"The Inspector General of the [SEC] has provided suggestions on how the agency might improve its chances of catching the next Bernie Madoff. The report has an all-too-familiar-ring. Whenever a new financial scandal erupts the finger-pointing begins: Who knew what when, and why didn't they do something? ... In each case, the SEC's hybrid role as regulator, inspector and enforcer made it particularly difficult for the agency to explain why it came so late to the game. Often adding to its embarrassment in the discovery that someone had been pestering the SEC about the abuse it didn't uncover on its own. Whistleblowers told the agency that no money manager can really get a 10% return every year in perpetuity, that securities built from leveraged real-estate plays may prove problematic, and that no company can book billions of dollars in sales from products no one seems to buy. ... To reflate trust in the post-Enron stock market, Congress stuffed the Sarbanes-Oxley Act with protections for those who know how to out their lips together and blow. ... The IG said the problems include a lack of technical knowledge by line attorneys and many supervisors, little institutional memory for the enforcement staff to draw upon, and weak support from the SEC's other divisions. These are indeed persistent problems--so persistent that some skepticism is warranted that the IG's procedure-heavy recommendations will, in themselves, improve the SEC's investigative performance. ... The safeguards however, can quickly turn into new kudzu, doomed attempts to substitute institutional process for individual judgment. ... From my experience, however, the slush pile of unsolicited investor complaints yields few hits. ... Unfortunately, few of these professionals have any incentive to talk to the SEC. Corporate whistleblowers are often rewarded with a pat on the back followed by a shove out the door, Sarbanes-Oxley notwithstanding. ... And, unlike the criminal authorities, the SEC has no mechanism for giving a free pass to informants, although it's currently considering a move in that direction. ... That leaves short-sellers. ... Almost any public squaring-off against a company by short-sellers (or, for that matter, by journalists or analyst firms) invites a lawsuit. ... The Enforcement Division [ED] hires young lawyers who are smart and hardworking, but devoid of industry experience. ... They need all the help they can get, and the SEC should encourage industry professionals to volunteer information routinely. Additional examination of the tips that bounce into the agency is not enough", my emphasis, Richard Sauer (RS) at Barron's, 23 November 2009, link: http://online.barrons.com/article/SB125875977157458161.html.
My experience dealing with the SEC is that it's worse than TD thinks. The SEC's "neophyte lawyers" (NL) are mostly interested in who is the "relator". If the relator is a nobody and the complaint is about a potential employer, they jump through hoops to ignore the obvious. The NLs are primarily interested in filling up their rolodexes while on the public payroll. I would prefer an SEC that was merely incompetent to today's SEC. Substance vs. form at the SEC? Hahahahahahaha. The SEC's IG needed consultants too! Most SEC investigations are a waste of time. See my 9 December 2008 post about SEC success stories: http://skepticaltexascpa.blogspot.com/2008/12/linda-thomsen-please-go-home.html.