"A rare inside look at an enforcement case against Bear Stearns Cos. [BS] that was ultimately dropped highlights the sensitivity of the 'revolving door' between government and industry. In one of several scathing reports released in recent weeks, the [SEC's] inspector general said that a senior SEC official closed a long-running case against [BS] amid an 'ongoing personal relationship' with the lawyer representing Bear in the matter. ... While the inspector general 'did not find evidence of a direct connection' between the relationship and the decision to close the investigation, 'even the appearance of a conflict is disturbing and could potentially damage the reputation of the Commission.' The report recommends disciplinary action against [David] Nelson. ... In a statement, the SEC said 'the report does not cite a single instance of improper communication or undue influence.' ... The allegations illustrate the delicate dealings in industries where lawyers and others cycle between roles in government regulation and private practice. Many enforcement lawyers have left the agency for jobs representing clients in SEC cases. ... Still some SEC executives in Miami were 'stunned' at the decision, the report says. Jon Jordan, a Miami branch chief ... said he didn't complain because that 'would do nothing' for him but make his 'life miserable' and 'definitely would not help' his career at the SEC", my emphasis, Michael Siconolfi at the WSJ, 18 October 2008.
"[BS] improperly valued certain assets to avoid taking write-offs in 2007 as the credit crunch was beginning to unfold, according to the [SEC's] inspector general. ... Albert Kyle, a finance professor at the University of Maryland who conducted the review for the inspector general, said it was improper for risk managers to allow [BS] in effect to adopt two valuations for the same asset. ... The SEC's regulatory staff, which was responsible at the time for overseeing the firm's risk management, rejected the report's contentions. ... Charles Mulford, an accounting professor at the Georgia Institute of Technology, reviewed the report and said it 'raises a lot of questions.' Using different valuations for the same asset is 'improper accounting,' he said. 'Whether it rises to the level of fraud is for somebody with jurisdiction to decide'," Kara Scannell at the WSJ, 18 October 2008.
"The FBI is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country's economic crisis, according to current and former officials. ... According to previously undisclosed internal FBI data, the cutbacks have been particularly severe in staffing for white-collar crimes like mortgage fraud, with a loss of 625 agents, or 36 percent of its 2001 levels", Houston Chronicle, 19 October 2008.
"Serious questions"? Hahahaha! The SEC is a joke. Do lawyers other than NY Biglaw get regular access to senior SEC personnel? The SEC should give Linda Thomsen a new title, director of questionable practices concealment. Mary Jo White, again. She's everywhere. The SEC should adopt a new policy: log every contact made by NY Biglaw and have someone not associated with the SEC, like a prominent member of the plaintiff's bar investigate them. This looks like a job for, no not Superman, but Melvyn Weiss as soon as he's released from prison. Now that would please the Mikado's Lord High Executioner. I conclude SEC enforcement cases are almost invariably subject to political influence. Some relevant prior posts:
Potentially damage? Rigorous enforcement might end one's SEC career. Sounds like the major CPA firms.
Which other firms use Bear's valuation techniques today?
Perhaps the FBI should give up its "Palmer" raids and focus on serious crime.