Wall Street’s Top Watchdog Seeks Help to Muzzle a Mystery Troll

By Matt Robinson | July 31, 2019

Elon Musk mocked it as the “Shortseller Enrichment Commission.” Billionaire Mark Cuban said it’s “useless.” Hedge fund legend Leon Cooperman called it “abusive.”

For the U.S. Securities and Exchange Commission, such attacks come with the territory. But brushing them off is getting harder in the age of social media. One online foe has so troubled the agency’s staff that it’s made the remarkable move of seeking to hire an expert to burnish their images.

The contractor’s duties will include monitoring content about employees in the SEC’s vaunted enforcement division on the web and removing anything that’s “false or harmful,” according to a July 22 posting on a federal job site.

The listing didn’t name the detractor, but the individual isn’t a well-known executive like Musk or Cuban, said a person familiar with the matter who asked not to be identified. The SEC accused the mystery adversary of violating securities laws, and the individual started assailing agency officials online, while taking steps to ensure Google and other search engines picked up the critiques.

Countering Attacks

“In the course of protecting investors and enforcing our securities laws, individual SEC staff members can unfortunately become the target of personal attacks online, which are appropriate for us to counter vigorously,” said SEC spokesman John Nester.

The SEC’s request shows that even a feared financial regulator can struggle to quiet someone who’s bent on using sites like Twitter to damage reputations. While former SEC lawyers say they were routinely bashed by those they investigated, they can’t recall the agency previously seeking a consultant to perform this kind of work.

“It’s very unusual,” said John Reed Stark, who spent about 20 years in the SEC’s enforcement division and said he was often targeted. “I wish they had it back in the day. It would’ve given me some comfort.”

Stark said the threats he received never went beyond online posts, though he did on occasion contact federal authorities to determine whether certain individuals were more dangerous than others.

Consultant’s Pay

Before social media accounts became ubiquitous, most threats were confined to stock message boards, Stark said. Now many of the 1,300 officials in the enforcement unit have LinkedIn and Facebook accounts, making them easier targets for disgruntled fraudsters.

The reputation manager may work for the SEC for up to three years with the job description indicating that compensation won’t exceed $250,000, according to the agency’s request. It’s unclear from the contract if the consultant would just focus on quieting the unnamed critic or more broadly try to enhance the SEC’s reputation.

Doing so could prove controversial in the era of President Donald Trump. While he regularly calls articles he dislikes “fake news,” it would escalate things if an independent regulator sought to routinely suppress unfavorable content.

“The safety of employees and the integrity of the investigative process is important, but this proposal raises serious free speech issues,” said Chris Ullman, who now runs his own public relations firm after stints at Carlyle Group LP and leading the SEC’s public affairs office. “The proposal is so broad as to possibly infringe on the public’s ability to criticize the commission.”

Image Rehab

The SEC has been rehabilitating its reputation over the last decade after failing to spot Bernie Madoff’s massive Ponzi scheme and for missing warning signs of the 2008 financial crisis. The failures prompted policy makers to discuss dissolving the agency and giving its responsibilities to other regulators such as the Federal Reserve.

Since then, the SEC has brought a record number of cases and sought billions of dollars in penalties from alleged wrongdoers.

The most recent high-profile case came against Musk. The Tesla Inc. chief executive officer was accused of violating securities laws when he tweeted last August that he was considering taking the automaker private. He settled the allegations weeks later only to go on “60 minutes” and declare that “I do not respect the SEC.”

Former hedge fund manager Cooperman initially fought SEC allegations in 2016 that he traded on inside information. He took to CNBC and Bloomberg Television to air his grievances, but then decided to settle the claims without admitting fault. Dallas Mavericks owner Cuban fought and won an SEC case against him in 2013 over claims that he also traded on inside information.

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