10. The SEC and Reputation

The traditional theory of regulation posits that regulation and reputation work hand in hand. Regulators bring criminal or civil charges against fraudsters, and these charges send a signal to investors that the company or individual cannot be trusted. However, regulation no longer serves this function. Prosecution is increasingly viewed as a political tool that ambitious prosecutors use to advance their careers. Regulators now need to satisfy interest groups and political overseers. The SEC exemplifies the way that modern regulation undermines rather than strengthens the role of reputation in capital markets. Not only do SEC regulators seek to enhance the power of their organization, but many also aim to advance their ...

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