Rethinking the Securities and Exchange Commission

Much has changed since 1934. Back then, many homes did not have electricity or a phone. Today, many of us pay our electric bills on our phones!

In fact, the way we buy just about everything—from consumer goods to businesses—has changed. But in too many cases, the laws surrounding these transactions are still stuck in a time warp.

Take securities laws. The Securities Act of 1933 and Securities and Exchange Act of 1934 were written when investors were limited to mail and physical travel to investigate the features of a given firm. Now, investors can do an exhaustive search on the Internet.

But as I say in my government reorganization Web Memo released this week, because of the securities laws from the 1930s, there is more red tape surrounding the purchase of one share in a business than there is surrounding the purchase of the business as a whole. Incredibly, there is often more paperwork involved with a $100 transaction than there is with a $1 million transaction.

So-called “reforms” such as Sarbanes-Oxley and Dodd-Frank haven’t modernized the securities laws at all. They’ve just added more rooms to an edifice built in the 1930s that now has a very shaky foundation. As a result, entrepreneurs are limited in accessing capital, and middle-class investors are prevented from building wealth.

My Web Memo concludes that while all fraud should be punished swiftly, there should not be special rules in the name of preventing securities fraud. The same rules should apply to buying a share in a business as they do to buying the business as a whole. No extra red tape should apply to buying shares in a firm, simply because these shares are “securities.”

That’s why I propose that the Securities and Exchange Commission be abolished and its authority to punish securities fraud be transferred to the Federal Trade Commission—the agency that polices interstate fraud as a whole.