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SEC’s Senior Staff/Inmates Are Running the Asylum **STRONGLY RECOMMENDED**

Posted by Larry Doyle on June 15, 2010 9:07 AM |

Any employee in any organization knows that an internal disciplinary double standard is the quickest way to kill morale. Happens all the time, right? Likely even worse in organizations with lots of bureaucracy? Uncle Sam would not know how to operate otherwise, you say? The answers to all those questions may be the affirmative, but that does not make a double standard right nor does it mean that it should be tolerated. Why do I broach this topic?

Our friends at the Project on Government Oversight (POGO) released a report just yesterday highlighting the pathetic disciplinary measures and massive double standard at the SEC in responding to recommendations from its own Office of Inspector General (OIG). POGO reports:

….this is not the first time the SEC has refused to follow an OIG recommendation for disciplinary recently released by House Oversight and Government Reform Committee Ranking Member Darrell Issa (R-CA) made note of the fact that the SEC has repeatedly failed to implement reforms or hold wrongdoers accountable. The report mentioned an investigation by POGO which revealed that the SEC has failed to act on hundreds of recommendations made by the OIG in recent years.

Following up on that investigation, we’ve prepared a new document summarizing the agency’s response to reports in which the OIG specifically recommended disciplinary action. This information mostly comes from the OIG’s semiannual reports to Congress and documents obtained through the Freedom of Information Act (FOIA). As you can see, the SEC has taken little to no action on many of these recommendations, especially when the individual cited is a senior official.

By failing to take disciplinary action against the two senior officers named in the OIG’s FWRO (Fort Worth Regional Office) report, the SEC continues to broadcast the message that senior management will not be held personally accountable for misconduct, no matter how egregious.

Just how egregious are some of the findings made by the OIG? Let’s navigate and review the report from POGO highlighting 18 separate instances in which the OIG recommended disciplinary action and in which ‘no action’ was taken. I found the following six to be the most outrageous. The OIG’s findings include (I recommend you take a deep breath first!!):

1. Disclosure of non-public information
2. Inappropriate conduct
3. Misuse of official position
4. Misuse of government computer resources to assist Ponzi scheme and violations of standards of ethical conduct. (Are you kidding me? This is not a major front page story? A Supervisor in the SEC’s Office of Administrative Services is found by the OIG to have engaged in these behaviors and is allowed to retire without disciplinary action being taken?? What a joke!!)
5. Suspicions of insider trading and appearances of impropriety in financial transactions. (In light of this reality, we should certainly not expect the SEC’s OCIE to pursue the insider trading and front running at FINRA in its liquidation of auction-rate securities in 2007!!)
6. Conflict of interest and improper solicitation of gifts.

For those interested in viewing the POGO report in its entirety, please click on the image:

Yes, boys and girls, that is your government and your tax dollars at work. Accountability? Transparency? Integrity? A ‘new’ SEC? Talk is cheap. This report is strong evidence that the senior inmates are running the asylum at the SEC.

In light of this report, is there truly any surprise how and why Wall Street has run roughshod over Main Street?

What happened to our country?


P.S. Hats off to POGO for great work!!

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  • Lou

    4. Misuse of government computer resources to assist Ponzi scheme and violations of standards of ethical conduct.

    …and why isn’t this specific situation further investigated and exposed by the the media?

    Which Ponzi scheme? Madoff? Stanford?

    Inside job??

    No disciplinary action? Probably did not want to bring attention to it.

    How about an indictment?

    • Bill

      The Ponzi allegations probably relate to Stanford because the Fort Worth office was the one “in charge” of that.

  • Jim

    …and these were the transgressions that the OIG found. What was missed? How long have these activities been going on?

    Think we need a special prosecutor and an independent investigation?

  • Vince

    Mary Schapiro must be too busy to deal with these issues, right?

    Or perhaps we should just blame GWB even though the bulk of these reports were filed after she took office.

    Excuses, excuses, excuses….

  • Matt

    Larry –

    WOW. Don’t #4 and #6 (and even #5) both point to Bernie Madoff’s and/or Alan Stanford’s case? Doesn’t this beg the question of did the SEC actually HELP Madoff and/or Stanford with their Ponzi schemes? What else could #4 be referring to if it’s not Madoff or Stanford? We know that Madoff said recently that Mary Schapiro was a “dear friend” of his, and that the two have ran together in very similar circles for the last 15-20 years. Is this why it was the FBI that finally arrested Madoff, and not the SEC? Is this why Harry Markopolos’ multiple warnings were ignored? You are absolutely right Larry when you say – HOW IS THIS NOT A FRONT PAGE STORY????? WOW, WOW, WOW.


    • LD


      If you care to contact the SEC OIG Office, here is the Contact Info,

      Simply amazing!!

    • Mike

      Great connecting the dots… WOW indeed

  • Bob

    Boy, just when I thought I was past the point of being able to be shocked, this did it.

    This story needs to be more fully explored!!

  • Duke

    When will we have the Congressional hearing? When will Mary Schapiro be required to face the music?

    Talk about regulatory capture. …and where the hell is the mass media to blow the cover off this story??

    Markopolos was right when he said, ‘don’t trust the government.’

