Essay: Compare and contrast the role and effectiveness of the ODCE in Ireland with the SEC in the USA

This essay will critically compare and contrast the role and effectiveness of the ODCE in Ireland with the SEC in the USA. The article will be split into two parts. The first part will deal with the history, functions, powers and the structural organisation of the two bodies and will critically compare and contrast them. The second part will examine whether they have been effective or not and whether they have achieved what they were set up to do.
History of the ODCE/ How it emerged.
“A number of review groups courts, tribunals and parliamentary committees over a number of years exposed evidence that provisions in Irish company law and other legislation were regularly being breached without the companies or individuals in question being held accountable. As a result various innocent parties bore the brunt of the cost of this type of misbehaviour and the associated business risks”.1 This could be seen from a number of alleged wrongdoings in the country including the illegal activity that took place in national Irish bank involving customer accounts over a period of 10 years, the alleged operation by Ansbacher of its offshore banking business in Dublin over 25 years for a number of customers including some Irish businesses and political figures and bank practices which facilitated the evasion of their liability to DIRT. A number of tribunals set up to investigate such activity brought to the fore ” a distributing statistic that only 15 to 20 per cent of registered Irish companies were filing annual returns, a disturbing Phoenix phenomenon, and high levels of public perception of corporate wrongdoing”2. Against this backdrop the working group on company law compliance and enforcement recommended the establishment of the ODCE, which came into force in 2001. The reason why the ODCE was introduced to enforce the Irish Company Acts and to encourage compliance with the law.
John O Riordan “Office of director of corporate enforcement”( Dillon Eustace September 2006).www.google.ie/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCAQFjAA&url=http%3A%2F%2Fwww.dilloneustace.ie%2Fdownload%2F1%2FOffice_of_the_Director_of_Corporate_Enforcement.pdf&ei=2JcKVY3sE9WxabHtgrAE&usg=AFQjCNFZiY727Sks_thouhBZHy656DO6Hw&sig2=79fjcBNIiayZrMFT1gq8qQ&bvm=bv.88528373,d.d24 accessed 1/3/152Paul Appleby “Chapter 9 compliance and enforcement the ODCE perspective”. http://www.odce.ie/associationofcomplianceofficersinireland date accessed 10/3/15.
History of the SEC/How it emerged.
“In 1934 congress in America set up the Securities and exchange commission to regulate the commerce in stocks, bonds, and other securities”.3 When the stock markets stock crashed as a result of the great depression on October 29 1929,calls were made for reform. Prior to this, it was clear that investors did not care about the stock market being regulated and while widespread illegal practices were rampant, nothing was been done about them. ” There were no controls on the issuing and trading of securities, therefore a great number of frauds and other schemes took place. Further, the unreported concentration of controlling stock interests in a very few hands led to the abuses of power that the free exchange of stock supposedly eliminated Investigations showed extensive abuses in the stock markets. The spreading of financial misinformation were the main abuses being committed”.4 As stated these practice caused uproar amongst the public who sought to have the whole system reformed. Before 1929 there was little support for federal regulation of the securities markets. Very few states had laws called blue sky laws which governed the sale of stocks and bonds in order that fraud was cut however these laws were said to be virtually ineffective.5
In order to correct the problems mentioned, Congress passed three major acts creating the Securities and Exchange Commission, and setting out its responsibilities. “The Securities Act of 1933 places an obligation on public corporations to register their stock sales and distribution and make regular financial disclosures. The Securities Exchange Act of 1934 created the SEC to regulate exchanges, brokers, and over-the-counter markets, as well as to monitor the required financial disclosures. Not everyone was for the idea of the SEC The SEC was created as compromise between congress and the financial community. The Roosevelt administration originally wanted to give extensive authority over securities markets to the FTC. The wall street community was initially opposed to the idea of any supervising regulation whatsoever. 63 Eric Foner and John A Garraty The readers companion to American history (Houghton Miffin Harcourt publishing co 1991).4 Henry Lawrence “Spawning the SEC,” (1999) Indiana Journal of Global Legal Studies Vol. 6: Iss. 2, Article 8 http://www.repository.law.indiana.edu/ijgls/vol6/iss2/8 accessed 2/3/155 Amnon Wenger, See No Evil, Hear No Evil, Don’t Get Sued: Should a Private Cause of Action Exist for a Violation of NASD Conduct Rule 3010? (2005) 74 Fordham L. Rev. 303 http://ir.lawnet.fordham.edu/flr/vol74/iss1/8 accessed 26/3/156 Spawning the SEC Ibid (N + 1).
Analysis of the differences in how they emerged.
