OTR Interviews

How One CEO Was Punished for Hiring Too Many Employees

Euro Pacific Capital CEO argues that government regulations have prevented him from hiring U.S. workers

 

This is a rush transcript from "On the Record," September 20, 2011. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Well, we want jobs, right? Well, then why was one CEO punished for creating more jobs? Peter Schiff, the CEO of Euro Pacific Capital, told a House subcommittee he was fined $15,000 for hiring too many brokers at his brokerage firm. And of course, there are the legal costs. Imagine that, a penalty for creating jobs.

And Peter Schiff, who is also the author of "How an Economy Grows and Why It Crashes," joins us now. Good evening, sir.

PETER SCHIFF, EURO PACIFIC CAPITAL CEO: Good evening, Greta.

VAN SUSTEREN: So tell me, right now, do you have the capital and profit so that if you wanted to hire some more employees, you could?

SCHIFF: Well, I have more than that. Just yesterday, after almost three years, I got a letter from the security regulators giving me permission finally to hire about 50 additional brokers. So I finally got that permission. It took a long time. I had to spend a lot of money get it.

And I also got permission to finally publish my research, which is something I've been wanting to do for years. So now I can actually start to hire some analysts. But for years, I wanted to hire them, but basically, I couldn't do it because I couldn't sell any of the research that they produced.

VAN SUSTEREN: All right, so take me back how this happens because I don't need to tell you that we're desperate for jobs, and if I hear that someone wants to hire people and there's an impediment, I'm a little scandalized. But the reason I asked you that question off the top is I wanted to know if you were recklessly trying to hire people. And we've seen what happened with a firm out in California that, you know, got a little too much extra cash and ran themselves into the ground, our cash. But -- so tell me -- tell me how your situation arose?

SCHIFF: Yes. I mean, not at all -- I mean, first of all, regulations are crippling businesses all around the country. It's not just mine. And in some cases, they don't just cripple the business, they kill the business.

But what happened is, if you go back to 2008, my business was growing very rapidly. You know, I had a book, "Crash Proof: How to Profit From the Coming Economic Collapse." A lot of the things that I forecast in my book started to happen. And so I started to get a lot of new customers. And in order to keep pace with all the new customers, I needed to hire new brokers to service the accounts.

And in the securities industry, there are rules that limit your ability to hire new brokers. You have to get appropriate permission before you can hire. And I actually thought I had the permission, but I didn't. And the regulators actually sent a letter to my company ordering us to stop hiring. I never saw that letter, so I kept hiring anyway.

And by the time it came to my attention, I was really in a lot of hot water because then I had hired about maybe 50 or 60 more people than I was allowed to. And that set into motion a lot of -- a chain of events and a lot of legal costs on my part. And it really slowed me down.

But in the meantime, you know, before I can get around to actually formally requesting permission to hire the additional personnel, you have other compliance issues that come up that put that thing on a back burner. So the whole process took me years.

But the bottom line is, I've wanted to expand the business for years, and I wasn't able to do it because of the regulatory hurdles that I had to jump over. And it isn't just the one specifically about how many people you can hire. There are so many things that I'm required to do just to stay in business. And of course, the pretense is, Well, we have to protect investors.

Investors don't need protection from me. I protect them. I want to protect my reputation. The free market is the best regulator. All these securities regulations do is protect the major brokerage firms from competition because they make it very difficult for small firms like mine to grow. And in fact, many firms are -- are -- are bankrupted. Look at the last few years. We've lost maybe a third of the small brokerage firms. And the reason they're going out of business is they can't afford to comply with the rules and regulations!

VAN SUSTEREN: Let me ask you a couple quick questions. Who are the regulators? What division of the government?

SCHIFF: Well, the government -- well, the SEC is part of the government, but the securities industry, which I'm a part of...

VAN SUSTEREN: FCC or SEC? OK...

SCHIFF: ... is regulated by FINRA, which is a private self-regulatory organization. But the government requires me to be a member. So it's not technically the government, but the government requires me to be a member of this organization in order to be a broker.

VAN SUSTEREN: All right, can you...

SCHIFF: And a lot of the regulations, though, that FINRA is enforcing come from Washington. One of the worst ones was the Patriot Act. The anti-money laundering provisions of the Patriot Act cost me a fortune! And basically, they turned me into an unpaid IRS agent and FBI agent spying on every one of my customers! And if any of my customers looked like they're doing something suspicious, I got to turn them in to the government! And if I don't turn them in, that's a crime!

VAN SUSTEREN: I guess the thing that's so confusing as to what happens over at the SEC. For instance, where the lawyers got in trouble for spending all their time downloading porn at government expense. Meanwhile, Madoff goes out and commits the most incredible blunder, where there's absolutely no (INAUDIBLE). So I've got the two extremes here, one trying to strangle a successful business that wants to expand, and then I got the situation over here that's absolutely deplorable.

SCHIFF: Yes, you know, I wish they were all just watching porn. Then the industry could actually grow. But you know, the problem with Madoff is Madoff actually happened because, I think, of the regulators. If we didn't have security regulation, I don't think Bernie Madoff ever could have gotten as big as he was. People would have ferreted him out. There would have been more due diligence. But because he had the blessing of the regulators, nobody questioned him.

Look, I think the industry would be better off if we had none of this regulation. Certainly, my customers would be much better off because I could -- I could provide them with a whole bunch of different services, much more robust services. I could charge a lot less money, and I wouldn't have to spend so much of my time just complying with the rules and regulations really saps you of your -- of your energy. And almost it makes it like you don't even want to come to work in the morning. It takes a lot of the fun out of business!

And there are a lot of people -- people might wonder -- Hey, this guy is rich, why doesn't he just play golf, why doesn't he just go fishing. A lot of entrepreneurs, in addition to making money, enjoy running a business. They enjoy growing a business. But the government takes all that joy away!

When the government runs your business and tries to micromanage it with all these little regulations, a lot of people just say, I don't want to do it anymore. And some of the harshest regulations fall on companies when they hire people. In fact, you know, one of the worst things...

VAN SUSTEREN: Peter, I got to go.

SCHIFF: ... that you can do in America is hire somebody because the minute you hire somebody, it's almost like you're a criminal! There's all sorts of ways you can be fined. There's all sorts of ways that you could be sued. Your rights go out the window the minute you become an employer! We've passed so many laws...

VAN SUSTEREN: Peter, I got to go. I...

SCHIFF: ... to protect employees...

VAN SUSTEREN: I've got to -- I've got...

SCHIFF: ... we're protecting them from jobs!

VAN SUSTEREN: ... go.

SCHIFF: A lot of people are unemployable now!

VAN SUSTEREN: I got to go. And I know that -- I can tell that you got a lot of passion on this one. You got a lot to say. But I think we got the picture. Peter, thank you, sir.

SCHIFF: Sure.