FLOYD NORRIS

Notions on high and low finance.

My column this week discusses a company founded by Representative Darrell Issa, Republican of California, who remained on its board until it was acquired by a private equity firm a few weeks ago. About the same time that the company decided to look for a buyer, it forced small investors to sell for a fraction of what larger shareholders would soon receive.

It is the second time this week that The New York Times has run an article centered on Mr. Issa. On Monday, Eric Lichtblau reported on the “overlap between his private and business lives, with at least some of the congressman’s government actions helping to make a rich man even richer and raising the potential for conflicts.”

It is reasonable to ask why the two articles appeared in such a brief time.

The answer is that I was intrigued by references to the company in the article that appeared Monday. After reading it, I looked up the company, DEI Holdings, and was interested in what I found. It had cost its investors millions, and it had taken steps that ended up treating some investors worse than others. Had I noticed the company, I would have been tempted to write about it even if it did not have a well-known director. The involvement of Mr. Issa, who has often criticized the Securities and Exchange Commission, made it all the more interesting.

I called Mr. Issa’s spokesman on Tuesday, asking for an interview to discuss both his views on securities laws and his experience at the company. I told the spokesman of specific issues at the company that interested me. He did not call back. A spokesman for the company did return my call, but did not provide information on what I think is an important question: Had the company decided to seek a buyer before the small investors were forced out?

At the hearing Representative Issa conducted, which I link to in the column, he stated the S.E.C. had a “dual mandate.” One is to protect the public. The other is capital formation. At that hearing, at least, he was more interested in the latter. He said he believed that a loosening of S.E.C. rules would lead more companies to seek capital, and thus promote economic growth.

I think the two mandates are intimately related. Perhaps the most important aspect of our capital-raising system is the belief that investors can get a fair shake when they are in no position to closely monitor what is happening at the companies where they invest their money. If that belief were to vanish because the S.E.C. did a bad job on the first mandate, the commission would have no chance to fulfill the second one.

Article source: http://feeds.nytimes.com/click.phdo?i=df344c6f9bfab34ad2de2759975d4b68