It is clear that reasons existed as to why they emerged are different. Similarly both emerged at totally different times to each other The ODCE in 2001 a few years before the Celtic tiger and the SEC in 1934 which was just in the middle of the great recession. While both were created as a result of multiple illegal activities been committed, the objective of each are different. The reason to ODCE was introduced was to promote compliance with the requirements of the companies acts and to bring non-compliant officers and companies to account. On the other hand, the SEC was introduced to regulate the securities markets and protect investors. Additionally the ODCE was formed as a result of several consultation groups which all agreed it was needed. This was not the case in America where plans to introduce the SEC were not met with consensus many all parties involved at the time.
Role/functions of the ODCE
1. Compliance Role
One of the main roles of the ODCE is to encourage compliance with the company law acts and also to explain to companies the benefits of such compliances and the risks of non compliance. In order to do this, “they use a number of different strategies including: “the publication of information, be that in printed form or by electronic media, with regards to the legal duties and powers which exist under Irish company law, They consult with professional bodies to ensure that there members are complying with the requirements of the law, and briefings with government and other parties to facilitate and support the compliance role of the Director”. 7
2. Detection
The Detection Unit of the ODCE has two main roles. The first is when the unit receive a complaint about a breach of company law by a company, they first assess this complaint. Secondly they then gather the information on that suspected breach. “The role of the detection unit has many different functions including ” investigating companies, company books and documents been examined and interviewing company directors, auditors and other individuals”. On completion of these roles, they will then decide what remedies are to be used in the case or whether to continue with a complaint or have it dropped.8 7 Dillon Eustace “Office of director of corporate enforcement”. http://www.DillonEustace.ie accessed 3/3/15. Ibid ( N + 1)8 Ibid.
3 Enforcement Role
“The investigative and enforcement role of the ODCE arises in the following areas: 1) the initiation of fact-finding company investigations, 2) Those persons suspected breaches of the Companies Acts being prosecuted, 3) the supervision of companies in liquidation and of un-liquidated insolvent companies, 4) restriction and disqualification orders being imposed on directors and other company officers, 5) liquidators and receivers having to be supervised and 6) the regulation of undischarged bankrupts acting as company officers”. 9
4. Insolvency
It is fair to say that the main reason why the ODCE was established was because there was huge concern amongst the public that because directors were acting dishonestly resulting in corporate failure, innocent parties were made bear the burden by losing the money owed to them. “The task of the Insolvency Unit is to enforce the Director’s responsibilities under company law in respect of insolvent companies by: 1) supervising liquidators in the proper discharge of their duties, 2) assessing directors’ conduct in insolvent liquidation situations, and 3) sanctioning fraudulent or abusive behaviour”.10 There is also a duty on the liquidator to write a report up on a company and give it to the ODCE. They also must apply to the court to restriction orders against directors, unless they are relieved of that obligation by the Insolvency unit.
9 Ibid (N+1).10 Ibid (N+1).
Role of the SEC
Maintaining Fair, Orderly and Efficient Markets
“The SEC has a duty to ensure that the financial markets function correctly. A number of their divisions have a role in ensuring this is done correctly. “Its Division of Corporate Finance places an obligation on companies to disclose certain information before offering stock or other securities for sale. The Division of Trading and Markets acts as a watchdog over private financial organizations, including securities exchanges like the New York Stock Exchange and credit rating agencies like Standard & Poor’s. The Division of Enforcement tries to protect against crimes like insider trading and financial fraud, while the Division of Economic and Risk Analysis engages in economic analysis and research in order to provide statistical grounding for an understanding of the markets so that the SEC can direct policy and to help the markets run smoothly”.11
It is also clear that ensuring that they maintain a fair orderly and efficient market, the SEC requires investment advisers “to provide a detailed account of the number of managed assets and the services on offer, the way payments are made, disciplinary information, along with risk assessment and investment strategies, and methods of analysis, provide information regarding their brokerage practices and code of ethics and to disclose trade aggregation, directed brokerage, client referrals, as well as soft dollar practices”.12
11 http://www.ehow.com. Accessed 25/2/15.12 Ibid.
Facilitating Capital Formation
The Sec also a role with regards to facilitating capital formation. This can come in the form of crowd funding campaigns, bank loans and stock offerings. “The SEC uses its rule-making power to facilitate these financial relationships while maintaining stability in the markets. The Division of Investment Management role is to provide a safe and transparent investment management industry The “Division of Economic and Risk Analysis also aids this process by providing crucial statistics to help investors understand how the markets are behaving.”13
Protecting Investors
The SEC main aim is to serve investors. In order to do this, it ensures that no trader misleads or steals from investors. “The SEC’s Division of Investment Management place an obligation on securities traders to disclose crucial information about and do not misrepresent the securities they buy and sell. The Division of Enforcement polices for crimes such as unregistered securities activities and outright theft by traders and financial organizations”.14
” As a result of the structure of the Investment Company Act of 1940, an important responsibility that is placed on the Division of Investment Management is that they must review and grant companies exemptions from statutory requirements when they come to the conclusion that such an exemption is “appropriate and in the public interest.” 15
13Ibid (N+1).14 Ibid (N+1).15 Ibid (N+1).16 http://www.sec.gov/news/testimony date accessed 9/3/15.17 Karl Laemmermann Crowd funding crowd sourcing Der public crowd funding report 2012 Kobo edition Heinz Duthel 2013 .