  • phil trupp

    This is the latest outrage, but it isn’t the first for SEC. Ever since the creation of the Commission decades ago, the Washington-Wall Street Nexus has grown like a twisted weed in a soiled garden. The list of sins is too long to detail here. But here are a few modern examples of the SEC’s “special” love affair with monopolies and other wreckers of capitalism:
    1. In 2007, with gas prices sky high, ExxonMobile was pumping cash, not oil. Newsweek put it this way: “…The world’s largest oil producer thinks it is smarter to use more of its resources to buy back stock.” No one in Washington blinked, and the SEC remained silent.
    2. In 2004, Shell stunned investors when it told the world it has overstated its oil reserves in order to pump up stock prices. SEC shrugged. Then-Chairman Cox loosened rules that allowed Shell to muisstate those reserve numbers, which did again in 2008.
    3. Throughout the past decade, public utilities worked with outfits such as Goldman Sachs to tranform utility markets into virtual cartels. SEC played along nicely.
    4. Creation of the SEC was aimed at reducing fraud and misrepresentation of stocks and bonds. The auction-rate securities fraud, among other recent examples, makes the intention of the 1934 act almost laughable. In in the ARS situation, SEC had to be shocked into action, but its pulse was barely discernable. Commissioner Cox took the Madoff position: “F–K ’em…Investors should have known better.”

    • John W

      That Mary Schapiro must be being bought & paid-for(off) by the good ol’ boys at Schwab, E*trade, Oppenheimer and the closed end funds etc. to to have not pursued the fraud in the ONGOING ARPS DEBACLE, many of us little guys are still locked in, 3 years after the criminals at FINRA bailed!!!!

      Where is the media when you want them? Being paid hush money by the banks and brokers too I would wager!


  • Titan

    Where does the buck stop within the SEC? Mary Schapiro.

    If these recommendations by the OIG are not pursued, Mary Schapiro owes the country a full and total accounting why she has chosen not to pursue. Short of that, she is showing herself to be more aligned with the individuals and the industry than the taxpayers and the country.

    My instincts tell me she is GUTLESS!!!

    Kudos to Darrell Issa for his work but where are the rest of them?


  • Marcel

    Americans merely need to accept the fact that there truly is no financial regulation and then go about their business accordingly. Once you accept that, then there is truly less risk, less stress, less anxiety.

    Repeat after me…Mary Schapiro who?? SEC what??

    Don’t worry…Be happy.

  • disenchanted

    If there were a way to get Judge Rakoff’s decision of absolute immunity overturned, maybe some of the big attorneys would pursue this. Subpeona the top officials of all these agencies and get the books and records open to the public. Judge Rakoff gave them all a ticket to steal. As long as silence is the law, I am sure there will be no disciplinary action to the lower level workers. What if they talk??????

  • Bill

    There’s also a story about a lawyer now in private practice–Spencer Barasch–who was the chief of enforcement in the SEC’s FW office and who repeatedly refused to take action against Stanford, only to become his lawyer, at least for a time, after leaving the SEC. The OIG referred the matter to the TX and DC bars for potential ethical violations. Maybe the bars will take action where the SEC fears to tread and administer condign punishment.

    • phil trupp

      The Caribbean was the perfect venue for Stanford. I’m learning through experience that regardless of the ineptitude of U.S. regulators, and despite the ongoing con games in this country, nothing in the Western world compares to, say, the Bahamas. I know Stanford operated out of Antigua, but the same lawlessness abounds there as well. The Bahamas, however, is particularly fertile ground for con artists–and they flock there from around the world. If Americans knew just how bad it is, they would never set foot in those islands, and they certainly wouldn’t invest there. I didn’t, but am researching the corruption that wraps itself around almost everything in those murky, dysfunctional land falls.

  • DBC

    The fact that this story is not more widely disseminated and causing even more outrage strikes me as an indication that America is clueless, beyond despondent, frustrated, totally resigned, or a combination of all of the above.

    If and when America stops fighting for real justice, fairness, and integrity in our economy and especially within our regulatory bodies, then, IMO, we are one step closer to losing our future.

    The details in this story are truly shameful. I smell $$$ and $$$ and its trappings corrupt.

  • Tim

    My gut tells me that we have not heard the last of this story. When fish smell this bad, the odor may be disguised for a period but it does not go away. Ultimately the place needs a good cleaning and then the odor can be truly cleansed.

    Rest assured, somebody from inside the SEC is probably taking and keeping notes and will write an interesting book.

  • John W

    Go to the SEC website and file a complaint vs Mary Schapiro

    I am doing it. Just name her in the complaint, and describe her role in the oversight fraud and lack of oversight, and her selling off FINRA’s Auction Rate Securities in summer 2007. Maybe a little internal shame, it will go into their electronic data base in any event.

  • disenchanted

    Here’s a little quiz. If you are going to post a complaint on the SEC web site, which of the catagories would you pick to complain under?
    1. Financial Privacy
    2. Theft or misappropriation of funds or securities
    3. Other Fraudulent conduct
    4. Manipulation of a security’s price or volume
    5. other
    or All of the above

  • Bill

    Ran across something I didn’t know. The SEC is heavily unionized. This includes lawyers. Some SEC honcho wanted to arm SEC staffers with blackberries. The Union said OK, so long as they didn’t have to use them after 5 PM and on weekends. Like they’re actually going to use them during “working hours,.” No telling how much taxpayer money was squandered on blackberries that will be used for porn and online stock trading and other “personal” use. I say disband SEC and their Union and start afresh. The entire premise of public employee unions is absurd, and SEC is proof positive.

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