This is the letter to which these comments refer - the "Bloom" letter to the Nevada court clerk, as a follow-up to the NCANS and NASAA amicus briefs.
First, we have, from the Motley Fool message board, a comment rebutting another poster's perspective (and the SEC's) that the states have no right to adjudicate matters involving the DTCC's operations in their states.
"In the spirit of the debate, let's take a look at UR's logic:
"...federal law governs the securities markets, that state laws and courts are pre-empted from evaluating claims, because federal law trumps state law, and federal law makes the SEC the arbiter of such claims. I'm sure an attorney could describe it better and more finely than that, but I think I have the general idea correct. "
False. The securities markets are governed by federal and state law. If you really believes the statement that, "federal law governs the securities markets, that state laws and courts are pre-empted from evaluating claims," then what do state departments of commerce do? By this logic, there is no reason to have state regulators or state law (or, by extension, states).
Do you believe a state has the right to regulate the quality and kind of air pollution cars can emit? If not, then tell California, which has more stringent standards than do the feds.
"Apparently "B'DB'O'B" doesn't think the SEC, the regulatory body for the financial markets, should be allowed to express its opinion to a court about a court case involving the financial markets, and the matter of that court's jurisdiction."
This is a straw man. Bob's point wasn't that "they should [not] be allowed to express" their opinion. It is that formal legal pleadings follow a certain form, and that form is not, "I'll send a private letter to the clerk of the court."
Lastly, by the SEC argument, no federal regulator can ever fail because whatever it does "becomes" what it is supposed to do by dint of the fact that that is what it did. So if the EPA ignores a person dumping millions of gallons of raw sewage into the Colorado River, no state law against pollution can be applied in state court, because the EPA has done nothing about it."
Pretty succinct, I think. The SEC is patently in the wrong here, and doesn't have a leg to stand on, IMO. Which is why the letter to the court clerk doesn't have any citations, or support, for its declarations. It simply makes pronouncements as to what it wants the court to believe, and then demands that the court heed those words, or risk unleashing the dogs of chaos - an unimaginable world where a privately owned corporation (the DTCC) would be answerable to fraud charges in the states it does business.
Can't have that.
A friend of mine, who is a former SEC guy, had this to say about the letter:
"I think the Motley Fool rejoinder is dead on.
The only addition I'd offer would be to point out that in every, every, major scandal unearthed and dealt with since the mid-eighties, states initiated the action that brought down the house. And their primary tool was state anti-fraud securities laws. You name it: limited partnerships, in the 80's; market timing in mutual funds; "independent" analyst frauds--all of it, state initiated, home-grown, using the very fraud laws the SEC now says are preempted because someone in the bowels of the SEC endorsed the rules of a trade association licensed with the SEC--not even their own rules, but those of the DTCC--a mere licensee.
State securities laws predate their federal counterparts by decades. God help us if some state or federal judge ever rules that state fraud laws are somehow preempted by something like the SEC's endorsement of a licensee' internal rules. Congress knows the value of those laws and even in preempting other regulatory aspects of state securities law, it has never touched the third rail of preempting state anti-fraud provisions.
The second point, involving the lack of the SEC's adherence to court rules and procedure, is really the more striking than the ranting arguments made in their letter. Having any legal experience at all, you are left speechless--blinking back the tears. Former SEC attorneys are blinking back the tears for a different reason.... You begin to think, "Hey, why did I spend all that time formatting, providing numbered lines to the text, getting the right colored paper, providing a table of contents, table of authorities, getting the margins right and meeting the deadlines (and on, and on, and on...) when only a two-pager to the court clerk would do? Maybe I could just pick up the phone...." etc.
It is fascinating to me that an agency that requires strict adherence to its own rules, regulations and procedures would think it appropriate to ignore those of another branch of government."
That is one of those classic commentaries where you are left thinking, "I wish I had said that."
These are not the only erudite comments I have received privately. But they do have a certain resonance, and I wanted to share them with you, as it is easy to believe that we are living in a vacuum - a dictatorship where whatever the central government mandates becomes the order of the day, and no divergent view is tolerated.
Again, I find this whole thing remarkable, in the sense that we now have a very real civil war within the regulatory framework, with the state regulators coming down on the side of due process and investor rights (and against protectionist Imperialism), and the SEC coming down on the side of secrecy, protectionism, and curtailing of state and investor rights and redress.
This really is wild, if you think about it. How out of whack does the system have to be when the 50 states are basically saying, "Enough"?