SEC Pressured by Pols in IRS-Like Controversy: WSJ

The paper claims in an editorial that the agency under Schapiro targeted firms for their political support

Former SEC Chairwoman Mary Schapiro. (Photo: AP) Former SEC Chairwoman Mary Schapiro. (Photo: AP)

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Whether the scrum surrounding the alleged targeting of conservative groups by the IRS is the next Watergate or simply one of many “phony” scandals depends largely on one's political persuasion. Regardless, in an editorial on Wednesday, The Wall Street Journal reported on a new wrinkle that involves the SEC, and had a clear bias towards believing the charges.

“Senior Republicans on the House Oversight Committee recently wrote to new SEC Chairman Mary Jo White to report on disturbing events that occurred under her predecessor [Mary Schapiro], and to request agency documents,” the paper said.

Reps. Darrell Issa, R-Calif.; Jim Jordan, R-Ohio; and Patrick McHenry, R-N.C., say that documents they already have "indicate that the SEC has been under immense pressure from elected officials and special interest groups as part of a government-wide effort to stifle political speech." They further note that the pressure has largely succeeded in "moving the commission closer to using its authority to regulate public securities markets as a backdoor way to limit the political speech of the same types of groups targeted by the IRS."

One way to discourage groups critical of the government is for the IRS to sit on their applications for tax-exempt status while applying the normal review process to groups friendly to the White House, The Journal noted.

Another way is to have the SEC discourage public companies from supporting independent organizations, "while applying no such regulation to labor unions.

“Corporations tend to support groups on both the left and the right, whereas unions are more reliably liberal. If businesses are limited in the public debate, it's a big win for Democrats.”

Last year, politicians like then-Rep. Barney Frank, D-Mass., and liberal tax-exempt groups like Public Citizen were encouraging the SEC to demand more disclosure from public companies about the organizations they supported, according to The Journal. The staff for Frank specifically told the SEC that there was "particular interest in what the authority is for disclosure of 501(c)(4) contributions (political contributions)." Frank's staff also noted that the interest was coming from the House Democratic leadership.

A former Democratic congressman, unnamed in a memorandum accompanying the Issa letter, was asked by Schapiro why this wasn't a job for the Federal Election Commission. The former pol responded, "because the FEC is even more broken than you," according to a May 2012 email sent by the deputy director of the SEC's division of corporation finance.

The Journal said that the SEC staff “pushed back,” pointing out that it's not their job to regulate political speech. An SEC official cautioned in one email about "how well it goes when the securities laws are used for social and political causes." The staff also noted the difficulty of taking on a new discretionary campaign given all the mandated but still unfinished rules they were required to write under the Dodd-Frank and JOBS Acts. But Democratic SEC commissioners Luis Aguilar and Elisse Walter continued to advocate new rules on political activity, The Journal said.

“By the end of last year they had persuaded Ms. Schapiro to include the issue on the SEC's regulatory agenda," the paper concluded. "Ms. White, the current chairman, can go a long way toward restoring the reputation of the SEC as a serious and apolitical regulator by deep-sixing this political assault masquerading as transparency.”

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Check out SEC, FINRA Enforcement: Ex-Marine Charged With Bilking Fellow Servicemembers on ThinkAdvisor.

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