Pencils down

SEC needs better cases, not longer deadlines

Wall Street's watchdog doesn't need longer deadlines to bring better cases. The US Securities and Exchange Commission (SEC) would get double the time to pursue wrongdoing under proposed legislation. Yet, it already has the muscle to pounce quickly before evidence grows stale. The regulator needs to aim higher and work smarter. There's no doubt alleged financial fraud can be complex. Consider the derivatives valuation scheme described on Wednesday in complaints against traders involved with the so-called "London whale" deals at JPMorgan. Scrutinizing tangled transactions and their creators' intent takes time.

But 10 years seems excessive. That's the new statute of limitations Democratic US Senator Jack Reed is proposing for SEC cases. It's designed to allow the watchdog to continue probing possible wrongdoing behind the 2008 financial crisis, investigations the current five-year deadline would preclude.
 
The proposal would also render irrelevant a recent Supreme Court decision denying an extension to sue investor Marc Gabelli over market-timing trades between 1999 and 2002. The SEC claimed it couldn't discover the alleged misconduct within five years, but the justices found the regulator's power to subpoena data, enlist whistle-blowers and force settlements was more than enough to ensure prompt action.

The agency has repeatedly proven as much. It boasts of charges against Goldman Sachs, Citigroup and more than 160 other firms and individuals involved with the financial crisis. The London whale fiasco hit barely more than a year before charges were filed. Former Lehman Brothers chief executive Dick Fuld and others at the centre of crisis meltdowns were essentially let off the hook, but agency incompetence and weak evidence probably had more to do with that than tight deadlines.

In fairness, a 1989 law enacted after the savings and loan debacle gives the justice department 10 years to file civil suits for certain types of fraud affecting banks. Prosecutors have only recently dusted it off, however, to skirt expiring statutes of limitations. Contrary to the law's purpose, though, they're using it to pursue rather than compensate banks. That's hardly a recommendation for granting the SEC similar privileges.

What's more, such laws pose real risks. After 10 years, evidence often disappears, making charges tougher to rebut. And allowing the government to delay leaves possible targets uncertain about their legal liability. The SEC might need additional resources, but time shouldn't be one of these.