US & World

SEC official advocates on behalf of average investor

The term “corporate governance” served as a form of kryptonite for several years in the fast-moving, risk-taking Wall Street culture, which played a large role in the current recession from which we are slowly recovering. As publicly owned banks and investment firms were taking risks with shareholder-generated funds, shareholders were often left in the dark and their anger at the outcome of many of those investments is still ringing.

Enter Richard Ferlauto, Deputy Director of the Office of Investor Education & Advocacy at the Securities & Exchange Commission (SEC). Ferlauto, who spoke today with KPCC's Patt Morrison at the Milken Global Conference, refers to himself and the SEC as "the cop on the beat for the average investor."

With a staff of about 3,500, Ferlatuo works to make companies accountable to their shareholders by providing full disclosure of the companies' stock option activities. He is also charged with giving investors the materials they need to educate themselves about the market and to gain a greater and stronger voice.

Ferlauto compares investing for the first time to walking into the ocean. You don't want to bellyflop.

"You step in carefully, you bring in a float. People may need investment advice but they need to make sure the person is qualified."

Since taking the position at the beginning of the year, Ferlauto has worked to streamline their web site to make it easier for the average investor to navigate the market.

"We've recreated our office to help the average investor understand...we're taking a close look to make sure those materials are written in plain english and to make sure the information is located in a place that's easily accessible."

He's also working to restructure the SEC's hotline, which investors can call with questions.

"We wont give specific investment advice but if there's confusion we'll point people in the right direction," Ferlauto said."If an investment sounds too good, it's probably too good to be true."

Dating back to the seemingly halcyon days of Enron, WorldCom and Tyco, the functions of corporate governance gained a reputation for failing more often than succeeding; too many CEO’s weren’t accountable to their boards and shareholders had little ability to affect change. The Bernie Madoff scandal of last year also severely damaged the SEC's image as a watchdog on behalf of investors.

Ferlauto is trying to repair that image — recently bolstered by the SEC's civil suit against investment giant Goldman Sachs — by aggressively seeking more resources to beef up the investigative staff at the commission. He's also working to give investors a stronger voice.

"We're contemplating rules at the moment that would give shareholders power to elect people to boards," he said.

There are other emerging signs of progress as regulators exert greater influence over corporate governance reform and executive compensation arrangements.

"I think the corporate governance mood is changing," said Ferlauto. "For example, the SEC never talked about corporate governance in any of its materials. One of the first things I did was to create information about corporate governance to hold corporate boards accountable.

"There's a new vision and a new structure...I'm really hopeful about the future of the SEC."

To hear Patt's entire interview with Richard Ferlauto, visit the