March 15, 2010
"They’re overlawyered. They’re poisoned by lawyers."
Posted by Gordon Smith

That's Harry Markopolos -- the Madoff whistleblower who was ignored by the SEC -- describing that agency. Markopolos has a masters degree in finance, and he now says that he is willing to bring some much-needed rigor to the SEC. Jack Coffee is not enamored with the idea ("He is what the commission needs only if the commission needs an emotionally unstable idiot savant"), but personality issues aside, is Markopolos right? Is the SEC poisoned by lawyers?

As far as I can tell from piecing various reports together, the core of Markopolos' complaint about SEC lawyers is that they are controlling investigations without sufficient expertise in forensic accounting. For example: “My experiences with other SEC officials proved to be a systemic disappointment and lead me to conclude that the SEC securities lawyers, if only through their investigative ineptitude and financial illiteracy, colluded to maintain large frauds such as the one to which Madoff later confessed."

Calls for more SEC investigators with financial expertise are not novel, but perhaps we should start at the top. All five current SEC commissioners have law degrees. Mary Schapiro and Elisse Walter have spent most of their adult lives as securities regulators; Kathleen Casey worked as a staffer on Capitol Hill; and Troy Paredes was a corporate and securities law professor after working for a few years at BigLaw. Luis Aguilar has the most experience in the private sector, but almost all of his experience is as a practicing lawyer. We now require at least one member of the audit committee of a public company to be a "financial expert," but where are the financial experts at the SEC? Maybe bolstering the investigative staff with forensic accountants would be sufficient, but if the leadership sets the tone for the agency, wouldn't the appointment of commissioners with experience in forensic accounting be worth exploring?

The last non-lawyer to serve as SEC Chairman was William H. Donaldson, who, like Markopolos, is a chartered financial analyst. Donaldson had issues, especially near the end of his tenure. The previous non-lawyer to serve as SEC Chairman was Arthur Leavitt, who was in office when Markopolos first alerted the SEC about Bernie Madoff. Obviously, the problem of securities enforcement requires more nuance than looking at the Chairman's academic training. 

By the way, the first Chairman of the SEC was Joseph Kennedy, who was not a lawyer. Kennedy was succeeded by James Landis, a lawyer famous for his role in constructing the New Deal. Then came William Douglas and Jerome Frank.

P.S. The blogger at Big Debt, Small Law picks up the baton from Markopolos:

Bravo to Harry for correctly pointing out the major problem with most attorneys: they simply aren’t very bright. 

Law, after all, is a degree of last resort: a dumping ground for obnoxious, insecure also-rans who lacked the creativity for art and the brainpower for higher mathematics and science. Long an academic “lifeboat” for drowning liberal-arts losers, it’s one today peppered with holes and sinking by the head. Harry’s spot-on about the bar’s total lack of math ability: most lawyers remove their underpants when required to count higher than twenty.... 

Any mouth-breather can drool on the LSAT, sleep through 3 years of Socratic time-wasting bullshit, and scribble some passable gibberish on the ole’ barzam. It’s essentially a standardless “profession.” As the old saw goes, the MCAT determines if one goes to med school, while the LSAT merely determines where one goes to law school....

Just so we know what we are dealing with, the author of Big Debt, Small Law is on a mission:

Our sole purpose is to dissuade, deter and prevent more hapless lemmings from repeating the mistake of law school. Law has no rewards. Instead of pots of gold, you’ll find only piles of shit.

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