The SEC has a unique position in the financial reporting process. ” While the SEC has the authority as a result of the securities laws of the United States to set accounting standards to be followed by public companies they however also have the power to enforce those standards”.16 Currently, the SEC is currently responsible for administering seven major laws that govern the securities industry: “1.The Securities Act of 1933 2.The Securities Exchange Act of 1934 3.The Trust Indenture Act of 1939 4.The Investment Company Act of 1940 5.The Investment Advisers Act of 1940 6.The Sarbanes’Oxley Act of 2002 7.The Credit Rating Agency Reform Act of 2006”. 17
Analysis compare and contrast
It is clear that both possess different functions, the ODCE it can be said take actions against people/companies while the SEC protect people. One similarity however is that both regulatory agencies possess compliance /enforcement powers which means they can take actions against those who carry out unlawful activity. Besides from this similarity the functions of both agencies could not be anymore different. While the ODCE encourages compliance with company law requirements and conducting initial assessments of complaints received of suspected breaches of company law, the sec does not possess this power. Similarly, The Commission not only has authority under the securities laws of the United States to set accounting standards to be followed by public companies but also the power to enforce those and The SEC’s role is to facilitate the formation of capital which are powers which the ODCE do not possess. Currently, the SEC is currently responsible for administering seven major laws that govern the securities industry while the ODCE only administer 2 acts. Finally whereas the SEC protect investors, the ODCE ensure that companies comply with the companies acts. The ODCE encourage compliance with company acts while ensure a fair efficient market. While the SEC facilitate capital formation, the ODCE supervise liquidators.
Powers of the ODCE
Prosecution: The ODCE has the power to prosecute offences. This power can be done “by way of an immediate fine, summary prosecution or they can refer a matter to the Director of Public Prosecutions, where an indictable offence under the Companies Acts has been committed”. 18
Investigation: The ODCE can investigate ” where they are under the impression that an offence has been committed under the Companies Acts and they have the power to delegate this authority to its inspectors to inspect company books and records or can require the directors of a company to furnish company books and records to the ODCE for inspection.” 19
18 Mary Dunne “Increased powers of the ODCE (Crowley Millar solicitors May 2010). http://www.google.ie/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCAQFjAA&url=http%3A%2F%2Fwww.crowleymillar.com%2Fstg%2Fpublic%2Fdownload.php%3Fsite%3Dsite3156%26file%3Dodce_mary_dunne_7th_may.pdf&ei=z6YKVdWAPIjxUJnCg6gE&usg=AFQjCNEeodfPAksVljWaHERd28SYxVXvEw&sig2=GZhzfxoUB7Y4J-QFSzZLCQ date accessed 2/3/15.19 Ibid (N+1).
Other investigative powers include the power to seize and they can “apply to the court in order for persons who owe debts to the company or there are suspicions that they have information or property in their possession relating to the company to be examined.”. 20
Restriction & Disqualification: “The ODCE has the powers ” to either restrict or disqualify a person from acting as a director of a company in Ireland in certain circumstances, such as a person who is an undercharged bankrupt”. 21
Compliance: It is fair to say that one of the roles of the ODCE is “to promote and ensure compliance with the company law acts especially measures to improve compliance with obligations such as filing annual returns on time with the Companies Registration Office. The ODCE can also apply to a court for an order for the arrest of an absconding person”. 22
Insolvent Companies: Another power which is vested in the ODCD is the “power to inspect any books and papers in the possession of an insolvent company and the company is required to allow for such an inspection. The Companies (Amendment) Act, 2009 has given the ODCE increased powers, including” 23
Increased transparency for loans to Directors: It is now possible for a company officer to be guilty of an offence where a company makes a loan to directors in breach of the Companies Acts. Further obligations are also included such as an obligation to disclose such transactions in the company accounts. 24
20 Ibid.21 Ibid. 22Ibid.23 Ibid.24 Gerard Ryan and Dylan Latimer “Corporate governance and key company law issues in challenging economic times” Mason Curran and Hayes http://www.imca.ie/Corporate governance and key company law issues in challenging economic times accessed 20/2/15.25 Ibid 21 ( N + 1)
Removal of Legal Professional Privilege: A company is now under a duty to “disclose or give up information to the ODCE which was not previously the case as they could have refused on the basis that the information was protected by legal professional privilege”.25
Right of Access: It is also evident that the ODCE has greater power with regards to the right access “over increased classes of company information which would include a list of any directors’ interests in contracts or proposed contracts with the company.” 26
Powers of the SEC
The SEC has several core responsibilities. “They are under an obligation to enforce federal securities laws; issue and change its own rules in order to provide clarity to the financial markets; inspect securities companies, brokers and investment advisers so that such bodies are complying with the law; oversee conduct of private regulatory organizations in the financial sector; and coordinate federal, state and foreign securities activities to ensure market stability and continuity They have the power to register, regulate.”.27 It also has emergency powers to ease market restrictions. 26 Ibid 21. ( N + 1)27 Thomas Midanek and Trung Le. Lulu The American future (Coley press spring 2010).
