State Officials Try to Hide Their Private Equity Oversight Failures by Asking the SEC to Exceed Its Authority

Nothing like elected officials using letter-writing to a weak agency and asking it to exceed its powers to hide the fact that they aren’t willing to do their jobs. And this shirking of duties is particularly grating since these officials, most important of all John Chiang, the State Treasurer of California, Thomas DiNapoli, the New York State Comptroller, and Scott Stringer, the New York City Comptroller, are powerfully positioned to propose legislation to solve the problem they are trying to fob off on the SEC.

The only good news in this pathetic case of responsibility three-cared monte by state and city officials is that it shows that they feel the need to be perceived to be Doing Something about private equity abuses.

Why the State Officials’ Letter to the SEC is a Joke

If you didn’t know better, and the tacit assumption is that the dumb chump public does in fact not know better, you might easily think a letter by state officials to SEC chairman Mary Jo White amounted to meaningful action. Here’s the overview from the Wall Street Journal; we’ve embedded a copy of the letter at the end of the post:

A group of states and cities said it intends to send a letter to the Securities and Exchange Commission late Tuesday asking for greater transparency and more frequent disclosures by private-equity funds. 

Around a dozen comptrollers and treasurers from New York to California want the SEC to demand private-equity funds make disclosures of fees and expenses more frequently than they do now…

This is patently ridiculous.

The SEC does not have the authority to order more frequent fee and expense disclosures. The information that the investors receive now is what they have obtained in their negotiations at the time they invest. They can calculate management fees from one of the documents they sign, the subscription agreement; they should be able to derive the so-called carry fees from annual audited fund financial statements. Those audited financial statements also contain fund-level expense information. 

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