News Journal: Washington’s rife with conflicts of interest

Here’s the Wikipedia definition: “A conflict of interest is a situation in which a person or organization is involved in multiple interests, financial or otherwise, one of which could possibly corrupt the motivation or decision-making of that individual or organization.”
A cynic might say that is also a pretty accurate definition of how some elements of the federal government operate today. I have a personal case in point I’m going to share with you.
Until it was recently, and very quietly, shut down by the new powers-that-be, I was a member of what the SEC called its “Equity Market Structure Advisory Committee.” It was a relatively obscure committee, but I joined it when it was formed three years ago because I thought it could do some important work.
Then-SEC chair Mary Jo White spelled out our mission in our first meeting. “We should look closely at industry practices that have developed over the years as market structure has evolved,” she said. “In particular, to what extent have the interests of intermediaries, rather than those of investors and public companies, been the driving force behind these industry practices?”
Great question. I could hardly wait to get started. Making sure the financial markets treated investors fairly was right in my wheelhouse.
And yet, I looked around the conference table and realized we might have a problem. Because over a majority of the 17 members of the overstuffed committee were — you guessed it — representatives of the very intermediaries whose interests we were supposed to question.
I saw a lot of conflicts of interest in the next few months. I could cite any number of examples, but I’ll tell you about just one.
I had a good partner in this effort with the committee member who represented the AARP. Together with SEC staff members whose expertise was in statistics, we spent a lot of time coming up with an inexpensive way to develop a database that would tell us what investors actually thought about the current equity markets. It seemed like a logical first step since surprisingly there was no such data available.
There were, however, a number of committee members who were eager to assure us we shouldn’t worry. They had no data, but they just knew investors were happy and felt well served by the markets.
The leader of those opposed to the study we proposed was an executive of Citadel Securities, whose website describes how the company helps “meet the liquidity needs of asset managers, banks, broker-dealers, hedge funds, government agencies, and public pension programs.” An intermediary if ever there was one.
When it came to a vote, our proposal was narrowly defeated. Was I surprised? Not really. I knew what to expect when you put foxes in charge of the henhouse.
My experience on this one committee is hardly unique. Conflicts of interest have become so common that too many voters have started to simply yawn when you point them out.
But the battle against them is far too important to give up. I don’t think it is hyperbolic to say that our democratic form of government cannot survive once we begin to accept them.
There is a special category of conflict of interest that has infected government for far too long. It is called the revolving door. So I’ll end this column by telling you that the head of the SEC’s Trading and Marketing Division, the person who presided over all the meetings of the Equity Market Structure Advisory Committee, just left government service for a new job.
You guessed it again? Yes, with Citadel Securities.
Ted Kaufman is a former U.S. Senator from Delaware.