Enforcement The SEC have the power to bring civil suits against individuals or companies in the securities world. “Examples of enforcement actions include accounting fraud, provided false information, or engaged in insider trading or other violations of the securities law. The SEC also works with criminal law enforcement agencies in order to prosecute individuals and companies who have committed a criminal offence. The Commission can apply to the court for an order compelling an individual from carrying out further violations of the securities laws, and to seek the return of any money obtained from the illegal conduct”.28 In addition, the Commission have the power to impose civil penalties against regulated entities, as well as individuals associated with those entities. Where an administrative proceeding arises, “the Commission can require a respondent to 28 http://www.sec.gov accessed 24/2/1529 Linda Chatman Thomsen An overview of enforcement 2005 International institute for securities market development http://www.sec.gov/about/offices/oia/enforce.htm accessed 10/2/15
“cease and desist” certain activities, disclose illegal profits, and put in place procedures to prevent further violations. The Commission can also, through administrative disciplinary proceedings, bar a firm from acting as a securities firm or an investment adviser or an individual from engaging with any securities firm or investment adviser, or bar a professional from practice before the Commission”.29
30 http://www.ehow.com date accessed 18/3/15.
Investigative It is clear that a number of different events can trigger a Commission investigation. Such events can include “broker-dealer, investment company and investment adviser inspections, which the Commission can conduct without cause and at its discretion; examinations of filings made with the Commission; referrals from NASD , the Exchanges, and other self-regulatory organizations; complaints from members of the public, including issuers and their current or former employees, and anonymous sources; news media; referrals from other government agencies; and other investigations”.30 If the Sec want to further investigate illegal activity, they send the concern individual comment letters.
“This type of practice arises when the SEC seek specific information on certain stock buying or selling or accounting practices, While no action letters are letters which the SEC sends to persons which indicate that their staff do not think that any type of enforcement action against a person or company should be taken even if that person or company has engaged in a particular action that came under scrutiny”31. Under their investigatory powers, The SEC’s can also subpoena witnesses, administer oaths, and require the production of books and records. It is evident that the SECs formal investigation is held in private and therefore as a result cannot publish information concerning violations it uncovers during the course of its investigations.
31 Ibid.32 Annual report ODCE 2013
Analysis
Both agencies has the power to take actions against individuals or companies. Both also have the power to investigate by includes the power to subpoena witnesses, administer oaths, and compel the production of books and records. Both ensure that companies are complying with the law. Books and records can require the directors of a company to furnish company books and records to the ODCE for inspection sec can compel the production of books and records ODCE can apply for restriction and disqualification orders to the court however the Sec have a stronger power, they can , bar an individual from associating with any securities firm or investment adviser, or bar a professional from practice . However differences include they have the power to register, regulate, and oversee brokerage firms, well as the nation’s securities self regulatory organizations while the ODCE does not have this power. it also has emergency powers to ease market restrictions which the ODCE do not have.
Structures of the ODCE
The director is appointed by the government more specifically the minister for jobs and enterprise who in turn assigns staff who works with the minister and also with members of the Gardai. The office is broken into eight units with each unit coming under the responsibility of one of five heads of function. “The following is an example of the offices organisational structure, at the top is the director the next layer is enforcement , insolvency, special projects, solicitors and Garda. Within each of the above there is a head of each department. Under enforcement, there are 3 units advocacy, enforcement unit 1 and enforcement under 2. Under insolvency, there is the insolvency unit and the corporate unit. Under special projects there is a special projects unit while under Garda there is a Garda unit”. 32
“At year end, the Office’s approved staff complement stood at 49.1 and the actual staff complement stood at 42.9. The composition of the Office’s staff complement as at 31 December, 2013 1 Heads of Function 6 (excluding Garda) 4 Legal Advisors 2 Accountants 1 Solicitors 2 Assistant Principals 4 Higher Executive Officers 8 Executive Officers 6.8 Clerical Officers 7.57 Detective Garda?? (on secondment from the Garda Bureau of Fraud Investigation)
Detective Inspector (Head of Function) 1 Detective Sergeants 2 Detective Garda?? 2.5 Garda 1 Superintendent 0.1 TOTAL 42.9”. 33
