NERA Says Crowdsourcing Is The Answer For The SEC

The National Economic Research Associates, Inc. (NERA) says that crowdsourcing is a way for the United States Securities Exchange Commission (SEC) to bridge the gaps, and further enhance its monitoring and investigative activities. According to Paul Hinton and Dr. Marcia Kramer Mayer, by tapping into the ready pool of professionals the country has, they can quickly and effectively detect fraud within their jurisdiction. Hinton and Mayer’s article at the Harvard Business Review maintains that part of the reason why Ponzi schemers like Bernard Madoff thrived longer than they should have was because the SEC lacked the manpower and the funding. Through crowdsourcing, NERA believes that the SEC can cut costs and avail of the ready expertise of volunteers on a larger scale. These people could be used as objective, third party sources of data, which is particularly important in the process of reviewing.

A similar endeavor had been undertaken by the Guardian, a prominent British publication. The group has valiantly started a crowdsourcing initiative to investigate expenses of individual MP’s. So far, they have had about 221,447 reviews out of their required 458,832.

Based on NERA’s findings, crowdsourcing could result to a swifter assessment of investment claims and other such related issues. NERA further recommends that the SEC require advisors to file management’s quarter-end assets according to account code and position. The entire process would entail a higher level of transparency both from the SEC and the companies in question.

It is not surprising for SEC Chairman Mary Schapiro to approach the advice with caution. Certain confidentiality agreements are far too sensitive to leave out in the open. It also puts companies at the mercy of people who might make misguided accusations. The rationale behind pursuing crowdsourcing despite these risks would then lie on the fact that because the reviewing arm is bigger and better, these erroneous claims would be put into light and rectified accordingly.

It cannot be denied that crowdsourcing could mean better investigative results. While this is a great shift from SEC’s current operational paradigm, it is evident that by welcoming independent practitioners, the organization can achieve the kind of improvement that the public desires.