The Blog Of The Securities Industry Professional Association

“Failed” Regulation??

How To Insult The American Public With A Smile On Your Face

Today the SEC Chairman Christopher proclaimed that “ The SEC Failed to Investigate and Probe Madoff”.  (Click here to read story).

While this might sound to some of you as a small act of contrition and public acknowledgement of his agency’s failings, this is really nothing more then a slap in the face of every American Investor and every decent Financial Advisor and Broker Dealer who has strived to be honorable and ethical in everything they do.

Let’s be brutally honest here: This is a systemic failing from the top of regulation to the bottom.  Madoff wasn’t a one time ponzi scheme that was started in a long island boiler room six months ago where the feds finally found out.  This was a ten year scheme in which both the SEC and the FINRA refused to investigate. 

Why?  Perhaps we should look at the Bear Stearns situation in which the Inspector General said the SEC was lax yet refused to bring charges against Bear Stearns and then even went so far as to drop all charges against them!!…Hindsight is 20-20 as they say…or maybe it isn’t? 

In 2005 Gary Aguirre of the SEC began investigating Morgan Stanly and its relationship with one Pequot Capital,. a Hedge Fund that had over 7 billion in assets and was run by the close friend of Morgan CEO John Mack. In 2005 Aguirre testified before the Senate Judiciary Committee regarding “Hedge Funds and Analysts: How independent is their relationship” But then Aguirre did the unthinkable:

He wanted to conduct an On The Record (OTR) with the CEO of Morgan Stanley, John Mack.  He was told NO WAY by every supervisor all the way up the chain, including one CHRISTOPHER COX .  A short time later Aguirre was fired. Later, he filed a wrongful termination suit and was vindicated in August 2007 by the inspector general.  Today this same person is claiming that his agency “failed” to investigate Madoff”?? 


“If A Bug Remains Un-Fixed For Long
Enough, It Becomes A Feature”

-Old Hacker/Programmer Addage

Would it have mattered if they did?  Based on past performance, the investigation would have stalled right around the time Examiners started asking for OTR’s with Bernard Madoff himself.  In fact, recent discoveries have found that Madoff kept two separate books for his Fund and may have given fake and or doctored books to the Examiners – but nobody ever required him to justify or prove his numbers.

The SEC is also responsible for allowing the merger of two regulators into a single regulator now known as FINRA.  In fact, the SEC was so brazen about wanting only one regulator that NASD spokespeople regularly commented that “the Chairman of the SEC has said that if we do not merge with NYSE regulation then he will step in and do something”.  For some reason the SEC wanted “streamlined” regulation that would take away two sets of Self Regulatory eyes and replace them with one. We see how well that has worked out now don’t we?

So here we are now several years down the road and Wall Street is a giant mess of unethical and criminal activity and we are supposed to feel good about Chairman Cox saying his agency failed?  This is like George Bush coming forward now and saying “Maybe I should have relied on different information regarding weapons of mass destruction”. 

So what? It’s too little, too late and quite frankly its insulting to those of us in the know who have been following this All boys Club on Wall Street for the last 20 years.  The time is now for a new Regulatory system and a new way of thinking.  Join us in demanding an overhaul of the SEC and a reorganization of Self Regulation.  Please join our think tank of Brokers, Financial Advisors, B/D owners and Financial Professionals who are seeking meaningful change ..not more of the same “look the other way when its Wall Street Elite” mentality.

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