6 ms·

Actually the SEC with increased enforcement, could probably fund itself through fines levied against those they were investigating.

dangoldin 18y ago
But if they do their job well they'll end up decreasing their own funding as businesses become more legitimate.
- byrneseyeview 18y ago
  We should privatize the SEC. Put a bounty on fraud detection, and then make the following deal: the government puts up a lump sum now, and the recipient must make whole all parties harmed by fraud, but only if the organization approved the fraudulent financial statements. You probably need to tweak the numbers to avoid some bad incentives, but the general principle is sound: treat it as an insurance problem, rather than a regulatory problem, and the funding you get will approach the point where the marginal utility of more fraud detection falls below the cost.
  - tphyahoo 18y ago
    That's a really interesting idea. Did you come up with that yourself or has this been discussed elsewhere in more depth?
    - byrneseyeview 18y ago
      I'm sure someone else has thought of it. But I can't remember reading it anywhere else.
      - tphyahoo 18y ago
        There is a flaw here too though. Regulators could game this system by taking their lump sum and not doing the work involved with sniffing out fraud. If there's no fraud, they win, and didn't have to do any work. If there is fraud, maybe they can squirrel some of that bounty into an offshore bank account and sneak out the back door like bernie madoff was hoping to do. Darn. This is a hard problem.
        byrneseyeview 18y ago
        That's why I added the bounty system. You'd probably end up with layers of insurance. So one company might give IBM's financial statements a Seal of Approval, stating that any investor can pay the company, say, $1,000 a quarter to insure up to $1 million in restatement-related losses. Then, they double-reinsure this (every $1 million they lose gets them $2 million from a reinsurer) and offer a bounty for anyone who catches fraud. Or you could just expect people who suspect fraud to short the relevant stock, announce their findings, and make money if they're judged correct. You're right that it's hard, by the way. I just think it would be easier if we were able to have multiple voluntary levels of insurance against fraud, instead of a single insurer -- especially because, in many cases, the SEC fines a company when management lies to shareholders. So if XYZ Co. overstates earnings by $100 million, investors are poorer -- and then the SEC makes the company give up another $20 million in restitution.
  - tphyahoo 18y ago
    Follow up at the ripplepay list, where non-government based currencies are discussed: http://groups.google.com/group/rippleusers/browse_thread/thread/e87e9f0a5fe994f3 http://groups.google.com/group/rippleusers/browse_thread/thr...
  - anewaccountname 18y ago
    What happens when the new privatized SEC goes bankrupt?
    - byrneseyeview 18y ago
      The same thing that happens when any insurance company goes bankrupt. Fraud is a normal, insurable risk. We just have a bizarre, underfunded, overambitious regulatory apparatus bolted on to where insurance is supposed to fit.
  - Dilpil 18y ago
    The bounty system exists: it is called short selling. The SEC just needs to stop demonizing short sellers and start paying attention to who their shorting and why.

dangoldin 18y ago

But if they do their job well they'll end up decreasing their own funding as businesses become more legitimate.

byrneseyeview 18y ago
We should privatize the SEC. Put a bounty on fraud detection, and then make the following deal: the government puts up a lump sum now, and the recipient must make whole all parties harmed by fraud, but only if the organization approved the fraudulent financial statements. You probably need to tweak the numbers to avoid some bad incentives, but the general principle is sound: treat it as an insurance problem, rather than a regulatory problem, and the funding you get will approach the point where the marginal utility of more fraud detection falls below the cost.
- tphyahoo 18y ago
  That's a really interesting idea. Did you come up with that yourself or has this been discussed elsewhere in more depth?
  - byrneseyeview 18y ago
    I'm sure someone else has thought of it. But I can't remember reading it anywhere else.
    - tphyahoo 18y ago
      There is a flaw here too though. Regulators could game this system by taking their lump sum and not doing the work involved with sniffing out fraud. If there's no fraud, they win, and didn't have to do any work. If there is fraud, maybe they can squirrel some of that bounty into an offshore bank account and sneak out the back door like bernie madoff was hoping to do. Darn. This is a hard problem.
      - byrneseyeview 18y ago
        That's why I added the bounty system. You'd probably end up with layers of insurance. So one company might give IBM's financial statements a Seal of Approval, stating that any investor can pay the company, say, $1,000 a quarter to insure up to $1 million in restatement-related losses. Then, they double-reinsure this (every $1 million they lose gets them $2 million from a reinsurer) and offer a bounty for anyone who catches fraud. Or you could just expect people who suspect fraud to short the relevant stock, announce their findings, and make money if they're judged correct. You're right that it's hard, by the way. I just think it would be easier if we were able to have multiple voluntary levels of insurance against fraud, instead of a single insurer -- especially because, in many cases, the SEC fines a company when management lies to shareholders. So if XYZ Co. overstates earnings by $100 million, investors are poorer -- and then the SEC makes the company give up another $20 million in restitution.
- tphyahoo 18y ago
  Follow up at the ripplepay list, where non-government based currencies are discussed: http://groups.google.com/group/rippleusers/browse_thread/thread/e87e9f0a5fe994f3 http://groups.google.com/group/rippleusers/browse_thread/thr...
- anewaccountname 18y ago
  What happens when the new privatized SEC goes bankrupt?
  - byrneseyeview 18y ago
    The same thing that happens when any insurance company goes bankrupt. Fraud is a normal, insurable risk. We just have a bizarre, underfunded, overambitious regulatory apparatus bolted on to where insurance is supposed to fit.
- Dilpil 18y ago
  The bounty system exists: it is called short selling. The SEC just needs to stop demonizing short sellers and start paying attention to who their shorting and why.