33 Ibid.
Structures of the SEC
Five commissioners are appointed by the president and each one of them has a period of five years. The agency’s chief executive is chosen by the president, who will be one of the five commissioners. There is a requirement that no more than three of the Commissioners may belong to the same political party. “The agency’s functional responsibilities are organized into five Divisions. The Division of Corporate Finance, has a duty to review corporate filing requirements while the division of Market Regulation, maintains the standards that regulate the stock markets. The division of Investment Management are under a duty to regulate investment management companies, while the division of Enforcement, have the powers to investigate and prosecute violations of securities laws and 34 Hennen.wix.com/sec-commission. accessed 19/3/15.
regulations. There are 23 Offices, each of which is headquartered in Washington, DC. In 2014, the agency employed 4,150 full-time equivalents including 3,996 permanent and 154 temporary FTEs and in 11 Regional Offices throughout the country”.34
Analysis
It is clear that the SEC are a much larger organisation. However there structures cause difficulty. Both are split up into different units, however the SEC having substantially more units as well as well regional offices compared to the ODCE whose sole office is in Dublin. Similarly the SEC employ a considerable amount compared to the ODCE. The commissioner are appointed to the SEC by the president and so is similarly with the ODCE whose head is appointed by the government. However the ODCE is not confined to 5 year terms and can stay on as long as he likes. Only 3 can be from the same party in America, no similar requirement in Ireland. Both agencies have enforcement divisions. Additionally differences include division of market regulation and investment management which the ODCE does not have.
After critically comparing and contrasting the functions, powers and organisational structures of both regulatory bodies, the second part of this essay will examine the effectiveness of each and whether they are achieving the purpose they were set up for Achievements of the ODCE
Despite the ODCE been relatively young, it has been praised by many for its significant achievements. “Recent guidance documents convictions in 2014 providing financial assistance for the purchase of a company’s shares ( on indictment) persons acting as auditors while qualified (on indictment) failure to hold AGMs in a property management company failure to allow inspection of register in a property management company. liquidator failing to make statutory returns 8 disqualification secured by the ODCE in 2014 227 directors restricted 15 disqualified arising from actions taken by liquidators in 2013.ODCE impact Quantitative ODCE results over 50 publications etc issued. 4000 complaints reports dealt with administratively 280 convictions of companies directors and others 70 disqualifications 800 restrictions ( by liquidators primarily) 20 remedial or costs orders by the ODCE. 85percent of 299 directors opined that compliance was better all 141 accountants liquidators believed so 75 percent of directors rated the ODCE as effective 91 percent of accountants 95 percent of liquidators agreed directors now more accountable independent role reinforced errant directors face ODCE inquiry/ court action creditors situation has improved. better information disclose to market reinforcing good practice in other areas”.35 “On top of this in the last 10 years, the ODCE have issued a number of publications including approximately 50 publications that deal with company law guidance, dealt with over 4000 public complaints and auditor reports on an administrative basis which have resulted in a large number of cases in the rectification of defaults”.36
35 P Flood Annual report ODCE 2013 . http://www.odce.ie/annualreport2013 date accessed 4/3/15. 36 Ibid 2. ( N + 1)
Achievements of the SEC.
The SEC have been commended for its effective regulation. ” A number of judgements over the years have recognised the sec high reputation. In 1940 Sam Rayburn called it the strongest commission in the government. In the late 1940s the Hoover commission report cited the SEC as an outstanding example of the independent commission at its best. So seldom have appellate courts overturned sec rulings that the judge learned Hand once called the agency a sacred cow of the court room. Faced with a Morib and securities market and a demoralised investment community in the 1930s the SEC not only restored the capital and securities markets but they also considerably modernised them. They tamed the stock markets”37
During chairman Schapiro’s tenure the agency brought a record number of enforcement actions including “735 enforcement actions in 2011 and a near record 734 actions in 2012. Returned more than 6 billion since 2009 to harmed investors brought an increased average of 50 Ponzi schemes each year between 2009 and 2012 more than twice as many compared to 2007 and 2008 and they successfully filled a number of actions against individuals and institutions as a result of the financial crisis including more than 50 CEOs CFOs and other senior officers prosecuted the largest insider trading scheme ever discovered winning a record 92.8 million fine.38
Numerous countries around the world have followed the SEC by adopting its “disclosure-based” regulatory philosophy.
Analysis
One contrast can be seen here the ODCE has never taken a case for insider trading in contrast the sec prosecuted the largest ever one In the history of the states. Both have achieved significant figures in relation to its enforcement actions. Leaving this aside, both agencies have significant achievements in tackling unlawful behaviour and much has been done since their setting up. Despite extensive achievements both are not without their criticisms however.
