February 15, 2001
Could a well-placed suggestion to a government investigative agency make a dramatic difference in the market share of an industry player? Can this happen or is it just to unbelievable to imagine? Sadly I can report that it does happen. A company I founded twenty years ago was the victim of just such a scenario.
A competitor gained the ear of a well-placed officer with the U.S. Securities & Exchange Commission ("SEC") managed to profit incredibly from getting the government to ruin, through extensive and abusive investigative procedures, a company which was then the recognized leader in its field. As it happened I had left the company many years prior to this event to write and consult but was nonetheless included as a target by both the competitor and ultimately by the government.
The competitor in this story formed an alliance with another person of similar ilk and together they conspired to destroy the company that I had originally founded, which by this time was publicly traded, internationally known and enjoying double and treble digit expansion. The competitor threaten that were he not allowed to keep the two million dollars in cash he gained from us by deception, that he would use a disinformation campaign and his contact at the SEC to embroil the public company in an investigation which he promised would devastate the operating business.
Failing to secure the pay-off he sought, he was good to his threat and bragged that he would collapse the stock price with the government's help and then be able to buy it up for pennies on the dollar. The company subsequently sued this particular competitor and won. But the ongoing governmental entanglement he had begun cost shareholders over a hundred million dollars in the first year and so distracted corporate management that a new industry player took control of the marketplace. Incredibly the government refused to investigate those who stood the most to gain from the destruction caused by the SEC.
Bolstered with enormous resources and the power to freeze, seize, and fine, the SEC has become a monolithic, almost free-lance fiefdom, far removed from the direct control of the Congress. No one who works there is elected or reports to the people, no one outside the SEC has the right to fire entrenched people in this protected bureaucracy. In the words of a previous prosecuting attorney for the SEC (whose name is withheld by request)
"Never confuse yourself with the belief that they care about the truth…or doing what's right. They only care about winning."
In my case, the awful matter was finally concluded with a settlement and gag order, which means that the company, its officers, its accountants, and the author agree "not to take any action or to make or permit to be made any public statement denying, directly or indirectly, any allegation in the Complaint, or creating the impression that the Complaint is without factual basis."
Those that bragged they caused the problem have been enriched and gone without so much as a cursor investigation. Again we ought to consider Lord Acton's warning that "Power corrupts and absolute power corrupts absolutely."