Professor Bainbridge...on law, politics, religion, culture & food

Mike O’Sullivan Compares the SEC and Spitzer

Over at Corp Law Blog, Mike observes:

Spitzer feels free to use New York's Martin Act to attack anything that strikes him as abusive, regardless of whether it's clearly illegal. The SEC has in its arsenal nothing as open-ended as the Martin Act, and that's a good thing for US markets. The Martin Act is, as one commentator called it (PDF), a "fierce sword" of uncertainty, permitting prosecutors to stretch the definition of crimes and then engage in extensive discovery to compel their targets to capitulate. This makes the Martin Act a very useful tool for a prosecutor looking to make his mark, and a nearly useless guide to a person looking to avoid becoming the target of a prosecutor looking to make his mark.

Beyond creating uncertainty, another interesting consequence of open-ended criminal statutes like the Martin Act is the freedom they give prosecutors the freedom to legislate on the fly. The SEC cannot adopt rules without first notifying the public of its intended rule, accepting and evaluating comments, publishing a final rule and waiting a certain period of time following publication before it can enforce the new rule. None of these protections apply to prosecutors like Spitzer. ...

Eliot Spitzer may measure his success by the number of perp walks he orchestrates. The SEC must measure its success first and foremost by the vitality and strength of the securities markets it regulates. Markets need clearly enunciated and consistently enforced standards. In order to achieve this, a responsible regulatory agency has to be somewhat legalistic, enforcing the four corners of the law and avoiding the desire to make it up as it goes along. Otherwise the regulator would be opportunistic, unbound by laws and, in a word, unpredictable -- the ultimate enemy of the markets it's supposed to protect.

I haven't bothered to replicate the many links in Mike's analysis, because you should go read the whole thing at the source.