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Archive for the ‘SEC’ Category

SEC Employee Discipline for Madoff Inaction Published

Posted by Steve Markowitz on November 14, 2011

The Wall Street Journal published what was previously withheld information about penalties handed out by the Security and Exchange Commission (SEC) for employees who ignored signals of the Bernie Madoff scandal.  That Ponzi scheme, which collapsed in 2008, involved $50 billion of investors’ money with billions being lost.  Considering the scope of Madoff’s rip-off and the SEC’s weak response to its incompetent employees, it is not difficult to understand why they delayed release of the disciplinary actions.

An 2009 internal SEC audit determined that the Agency had received six warnings about Madoff and his business practices over a 16-year period, but took no action.  It also raised concerns about the actions of 21 SEC employees who ignored signs of the scheme that resulted in the losses.  However, that audit’s report was not enough for this agency charged with protecting investors.  The SEC then engaged an outside law firm, Fortney & Scott, to suggest disciplinary actions for the  21 employees.  Before the studies were complete, about a dozen of the problematic employees left the SEC before being disciplined.  Eight were received relatively light discipline as follows:

  • The one employee that Fortney & Scott recommended be fired instead was merely suspended for 30 days without pay and was demoted.
  • Another employee received a 30-day suspension, but without a demotion.
  • One person received a 5.7% pay-cut.
  • A few employees received seven-day suspensions.
  • Two employees were given “counseling memos.”

It is unacceptable given the warnings ignored by the SEC over a 16 year period that led to a $50 billion Ponzi scheme that a total of only eight SEC employees were given these meager disciplinary actions.  Not one employee went to jail war was even fired.

The lack of accountability of government agencies and employees for incompetent and/or illegal actions is one reason governments are so dysfunctional.  We do not have to go back long in history to remember the Enron and Arthur Anderson scandal that resulted in the Sarbanes-Oxley Act (SOX).  This legislation created huge expenses for businesses and consumers, but did little to protect the investors.  Not only was Bernie Madoff able to perpetrate his fraud on so many investors after SOX, but the largest banks required taxpayer bailouts in 2008 because of off-balance-sheet transactions, the same issue that brought down Enron and led to SOX.

Government regulations have proven to be ineffective in protecting investors from those that would defraud them.  However, that does not stop Progressives from offering the same failed solutions.  The only people who benefit from increased government regulations are employees of the bloated and/or new bureaucratic agencies charged with enforcing them.

In addition, there is an incestuous relationship between regulators and the businesses they are supposed to be regulating.  All too often bureaucrats who worked in these agencies retire from government only to join the businesses they were previously charged with regulating, or vice versa.  These incestuous relationship that set the stage for SEC’s weak response to its incompetent employees.  Similar relationships explain why Bernie Madoff is one of the few Wall Streeter’s that ripped off investors who is currently doing time.


Posted in Bernie Madoff, SEC | Tagged: , , , , , , , | Leave a Comment »

SEC; Conflicts of Interest and Porn

Posted by Steve Markowitz on April 29, 2010

This past week two reports surfaced relating to the Securities and Exchange Commission (SEC) that once again indicate why the public should not count on the government for protection against greed and crooks.

Conflict of Interest

The SEC’s enforcement chief, Robert Khuzami, had a curious job prior to joining the SEC.  Mr. Khuzami was in charge of lawyers at Deutsche Bank AG who were involved with the development of collateralized debt obligations (CDO’s).  CDO’s are the financial instruments that were deeply involved in causing the financial markets’ meltdown in 2008.  Deutsche Bank was a major player in the CDO market and Khuzami and his team determined what details the Bank should disclose to potential investors.  This last point is precisely a key charge in the SEC’s current action against Goldman Sachs.  Smells fishy?  If it quacks like a duck ……

SEC and Porn

The SEC also announced that some of its employees were watching porn on “company” time and with SEC computers.  These were not isolated incidents:

  • Thirty-three people at the SEC were found to have looked at porn while on duty over the past five years.  Imaging how many they missed.
  • The perpetrators included 17 senior SEC employees earning between $99,000 and $222,000 a year.  The SEC refused to make public the names of the culprits.  Typical government attitude using covering ups.
  • One SEC employee, an attorney in Washington, D.C., spent up to eight hours a day watching pornography.  One strong libido, but not much on ethics.
  • Another SEC employee, an accountant, was denied access by the government firewall 16,000 times trying to access Websites with porn.  How dumb can he be?  And he’s working for us?

Just another example of incompetence by our government.


The remarkable part about these two SEC stories is not that the government hired executives with conflicts of interest or that employees aren’t doing the peoples’ work.  Humans have flaws whether they work in private industry or for the government.  No, what is remarkable is that every time private industry is shown to be flawed, the Progressives in Washington propose a new government agency to watch over them.  Using that logic we would need watchdogs for the watchdogs, a never ending circle.  Come to think of it, that is just what government does.

That raises an interesting question: Who does the oversight of Congress for the people?  Congress’s actions have proven that they demand oversight.  Possibly that is the role that the Tea Party will morph into.

Posted in Government Ineptness, Governmental Intervention, SEC | Tagged: , , , , , , , , , , , , | 2 Comments »