37 TK McCraw “With consent of the governed SECs formative years Journal of policy analysis and management volume 1 issue 3 Spring 1982 pages 346-370 38 http://www.sec.gov date accessed 10/3/15.
Criticisms of the ODCE effectiveness of the ODCE in Ireland
While many white collar crime inquiries have taken place, it is disappointing to see that there have been little or no negative consequences for the individuals identified as having engaged in ethical breaches. “The ODCE statistics on convictions under the companies acts are do not appear to be that of those supplied by the central statistics office”. 39 39 Elaine Byrne “Irelands white collar crime oversight agencies fit for purpose?” ( Elaine.ie 25 July 2013) http://www.google.ie/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCAQFjAA&url=http%3A%2F%2Felaine.ie%2Fwp-content%2Fup%2FFit-for-Purpose-.pdf&ei=jqQKVfHJCsiAU9q8gcAG&usg=AFQjCNFSnDtrhCbpORiblkRs6SoD7NiTlg&sig2=QGIeAWJokY5hnIfP4YqIjw&bvm=bv.88528373,d.d24 . Accessed 1/3/15.40 Indo Business “You wont do time for white collar crime no laws seem to cover it” Irish independent (Dublin 2011). 41 Admin “Calling for an end to impunity for white collar criminals” (Village magazine July 2012) http://www.villagemagazine.ie. http://www.villagemagazine.ie/index.php/2012/07/july-12-editorial-calling-for-an-end-to-impunity-for-white-collar-criminals/ accessed 8/3/15.
” When comparing Ireland to other jurisdictions such as America and Britain, Ireland’s regulatory record and prosecution of white collar crime is weak. While the ODCE has secured some 280 convictions, these convictions have mostly being in the District Court where fines and penalties are derisory. The ODCE, who do not have the power to prosecute beyond the District Court all crimes attracting a sentence of five years or more must be prosecuted by the DPP has never got a prison sentence that was not overturned on appeal. The combined record of Ireland’s regulators reinforces the culture of serial impunity surrounding Ireland’s corporate criminals”.40
It is disappointing to note that in the ODCEs history, they have never secured a prosecution for insider trading, “though last year it did finally secure a three-year prison sentence arising from a company law conviction. The only convictions related to the drawn-out tribunals have been of Ray Burke for tax evasion, George Redmond whose conviction was eventually overturned and Frank Dunlop for corruption, and Liam Cosgrave for offences under the ethics acts; as well as of Liam Lawlor for blatant obstruction of the Planning Tribunal. More are needed”. 41
The ODCE were severely criticised by the Supreme Court after it refused to allow relief from restriction proceedings to Tralee Beef and Lamb director Simon Coyle, “despite liquidator Tom Kavanagh’s recommendations. On appeal Coyle successfully challenged his restriction and as a result the judge in the case, Mr Justice Hardiman slammed the manner in which the ODCE discharged its role as well as criticising as “draconian” aspects of the legislative framework for the restriction of directors”. 42
Additionally they have been criticised somewhat rightly for the length of time it took for the Anglo investigation. While, it is evident “that many of those under investigation may not have been very co-operative, but that should have come as no surprise, few people seek to incriminate themselves while under investigation. Making excuses that people were not available for interview did not impress”.43 The number of times the ODCE went to the high court to seek an extension to legally keep files that had been seized as part of the Anglo investigation was somewhat unsatisfactorily. This dissatisfaction was also notable from the increasingly frustrated Justice Peter Kelly “seeking another extension, asked Will it [the inquiry] ever end? Criticism did not go away when it was found out that his office had about 50 people working in it, including members of the Garda??, lawyers, accountants and a small number of civil servants. This hardly seems like an adequate number, especially as only about one third of them were said to be working on the investigation”.44 42 http://www.insolvencyjournal.ie date accessed 3/3/15. 43 Matt Cooper “Appleby’s successor will need to be more proactive with investigations” Irish examiner. ( Dublin Friday, February 03, 2012) 44 Ibid.45 Ibid.
Did the ODCE spend too much time and resources on this case and thus neglected other cases. It could be argued that this was the right time to commit such a crime as it would go without investigation due to the lack of resources as a result of the Anglo investigation. Therefore crimes were going unpunished as a result.
