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What’s Really Going on at the SEC?

Posted by Larry Doyle on March 10, 2011 9:44 AM |

How do you view the local cops on the beat within your hometown? I recall fondly looking up to the ‘men in blue’ as a young boy in Boston. The general admiration and respect for our law enforcement back then certainly did not mean that there were not improprieties occurring. We should not be that naive. That said, the institution of law enforcement itself definitely commanded respect. Can we say the same for those enforcing financial regulations today? Regrettably the record over the last number of years shows significant shortcomings.

These shortcomings at the SEC were supposed to change under the leadership of Mary Schapiro.
The Wall Street Journal addresses this topic this morning in writing, Schapiro Defends Against GOP Fire,

“We’re looking forward to gathering more facts about the numerous management issues plaguing the SEC,” said a spokeswoman for Mr. Issa. “When Chairman Schapiro began her reign as SEC chairman, she promised to clean up this culture of mismanagement. The troubling Madoff case shows that the Schapiro has not, in fact, turned this federal agency around.”

While the SEC’s bungling of the Madoff scam continues to generate most of the attention, the evidence shows that the culture of lax oversight and remediation runs much wider than that. Our friends at the Project on Government Oversight expose this ‘keystone kops’ mentality and practice in a recent commentary, SEC’s Response to Inspector General Recommendations for Disciplinary Actions,

Employees at the Securities and Exchange Commission (SEC) are supposed to maintain “unusually high standards of honesty, integrity, impartiality and conduct” as they carry out the agency’s mission to protect U.S. investors. Yet the SEC’s Office of Inspector General (OIG) has uncovered many instances in which SEC employees have fallen short of these standards by giving preferential treatment to the SEC’s regulated entities, disclosing or trading on non-public information, retaliating against whistleblowers, and abusing their position of authority, just to name a few.

In cases of serious misconduct, the OIG often recommends that the SEC take disciplinary action against the employees and contractors who have violated federal laws and/or SEC rules. However, rarely do OIG investigative reports see the light of day, and whether they do or not, the SEC often drags its feet in implementing the OIG’s recommendations, or it ignores the recommendations altogether.

Additionally, POGO writes, SEC Failing to Hold Employees Accountable for Wrongdoing,

A POGO review found that of at least 98 SEC employees recommended for disciplinary action since 2008, only 11 were fired or removed from their contract. While many employees received lesser forms of discipline, the SEC took no action whatsoever in the case of 10 employees, many of whom the OIG found to have committed serious offenses.

“It’s hard for the public to have faith in the integrity of the SEC when the agency is so reluctant to discipline its employees,” POGO Executive Director Danielle Brian said. “Given the agency’s history of hiding and dismissing recommendations made by the Inspector General, it’s well past time for the SEC show it is serious about holding its employees and contractors accountable for misconduct.”

In order to enhance the public’s oversight of the SEC, POGO has created the following table with updated information on the SEC’s response to OIG disciplinary recommendations. The table incorporates information from Chairman Schapiro’s latest letter, as well as information from the OIG’s investigative reports and semiannual reports to Congress. We’ve also included direct links to any OIG investigative reports that have been released to the public through the Freedom of Information Act.

The POGO link highlights approximately 100 separate situations. What does the author of the POGO report have to say about the SEC?  Michael Smallberg is quoted in a New York Daily News article,

“The SEC is is overly deferential to the industry it is supposed to be regulating,” Smallberg said. “They are supposed to be the cop on the beat, and they are way to close to the people they are supposed to be policing.”

This movie, Wall Street-Washington Incest, aka Regulatory Capture, is finally getting increased attention by the public, the media, and our elected representatives. Thank you to POGO for its ongoing coverage and thank you now to the Daily News for picking up on this story.

When will the cops on the beat and those in Congress fully realize they are supposed to protect us, that is each and every American taxpayer, and not protect the industry they are charged with regulating?

Larry Doyle

  • peter sivere

    Hi – I was involved in requesting that the SEC OIG initiate what has become SEC OIG Investigative Report #501. It appears that the SEC OIG needs to focus on the Ethics Office. In my case, the defence of the SEC attorney was that William Lenox and the Commission stood behind him; this in total contrast of what the Report revealed. Third paragrpah from the bottom of the link. Maybe William Lenox knows what is goin on at the SEC…..

  • coe

    Cannot help but recall a favorite movie “Enemy of the State”, and the superb line spoken by Will Smith’s character’s wife, Carla Dean.. “Well, who is going to monitor the monitors of the monitors?” Clearly, LD, you have a laser-like well-earned focus on Schapiro – recall yet another interesting movie, “There’s Something about Mary” it just me or has the decline of respect for the men in blue (and frankly for all authority figures) been somewhat self-caused? Dare I say that the havoc wreaked by the malfeasance, ineptitude, self-dealing, and regulatory capture of the financial “men in blue” has been light years worse than anything that may have spawned a Knapp Commission back in the day..throw a few people in jail, and then let’s see how ethics reform takes root!

  • When will the SEC expose the real truth about the banks and CMKX Diamonds.

    go to


  • Regulatory capture

    Allowing top level people to work at the SEC then take jobs at law firms that represent the big Wall Street firms, then rehire them to ‘wet their collective wicks’ and then represent these mega Wall Street Banks once again is strengthening the grip Wall Street has on our regulators.

    Mary Schapiro was designated as the intended nominee to Chair the SEC by President Obama ten days after Madoff confessed and turned himself in. She came from FINRA where her leadership there failed to detect the biggest fraud in the history of the world yet somehow the President thought it was a good idea to put her in charge of the SEC who also failed to detect the biggest fraud in the history of the world. Harry Markopolos did detect the fraud and volunteered to run the SEC to turn things around but his offer was turned down.

    Orlan Johnson was the Branch Chief in charge of investigating Investment Advisors­ Madoff was an Investment Advisor during his tenure at the SEC. After Madoff confessed President Obama appointed him to Chairman of the SIPC.

    Linda Thomsen and Andrew Vollmer both resigned after claiming executive privilege and never did answer any questions of the Financial Services Committee on the failures of the SEC and are now partners at major Wall Street law firms.

  • Brian

    One thing I simply cannot find an answer to is whether Ms. Simona Suh, one of the crack team of investigators who dismissed all the Madoff evidence, either out of hubris, ignorance, or both, is still working at the SEC. Anyone know whether she was fired or finally left?

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