The SEC Needs to Stay Out of Politics

Thursday, 15 Nov 2012 07:39 AM

By Jacob Wolinsky

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The New York Times on Wednesday reported that the Securities and Exchange Commission (SEC) is weighing a plan to force companies to disclose political contributions. A committee of law professors submitted a petition “urging the SEC to adopt rules that would require public companies to disclose information about their political spending.” The head of the SEC’s division of corporation finance said it is “an issue that’s extremely important to many.”

The issue seems to be gaining traction, as several high-profile Congressmen have thrown their support behind the idea. The authors of the petition state that their rationale is that “investors have expressed significant interest in receiving information about the political spending of public companies,” according to The Times

Furthermore, “because of the expressive significance of political spending, shareholders may attach greater importance … to political spending that deviates from their preferences.” The rest of the article is almost painful to read.

The argument put forward is ludicrous to say the least, but it also is worrisome for several reasons.

The purpose of the SEC, according to its own website, is to:

• Protect investors.

• Maintain fair, orderly and efficient markets.

• Facilitate capital formation.

Making companies require disclosing whom they donated to is clearly not within any of these mandates. But what is more worrying is the fact that the SEC has a taxing job. With a budget of $1 billion, the SEC overseas securities worth close to $20 trillion. Additionally, the SEC has to oversee 8,000 publicly traded companies. With the small amount of money the agency has it already performs a poor job.

There are over 600 reverse mergers on the U.S. stock exchanges. Many of these companies are based out of China and have been found to be fraudulent. I would venture to say there are hundreds of companies engaging in activities ranging from grey areas to outright fraud. Why should the SEC focus on political contributions when it cannot even do its most important job of protecting investors?

Matt Levine of Dealbreaker.com also makes a good point regarding the proposed new rules. In a humorous way he asks, “if you vote Green Party and you own shares in a mutual fund run by a Republican and it owns shares in a corporation run by a Democrat, where do the company’s campaign contributions go?”

It’s a good question, which shows that this proposal is silly. The second argument against the proposal is, how would the SEC classify situations that arise every day? The professors who propose this idea might answer, as noted in The Times article, “collecting the information necessary to identify the amount or targets of a public company’s spending would require a review of a wide range of disparate sources.”
However, there is no answer as to how this would be cheaper under the SEC. The answer is that this would likely be an expensive task and be borne by the SEC by spending more money to determine silly equations like the one above. The ultimate loser? The taxpayers funding this.

Finally, this proposal pre-dates the election. However, The Times is an extremely influential newspaper and to bring this up after the election has political overtones. President Barack Obama has in the past publically attacked individuals for their support of opponents. This proposal would give even more power to abuse this information to attack or target certain companies opposed to any administration.

The SEC should stick to the task it is already not fulfilling, which is first and foremost to protect the investor. The SEC should never have any type of a role in politics.

© 2014 Moneynews. All rights reserved.

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