The ODCE was slow enough in going after Anglo. “A letter to the D??il finance committee in Feb 2009 four months after the bank guarantee was put in place said it was his opinion that circumstances suggesting prejudice, misconduct and/or illegality are present with respect to the company’s affairs”. Many had come to that conclusion months earlier” 45
The Fyffe’s/DCC case, which arose because of a civil action for damages against DCC by Fyffe’s, had been ruled upon by the Supreme Court in 2005 and had found that Flavin, as chief executive of DCC and also as a director of Fyffe’s, had acted illegally by selling DCC’s shares in Fyffe’s while in possession of confidential information that was highly pertinent to the inflated Fyffe’s share price at the time of the sale. “However, and to widespread surprise, a Jan 2010 report by Shipsey exonerated DCC from the consequences of an established breach of the law on the basis that Flavin didn’t’t know what he was doing, didn’t’t mean to act illegally and had taken legal advice that gave him the go-ahead. The ODCE response to this report was notable. It was remarkable that the office came to the conclusion that they would not be taking any further action in relation to the biggest insider dealing scandal ever disclosed in this country and for which DCC had to pay nearly ’40m in damages to Fyffe’s. Appleby said that “there’s no way that any court would sanction a director for having followed the company’s legal advice”. 46
A number of criticisms are aimed at the ODCE for its failure to tackle white collar crime. The outgoing financial regulator Matthew Elderfield criticised the failure by authorities to tackle white collar crime.46 Ibid
Others say that the banking crisis of 2008 was not caused by any want of regulatory schemes or criminal sanctions: the prosecutorial weapons are there but are not being used. 47. The then Minister for Justice was also critical about the pace of investigations into possible criminal behaviour at Anglo.
47 Indo Business “You wont do time for white collar crime, no law seems to cover it Irish independent” (Dublin 09 June 2011 ) .
Criticisms of the effectiveness of the SEC in America
The SEC have been widely criticised as a result of the financial crisis t such an extent which it has never been in its entire history. Its effectiveness is being publicly challenged and, possibly for the first time since its creation, there is public discussion of completely revamping the federal regulatory system, including the transfer of substantial amounts of SEC authority to another federal agency or to a newly created agency. Critics of the SEC claim that it lacks critical expertise, resources or legal authority, or have simply failed to perform their duties in a competent manner”. 48
The recurring pattern may be 48 Jonathan G Katz “Examining the efficiency and effectiveness of the US SEC” February 2009 Center for Capital markets volume 71 no 3 university of Pittsburgh law review .www.google.ie/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CCsQFjAB&url=http%3A%2F%2Fwww.centerforcapitalmarkets.com%2Fwp-content%2Fuploads%2F2013%2F08%2FExaminingtheSECrdcfinal.pdf&ei=IaAKVaTHFYHKaJlgLAE&usg=AFQjCNF_A8KhBpt5L46ljqe9W7pFBlUdkQ&sig2=ptlX03uZ4tGgjo3cxm4adA&bvm=bv.88528373,d.d2s accessed 1/3/15.49 Jonathan G Katz “Reviewing the SEC reinvigorating the SEC” (2009) Ibid
evidence that there are “fundamental characteristics of how the SEC functions that contribute to its historic tendency to wait for events to happen before acting. This is evident from as early as the 1950s where there have been major frauds that went undetected until it was too late. Before the NASDAQ market makers and New York stock exchange specialists there was re and re scandal in the late 1950s. Before Bernard Madoff there was Bernard Cornfield. Before Enron and Worldcom, there was equity funding before the sec failed to listen to Ray Dirks”. 49
It is fair to say that the sec is the product of the world of the 1930s. “Computers were still only in their infancy. A securities analyst may find the rules of compound interest useful otherwise grade school arithmetic was all the mathematics he would need. It is fair to say that the sec have not
adopted the changed circumstances. The SEC have lacked confidence and were rather fearful in dealing with the wrongdoing on Wall Street,” and for doing “an especially poor job of holding executives accountable”. 50
Rather than “taking an overly rule-based and enforcement-focused approach to regulation, the SEC have been criticised for taking an approach that emphasizes industry-wide safety and thus ensures the reliability of the national securities trading system.] For many years the SEC has been criticized for its failure to make timely decisions with regards to a number of issues including for bringing innovative products to the market or to executing entrepreneurial business strategies that satisfy regulatory requirements”.51 The introduction of the introduced the Consolidated Supervised Entity Programme (“CSE”) in 2004 did not help the SEC either and this move resulted in sharp criticism. “The CSE did not require its members to abide the traditional capital adequacy rules. As a result mortgagees were given to lenders who would not have previously gotten them. As a result of this higher leverage, banks began carrying large quantities of “toxic” assets on their books and therefore as a result when the financial crisis did hit in 2008 they were left severely exposed. Their staff were simply not strong or numerous enough to monitor properly their activities. 50 Brian G. Cartwright “Whither the SEC Now?” 2009 Virginia Law Review Vol. 95, No. 4 pp. 1085-1104 http://www.jstor.org/stable/27698033 accessed 24/2/15. 51 Ibid 48. ( N + 1)52 John C Coffee JR “Enhancing investor protection and the regulation of securities markets Columbia law and economics” March 2009. Hearing before the committee on banking housing and urban affairs united states senate 111 congress first session on further examining what went wrong in the securities markets how we can prevent the practices that led to our financial system problems and how to protect investors.53 Ibid.
