The #SEC was established in the aftermath of the 1929 crash to prevent a similar disaster from happening again, right? For those who don’t know, these are the two pillars on which the US Congress drafted and passed the Securities Act of 1933 and the Securities Exchange Act of 1934:
- “Companies offering securities for sale to the public must tell the truth about their business, the securities they are selling, and the risks involved in investing in those securities.”
- “Those who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly.”
If the SEC was an employee of a corporation, it would have been fired multiple times for consistently failing in its tasks from the year 2000 onwards. However, we could say that, although poorly, the SEC was at least kind of trying to do its job and those who planned to cheat couldn’t do so openly.
Do me a favor and spend some time this weekend going through the feed of the likes of @unusual_whales , @CheddarFlow or @VolumeLeaders , and try to answer this question: “If these people can do such a good and granular job of keeping tabs on manipulative trading shenanigans, obviously illegal insider trading and so on, why doesn’t the SEC do the same and take appropriate actions?”
Today we’ve reached a point where being caught breaking the rules and getting fined is just a cost of doing business that is laughed at afterward. Am I exaggerating? Well, have a look at this article fresh off the press.
“The Financial Industry Regulatory Authority (FINRA) fined Goldman Sachs $512,500 for allegedly failing to properly surveil certain types of securities for potential manipulative trading activity for more than a decade.” No need for further comments.
Essentially, the role of the SEC today is to decide who gets to play inside or outside the asylum. IPOs of companies at hyper-inflated valuations, sometimes even completely fraudulent, are ushered into the asylum without any problem. Maybe we will even reach a point where exchanges will list derivatives and options on these names before the IPO #stocks itself starts trading.
Those who party too hard inside the asylum, to the point where they burn down a wing of the building, can just sacrifice a black sheep to the warden and carry on with their party as long as they don’t bring down the whole complex. From Bill Hwang to Trevor Milton, just to name a few recent ones who fell from grace, the list is starting to crowd.
Yesterday, I put NYCB and ARM next to each other in a post (TwitterX). Try to picture them as particles running wild within a nuclear reactor that is placed at the centre of the asylum. What happens when particles start to collide? We get a nuclear reaction. What happens when the cooling system of the nuclear reactor (the SEC) malfunctions and the reactor starts overheating? The reactor can explode in a Chernobyl-like fashion if the issue isn’t dealt with before the point of no return is crossed.
Like it or not, today we are far beyond the point of no return and the temperature in the reactor is now increasing fast. You better run fast and seek shelter as far away as possible because the incoming nuclear fallout in #stocks, a matter of when not if, will be one for the history books.