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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

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