In any event, the five investment banks, which should have been subject to the ‘SEC’s Office of Prudential Supervision and Risk Analysis, were caught up in a whirlwind when confidence in the financial system began to wane 52.
“Criticisms did not go away when the SEC announced it had taken civil proceedings against a group, headed by Mr Alan Stanford, for allegedly running another Ponzi scheme, because he had been under suspicion for years. More and more companies believe that it is becoming increasingly difficult to receiving guidance or key decisions from the SEC through The SEC operates through quasi independent divisions and offices without divisions. The SEC is not and probably never has been a well managed organisation.” 53
During 2010 and 2011 the SEC were severely criticised for destroying thousands of investigative documents. These documents involved ” huge investment banks and financial institutions including Bank of America, Lehman Bros., and Goldman Sachs that played a role in the 2008 mortgage crisis. A particular set of documents among the thousands of documents destroyed were documents relating to a preliminary investigation into Ponzi schemer Bernie Madoff that was never followed up. Having already been lambasted for not catching Bernie Madoff at his pyramid scheme sooner or doing more to head off the 2008 financial crisis, the Securities and Exchange Commission came under even more criticism in 2010 after it was revealed more than 30 employees had wasted time looking at Internet porn on SEC computers”.54
54 http://www.allgov.com/departments/independentagencies/decuritiesandexchangecommissionsec. Date accessed 10/3/15.55 Ibid.56 Ibid.
The SEC were also criticised for issuing subpoenas to two journalists in 2006 compelling both journalists to hand over “notes, telephone records, emails, and other documents related to an investigation of alleged stock manipulation of online retailer Overstock.com”55 Finally as a result of “so many workers have shuttled between positions on Wall Street and its government watchdog, the Securities and Exchange Commission, that the revolving door rarely stops spinning. More than 200 former SEC staff members went to work for investment firms and banks from 2006 and 2010. In the other direction, many high-level Wall Streeters have taken jobs with the federal agency, which has raised questions about the SEC’s ability to investigate wrongdoings and enforce penalties”. 56
Analysis
It is clear that there are a number of criticisms aimed at both regulatory authorities. It is clear that as a result of the financial crisis, the SEC have been severely criticised for their role. Others say that the banking crisis of 2008 was not caused by any want of regulatory schemes or criminal sanctions: the prosecutorial weapons are there but are not being used.
Both have been criticised for tending to wait before something to wait for events to happen before acting. It is clear that the ODCE took their time in going after Anglo despite repeated warnings months in advance of the situation. Similarly in the US with regards to the SEC, evidence shows that it can be shown that the SEC have a tendency to wait for events to happen before taking action. As already mentioned this can be seen from the major frauds in the 50s to the Enron scandal, from the Re and Re scandal.
While the above have mentioned the comparisons between the SEC in America and the ODCE in Ireland, It is clear that Irelands record with regards to the prosecution of white collar crime is weak. This as already mentioned in evident from a number of figures and debates on this topic. Furthermore this can be evident from the annoyance of commentators. A further difference between the two regulatory bodies are while SEC have successfully taken a number of cases for insider trading the main one been the recovery of a 92.6 million fine, the ODCE since its establishment in 2001 have never secured a single prosecution for insider trading or market abuse Other differences between the ODCE and SEC are the SEC are the SEC have been criticised from destroying thousands of investigative documents and have also been subject to criticism with regards to there inability to make timely decisions The SEC has been criticized for many years for its inability to make timely decisions on issues that are critical to bringing innovative products to market. Additionally the ODCE have been criticised for giving all its resources to the Anglo investigation while neglecting other investigations. SEC have to been criticised for doing such things and then not having the resources or expertise to be able cope with it.
Conclusion.
To conclude, it is clear as have been pointed out that there are a number of differences between the ODCE in Ireland and the SEC with regards to their origins, functions and powers. However there too are similarities between them such as their compliance and investigate powers. The aim of the SEC was to prevent an event such as the great depression occurring again by protecting investors and maintain the integrity of the securities markets. however the events of 2008 has given rise to severe criticisms of the SEC and the fact that it is being debated that it should be broken up or at least reformed suggest it is not working. Similarly the ODCE which was set up to it has received many criticisms most notably failure with white collar crime and insider trading, Despite the positive contributions made by both regulatory authorities, the recent crash has highlighted their flaws and have come under sever scrutiny. While attempts have been made to reform both it is not enough and further reform is needed if we want to be In a position in 50 years time to talk about both agencies.