SEC's mandate is to protect the investors, not insiders

Isn't it odd that the Bush administration, which in its early years preached that the only salvation for Social Security was the shifting of retirement funds from Treasury notes to the stock market, is now actively (though quietly) engaged in undermining the very confidence that small investors must have in the market?
In a linguistic irony, it is using a federal agency that shares the word security in its name, the Security and Exchange Commission. And in a historical irony, both Social Security and the Security and Exchange Commission were created as a reaction to the harsh realities of the Great Depression.
We all know what Social Security was designed to do, and we've see how it has worked for senior citizens of the Great Depression generation and what's come to be known as the Greatest Generation. For tens of millions, it has provided a standard of living that members of the middle class could only dream of 75 years ago.
Most people probably don't appreciate that the Security and Exchange Commission has an equal potential for affecting their lives. The SEC's job is to police Wall Street, protect investors against unscrupulous insiders and bolster public confidence in the market that drives the American economy.
Unfortunate backsliding
But after the initial shock of the Enron scandal subsided, the Bush administration's SEC, now under the control of Chairman Christopher Cox, has gone beyond taking a hands-off policy regarding Wall Street shenanigans to becoming an enabler.
The SEC has filed friend of the court briefs in securities fraud cases before that took the side of defendants, rather than victimized investors, and it appears poised to do so again. The specific case is obscure (Stoneridge Investment partners, LLC v. Scientific-Atlanta, Inc), but the principles involved could affect a much higher profile case that is also headed to the Supreme Court of the United States involving Enron.
The Enron case was filed against bankers (Merrill Lynch, Credit-Suisse First Boston, and Barclays Bank) alleging that they aided and abetted Enron in inflating the company's value. When the Enron house of cards crumbled, it was tens of thousands of ordinary investors who took the fall.
Consider the case of Charles Prestwood, whose story was told by Washington Post columnist Harold Meyerson. Prestwood went to work maintaining Houston Natural Gas plants back in the '60s. In 1985, Houston Natural Gas merged with another company to form Enron, for which Prestwood worked until his retirement in 2000. Enron had automatically invested all his retirement funds in its own stock, and with the huge run-up in Enron shares, his retirement nest egg came to 1.3 million. Just as the Enron meltdown began, however, the company froze all its 401(k) accounts, and Prestwood couldn't access his funds. He emerged with 8,000.
Shared culpability
Kenneth Lay and his Enron co-conspirators were the primary culprits behind the fleecing of Prestwood. But certainly companies that knowingly enabled Enron to inflate its value -- thereby almost assuring the collapse that would eventually wipe out Prestwood's retirement fund -- share responsibility.
And just as certainly, the extent to which those outside actors were culpable is a matter that a jury should be allowed to decide.
And one final certainty: If the SEC is going to come down on either side in this fight, it should be on the side of the investors who were fleeced, not the money men who helped do the fleecing.
The SEC has until June 11 to decide if it will file an amicus in the Stoneridge case, and whether it will side with insiders or investors.
If the Bush administration truly believes that the stock market plays a role in helping build the American Dream, the decision for Cox and his fellow SEC commissioners should be obvious.
If the SEC backs anyone other than the investors, Americans -- and Congress -- should ask why.