tone and working within the bureaucracy that’s there as opposed to doing an end-run around it.”

One of Mr. Fleming’s challenges will be to overcome skepticism within the SEC and outside of it about the need for an investor advocate because the agency sees itself in general as filling that role.

“There are a lot of folks questioning why this position was created in the first place,” Mr. Kimpel said. “They see it as a solution in search of a problem.”

The bigger problem for Mr. Fleming will be a lack of resources, according to James Angel, an associate professor of finance at Georgetown University.

“He probably needs 10 times as many people to deliver decent customer service to investors,” Mr. Angel said. “Without enough people, I don’t see them as having enough bandwidth to be an effective investor advocate.”

The Dodd-Frank financial reform law calls on him to analyze the impact of potential SEC and self-regulatory rules on investors, suggest ways to change those rules to make them work better for investors, propose rules to the SEC, identify problems investors are having with financial products and companies, and resolve problems investors have with the SEC.

Mr. Fleming likely will still face obstacles in getting the SEC to follow through on his recommendations. The group he addressed last week, the SEC Investor Advisory Committee, has a mixed record in being able to influence the commission, which treasures its independence but also is subject to sometimes fierce industry pressure.

It will take a while before Mr. Fleming's effectiveness can be assessed. But he's off to a good rhetorical start.

The SEC commissioners and other regulators could make a more powerful argument for their efforts to protect investors, if they would talk about investors as real people, as Mr. Fleming — and politicians — can do.

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