Friday, October 10, 2008
Chris Cox: Deaf, Dumb, Blind, Criminal, Or All Four?
"The [SEC] missed 'numerous potential red flags' leading up to the shotgun sale of Bear Stearns Cos. [BS], and failed to require the investment bank to reign in its risk taking, according to a scathing report from the agency's inspector general. Inspector General [IG] David Kotz said it is 'undisputable' that the SEC 'failed to carry out its mission in its oversight of [BS]. ... In 2006, the report says, the SEC staff 'identified precisely the types of risks that evolved into the subprime crisis in the U.S. less than one year later.' Yet the agency's staff 'did not exert influence over [BS] to use this experience to add a meltdown of the subprime market to its risk scenarios,' the report says. ... 'These reports could be nails in the coffin for the agency,' said Jacob Frenkel, a former SEC enforcement attorney who is now at Shulman Rogers. ... Under Mr. Cox, SEC enforcement cases have stalled, according to current and former SEC employees, in part because the agency's staff has been asked to jump through additonal red tape before an enforcement case is finalized. ... [T]he SEC conducted in-depth reviews for only six of the 146 brokerage firms registered with the agency. ... In the [BS] report, the [IG] report faulted the SEC for allowing internal auditors at [BS], not external auditors who would presumably be more objective, to perform 'critical' work in reviewing the firm's risk management", Kara Scannell, at the WSJ, 27 September 2008.
I wonder if the Big Five were the other firms reviewed? More came out of the IG's report than I expected. That said, IG Kotz, you can now investigate: Lehman, Morgan Stanley, Goldman and Merrill. Why not go further Kotz, suggest some SEC Commissioners be indicted as accessories after the fact to securities fraud or for obstructing the operations of a federal agency? I've posted on this topic before, 27 April 2008, http://skepticaltexascpa.blogspot.com/2008/04/justice-is-blind-and-dumb-too.html.