The story of negligent oversight by the Securities and Exchange Commission (SEC) just gets better and better every day. Here is the latest Reuters dispatch on the matter:
Former U.S. Securities and Exchange Commission chairmen and directors were generally unaware that staff were probing Bernard Madoff until the former financier was arrested in December 2008 for running a $65 billion Ponzi scheme, a federal watchdog said in a report released on Friday.
The report underscores the disconnection between senior officials and their employees, who often lacked the experience necessary to follow up on leads and understand the magnitude of their investigation.
Former Chairmen Christopher Cox, William Donaldson and Arthur Levitt, former director of enforcement Linda Thomsen and former director of examinations and compliance, Lori Richards, did not play any "inappropriate role" in the SEC's probes of Madoff, according to the 457-page report released late on Friday before a three-day holiday weekend.
Two days ago, the SEC released a summary of the report, which accused the regulator of never conducting a competent probe of Madoff despite complaints dating back to 1992.
SEC Inspector General David Kotz found that the SEC missed numerous red flags and did not follow up on leads that may have uncovered Madoff's investment scam years ahead of his confession in December of 2008.
Among his criticisms, Kotz said SEC compliance managers and examiners assigned to a 2003 investigation of Madoff lacked "any particular expertise or experience."
Kotz recommended that current SEC Chairman Mary Schapiro take "appropriate action" to address performance failures by employees who still work at the agency.
The good news is that the SEC has an Inspector General who takes his work seriously, which seems to be more than we can say about most of the denizens of all the little boxes in the overall SEC organization chart. However, if this really is a case of excrement flowing uphill and the senior management is just as inept as the low-level drones, can we really expect the current Chairman to take "appropriate action" or, for that matter, to figure out just what "appropriate action" is?
Even in a situation as ludicrous as this one, I am sure there are many (Republicans?) who believe that the government should keep its nose out of financial operations. These days the nose they tend to have in mind belongs to New York Senator Charles Schumer. Nevertheless, you would think that even the too-much-government types would appreciate Schumer's proposal that the government stop funding the SEC in favor the SEC funding itself through the fees it charges. That even carries the "free market" connotation that any investment firm is free to decide whether or not it wants to pay for such oversight. If it decides not to do so, then it is basically hanging a big caveat emptor sign beneath its shingle. You would think that free market advocates would be perfectly happy to have anyone who gives money to such an organization pay for their folly. This, of course, presumes that there would be a critical mass of investment firms that would pay for this kind of "seal of approval;" so perhaps I am being too optimistic!