by David Chavern

Anyone who doesn’t think that the SEC’s regulatory priorities are misplaced should look at an article from today’s Wall Street Journal entitled "Subprime Lender's Failure Sparks Lawsuit Against Wall Street Banks".

It painfully describes how non-sophisticated investors put all of their money in risky investments - and ended up losing everything. Now, of course, these investors are looking to sue someone - anyone - with money in order to recover their lives. But the answer shouldn’t involve using the courts and expansive legal theories to grab money from third-parties who had nothing to do with these investments. The answer is better regulation that would have kept people out of these investments in the first place.

The SEC has spent a tremendous amount of time putting reputable companies through the wringer over public statements or accounting treatments that have no identifiable economic impact on anyone (see this great editorial by Harvey Silvergate).

They do this because it is high profile, captures headlines and furthers a "get tough on business" reputation. In the meantime, American Business Financial Services Inc. was permitted to market risky securities to unsophisticated investors through newspaper ads, and cover themselves with a 230 page prospectus that was supposed to accurately describe to these folks what they were buying. Everything was (probably) legal - and absolutely and completely misguided. You can start with the fact that a 230 page legal document is not really going to inform anyone of anything, and the SEC (and everyone else) knows it.

The SEC is big on saying that its mission is "investor protection." The trouble is that really protecting investors - and solving disclosure problems like this one - is not headline-grabbing or easy. The SEC needs to stick to its knitting and go back to emphasizing the real investor protection problems it was organized to solve.