TheFundamentals remembers when the SEC was respected and feared. Not that long ago. Its budget then was a lot less than the current $900 Million. It has failed spectacularly. This government agency has routinely missed investment and accounting frauds and, to this day, fails to warn investors about obvious risks in the financial markets. It cannot find fraud when others point it out to them; it cannot simply identify risk for the citizens as is its stated purpose and it cannot discipline its own staff. It topped itself this past weekend. The SEC has an inspector general and that person/office issued a report (see it at: http://www.sec.gov/news/studies/2009/oig-509.pdf ) on the failings over many years of the SEC in the matter of Ponzi schemer Bernard Madoff. The SEC issued the report last week.
Here are words from the report, “The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed. The OIG found that between June 1992 and December 2008 when Madoff confessed, the SEC received six! substantive complaints that raised significant red flags concerning Madoffs hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading. Finally, the SEC was also aware of two articles regarding Madoffs investment operations that appeared in reputable publications in 2001 and questioned Madoffs unusually consistent returns.”
Here are the words of the new SEC chairman, Mary Schapiro, that preceded distribution of the full report by several days (i.e. the report was available for issuance at least two days earlier in the week which would have permitted better review prior to the three day weekend.)
“We have streamlined our enforcement procedures and are putting more experienced staff on the frontlines. We also have bolstered our inspection program, started to revamp the way we handle hundreds of thousands of tips received annually, begun to hire new skill sets, increased internal training, and sought more resources to keep pace with financial fraudsters.”
“Since becoming Chairman, I have been impressed by the expertise and dedication of the men and women at the SEC and their willingness to embrace the changes that we have undertaken to better protect investors. I am confident that together we will succeed in our efforts to revitalize the agency and help bolster investor confidence.”
The failings are legion: The fraud occurred over 16+ years during which 3 examinations, two investigations and six substantive complaints occurred and the SEC found NOTHING. And the new head says not a word about terminations of those responsible for the failings; not a word about anyone taking any responsibility. Instead we hear vague blather about streamlining, new skill set, training, more resources (read: Give us more money), dedication of the workers and more pure, simple crap.
The inexperienced man from Chicago could use this as a teachable moment. He could terminate all the senior staff of the SEC and accomplish many good things in one quick action. He would show backbone, accountability and responsibility in one move. This method would follow the treatment extended to a Chicago based auditing firm – Arthur Andersen, when its reputation was tarnished. It went out of business. And, the SEC thought that was just fine. How about applying the same standards of trust and reputation to the SEC? He would send a message to bureaucrats around the US that terminations are not off the table. And then, maybe the voters would see that change is a possibility and that he can be trusted with tackling even bigger jobs such as health care and the epidemic corruption between politicians and special interest groups.
Accountability is a fundamental; not just a campaign slogan.
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