HOME
Message Board
CURRENT COLUMNS
- Editor's Corner
- Blogfest 2005
- Commentary
- Commentary Too
- Down The Middle
- Faulking Around
- Global Warning
- This guy walks into a bar...
- Investing 101
- Faulking Opinions
- Off The Rail
- Words
ARCHIVES
LINKS
CONTACT US
 | |||
Commentary - Jul 9, 2006 - Printable Version
- Our SEC Officials isn't Learning
by Mark Faulk
At the SEC, apparently one plus one doesn't always equal two. And with the hedge funds, the only thing that really matters is that the regulations that apply to them add up to zero. Yesterday, in an article entitled “Double Trouble Valuing The Hedge-Fund Industry,” the Wall Street Journal reported that hedge funds are up in arms about the total hedge fund industry assets as reported by the SEC, asking the question “How did the size of the hedge-fund industry double overnight?” and saying that:
Until a few weeks ago, the industry had about $1 trillion in assets world-wide, according to a consensus of estimates by academics and consultants. Then, on June 23, the media began reporting that hedge funds had more than $2 trillion.
The confusion began when a federal appeals court tossed out a rule requiring hedge funds to register with the Securities and Exchange Commission. Swamped with queries, the SEC tallied the assets reported by hedge-fund managers who had registered. The figure – a whopping $2.4 trillion -- was reported by The Wall Street Journal, the New York Times, National Public Radio and other news outlets.
They also pointed out that in Congressional testimony just a few weeks ago, the SEC itself had pegged the total industry assets at $1.2 trillion, or half of the total they claimed had registered with the SEC just a few weeks later. And don’t forget that that figure doesn’t include hedge funds that failed to register, or who escaped detection by crawling through one of the numerous loopholes conveniently written into the SEC hedge fund regulations.
The SEC’s director of investor education, Susan Ferris Wyderko, said at the time that the industry has $1.2 trillion in assets, and touting a "a remarkable growth of almost 3,000% in the last 16 years." She cited Hedge Fund Research of Chicago as her source.
Now, Hedge Fund Research officials are reportedly “fuming” over the SEC’s own figures, that place the total at double what they claim it is. They attribute the astronomical difference in numbers to what they call “double counting,” saying that a fund investing in hedge funds would report those assets, and that the hedge fund where those assets are invested would report it again, essentially doubling the total amount reported. Hedge Fund Research president Josh Rosenberg said that he would like for the SEC to “cease and desist from using the new figure.”
That’s what the Wall Street Journal reported. Here’s what they didn’t ask.
First of all, who’s lying, or can’t perform basic math, or both? If the estimates are closer to the numbers reported by the Hedge Fund Research group, then how did the SEC screw up so badly? These are the same people who are charged with making sure that public corporations don’t fudge on their numbers, and that all financial information given to investors is accurate. If they're wrong about their estimates on hedge fund assets…and not just wrong, but WRONG…then can we trust anything they tell us? When they release figures for stock that isn't delivered to the customers who paid for it, how do we know that those numbers are accurate? Could there be twice as many fails as the SEC reports? Or even more? Can we trust them to release accurate figures on anything, can we even trust them on any information that they release to the public?
And worse yet, and even scarier in the potential repercussions, if our federal government can’t get their facts straight on something as simple as adding up the total amount of assets of 2,500 companies on a calculator (which any competent grade school student could do), then how do we know that any figures released by any agency are accurate? How about our overall economic growth? Are they “double counting” that as well? Is every industry’s growth rate figured using the same formula that the SEC used to arrive at their grossly inflated figure for the hedge funds? Is this the same kind of voodoo math that measures the health of our nation’s economy?
On the other hand, what if the hedge fund industry is wrong in their figures? What if their reported assets, all of which are as of today are totally unregulated, are $2.4 trillion? And what about the ones who didn’t file with the SEC? Would that bring the total to $3 trillion? Four? Who knows, we can’t even get the reporting parties to agree on the number that is on paper.
And why would any industry be “fuming” over reports they’re experiencing phenomenal growth? Isn’t growth a good thing, a sign of success? What do they have to hide that they don’t want their total assets revealed, why are they fighting so hard, both in the press and in the courts, to appear less successful then they really are? I repeat, what do they have to hide?
With every passing day, the incompetence of the SEC, and their inability to perform even the most basic functions of their duties, becomes increasingly clear, and their true agenda becomes more transparent (unlike the hedge fund industry, which isn’t the least bit transparent). It’s obvious that if they can’t be trusted to report even basic industry totals accurately, then they aren’t qualified to oversee our nation’s financial system. I’ve been saying it for months, and I’ll say it again, it’s time to dismantle the SEC altogether, and to build a system, from the ground up, that can do the job that they have been entrusted to do, and that will restore honesty and integrity to our stock markets, instead of simply removing them from their own mission statement.
And that’s the Faulking Truth.
An update on our latest articles about the elimination of honesty and integrity at the SEC:
Add "Independent," "Nonpartison," and "Full Disclosure" to list of qualities banned by the SEC
Another reader sent me this information, the SEC's Mission Statement, as listed in their annual report, all the way back from 1996. So now, in the space of six years, the SEC has dropped independent, nonpartison, full disclosure, honesty, and integrity from their self-professed mission. Here's the 1996 annual report version:
The SEC is an independent, nonpartisan, quasijudicial regulatory agency with responsibility for administering the federal securities laws. The purpose of these laws is to protect investors in securities markets that operate fairly and to ensure that investors have access to disclosure of all material information concerning publicly traded securities. The Commission also regulates firms engaged in the purchase or sale of securities, people who provide investment advice, and investment companies.
This isn't funny anymore.
(Thanks to Gordon Hayes at the Phoenix Dollar for sending us that bit of information.)
This article is also posted on Mark Faulk's blog at The Sanity Check, along with an excellent comment forum, at:
http://www.thesanitycheck.com/Blogs/MarkFaulksBlog/tabid/86/Default.aspx
Mark Faulk is the Editor of The Faulking Truth, and the author of the upcoming book entitled "The Naked Truth: Counterfeiting the American Dream," due out in August, 2006. For more information on the book and on the stock market scandal, go to http://www.faulkingtruth.com , and to pre-order your copy, go to http://www.theownersgroupinc.com/cart/
Add your name to our mailing list on our homepage, and we'll update you on developments in the Stockgate scandal.
To read more about the issue of stock counterfeiting, go to:
http://www.faulkingtruth.com/
http://www.investigatethesec.com/
http://www.thesanitycheck.com/
http://www.financialwire.net
http://www.americaneedstoknow.com/
Voice your opinion on our message board (you don't have to sign up to post).