The article is several months old, but someone just sent me this USA Today piece on how the SEC is stepping up investigation of corporate America, apparently because the bureaucrats there feel overshadowed by the extra-constitutional shenigans of people like Eliot Spitzer. This part is particularly offensive:

The Securities and Exchange Commission’s inquiry into the $55 billion newspaper industry, which became public last week, is the latest example of “wildcatting,” an aggressive new SEC enforcement policy that tries to anticipate problems rather than simply react.

“Wildcatting,” an oil industry term for drilling in unexplored ground, is how the policy is referred to within the commission.

Under this strategy, the SEC will review an entire industry when it finds trouble at one or two major companies. The goal: Find out if the wrongdoing is isolated or systemic.

In the past few years, the SEC has mounted such probes of the oil, cable TV, telecom, video-game and food-service industries after identifying accounting scandals and other abuses at individual companies.

The hell with probable cause. If your competitors do it, you must be doing it, too.

There’s a hidden cost to all of this, too:

While the fact-finding is ongoing, however, most major players are swept up — whether they did anything or not — and often have to shell out hundreds of thousands of dollars to hire experts to respond to the requests, said Richard Sauer, a former assistant director of the SEC’s division of enforcement and now a partner at Vinson & Elkins law firm in Washington.

Cato’s Tim Lynch wrote on the compliance costs of white collar crime fishing expeditions a couple of years ago:

Every day businesses across America get subpoenas from law enforcement agencies. The police are trying to uncover illegal activity, and they want business records–a Visa chit, a printout of 200 phone calls, a copy of every check a bank customer has written. Most businesses want to be helpful. But who should bear the costs of collecting the information?

Under existing law the costs are borne by business. And sometimes those costs are huge. The U.S. Telecom Association says that one of its member companies spent $3.7 million a year accommodating law enforcement subpoenas (and civil investigative demands, which are subpoena-like orders coming from agencies rather than grand juries).

[...]

The first step ought to be requiring the government to reimburse innocent bystanders for their time and trouble in complying with police demands. If the money were taken directly out of the budgets of the police agencies, the costly fishing expeditions would stop and a semblance of reasonableness would be restored.

Sounds like a good idea to me. Not likely to happen. But a good idea.

This entry was posted on Thursday, July 21st, 2005 at 10:47 am by Radley Balko and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.