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Pull Down the SEC!
PULL DOWN THE S.E.C!
By Wayne Jett © September 3, 2009
    That Bernard Madoff’s multi-billion dollar fraud flourished for many years under the nose of the Securities & Exchange Commission is a powerful indictment of the SEC as a complicit handmaiden of Wall Street corruption of enormous scale. The SEC Inspector General, who is supposed to be autonomous but strangely must submit his reports directly to the agency he is required to watchdog, has been investigating how this so-called specialty regulator managed to miss such rampant fraud for so long.
    On September 2, the SEC released an “executive summary” of 22 pages signed by the IG David Kotz August 31.  Its concluding statements are: “despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff’s trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme. Had these efforts been made with appropriate follow-up at any time beginning in June of 1992 until December, 2008, the SEC could have uncovered the Ponzi scheme well before Madoff confessed.”
Schapiro Lauds “Expertise and Dedication”
    The SEC’s new chairwoman Mary Schapiro responded to the Inspector General’s report (450 pages to be released by the SEC “in the coming days”) by admitting “failure we continue to regret” in doing nothing to stop Madoff in five investigations over two decades. She said operational reforms have been made and promises more, and then ended with an obligatory expression of admiration for “the expertise and dedication of the men and women at the SEC….”
    The IG stacks into the first paragraph of the Executive Summary his concessions that he found no direct proof of corruption by SEC officials or staff in handling of the Madoff investigations. This should not be viewed as exonerating anyone. A law enforcement apparatus with expertise in failing to discover fraud in a regulated firm may be equally expert at hiding evidence of corruption in its own ranks. Already one former SEC staff member, Genevievette Walker-Lightfoot, who worked on investigating Madoff says she recommended more questions and follow-up, but was ignored by higher officials and her team was transferred to another case.
SEC Created to Shield Corruption
    As a matter of historical fact unknown to most Americans, the SEC was created in 1934 for the corrupt purpose of shielding major financial criminals from prosecution. This is why the agency is administered by five politically appointed commissioners. This is why those commissioners are given authority to make rules regulating practices in the financial industry. This is why Congress gave the SEC discretion to investigate fraud or to refrain from doing so. This is why Congress still gives the SEC discretion to refrain from presenting its evidence of financial fraud to a U. S. Attorney for criminal prosecution.
    This is the sad and cruel ruse pulled on the American people by the Congress and the President (Franklin Roosevelt) who created the SEC and placed Joseph P. Kennedy, Wall Street’s most notorious manipulator, as its first chairman. Kennedy stayed in the chairmanship 14 months, just long enough to hire the SEC’s first staff. After putting kindred spirits at the agency with discretionary powers, Kennedy could be certain he and his cohorts would not be touched.
    How many more decades must Americans accept hollow rhetoric in place of honest and effective enforcement of laws regulating practices and punishing crime in the financial industry? Congress ought to act immediately to strip the SEC of its power to ignore financial crimes, and should close the revolving door between the SEC and Wall Street’s big players which makes cronyism so lucrative for those dealing in graft.
    With the latest rendition of Wall Street figureheads occupying chairs at the SEC admiring the “expertise and dedication” of staff who successfully avoided finding or stopping a major financial swindle delivered to them on a platter, the U. S. position in international eyes is far worse than laughable. The scandal of corruption in U. S. government and financial markets is so well known it is palpable everywhere except in U. S. “mainstream media” dominated by Wall Street influence.
Schumer: SEC Should Eat What it Kills
    Americans will be denied justice again in 2009, as they were in 1934, unless they find a way to overcome Wall Street’s grafters in Congress. Always first to the rescue whenever Wall Street’s vital interests are at risk, Senator Charles Schumer (D-NY) immediately responded to the IG’s Executive Summary with an announcement of his own grand design to protect the interests of ordinary investors. Schumer says the SEC should be turned into a “self-funding” agency that generates its own revenues from fines and penalties rather than depending upon Congress for appropriations. This, Wall Street’s senator says, will turn the SEC into a vigilant, ravenously aggressive agency which will hunt down fraud so it can feast on the bounties.
    The SEC already uses its power to fine wrong-doers in ways more damaging than beneficial to retail investors. For example, Bank of America officials recently closed its deal to acquire Merrill Lynch without telling its shareholders Merrill would pay $5.8 billion in bonuses to its employees out of company treasure. In settling its investigation of BAC, the SEC proposed to fine BAC $33 million, which would do nothing to the executives involved but would damage shareholders further.
    A federal judge in Manhattan has objected to this SEC conduct, quoting a 2006 statement of policy by SEC to go after offending actors who violate securities rather than firms owned by public investors. He also notes that the SEC let the BAC execs go unpunished because they raised a defense that they relied on advice of counsel but still asserted confidentiality of attorney-client communications.
    This is truly preposterous to anyone familiar with the attorney-client privilege. Raising this defense effectively asserts the content of attorney-client communications, and doing so amounts to a waiver of the confidentiality privilege. The premise that telling a court “I acted as I did because my attorney advised me to do so” must automatically be accepted as true and may not be investigated because client communications are confidential is laughable! Yet this is conduct typical of SEC political machinations. The federal judge ordered the SEC to justify its conduct by September 9, so whether the court will  prevent the SEC from doing as it wishes remains to be seen.
   Is a more vivid illustration of the SEC's perpetual readiness to sacrifice interests of ordinary investors to achieve other ends? Following Schumer’s desire to fund the SEC with its fines would encourage use of SEC power to ravage productive businesses and small investors, while doing zero to require prosecution of major Wall Street fraud. Congress should pull down the SEC shield protecting Wall Street’s elite so middle class investors will not be required to do so directly. ~