Posts filed under “Legal”
JD: I expected there would be some criminal histories. There’s gonna be a few pot possessions and stuff like that. The law said that they were supposed to screen brokers for crimes involving fraud, dishonesty, and “moral turpitude”, which has a pretty broad definition. When I saw the first screen, and one of the first people was a bank robber. I said, “okay, how did a bank robber slide around that definition?”
TA: How many were prevented from getting licenses?
JD: Whenever the agency takes some sort of action against a broker or even an applicant, they have to file a final order, so we went back and looked through all the final orders for denial of licenses that mentioned fraud, dishonesty or moral turpitude. I forget what the number was, but I’m tempted to say twenty-nine from 2000 to 2007.
TA: They had the regulatory power to do this. What was the reason they didn’t? A big part of the problem on Wall Street and across the country has been this laissez-faire attitude toward regulation. Was it philosophy? What caused them to just not do their job?
JD: Nobody ever came right out and said on the record “Jeb Bush appointed us and he’s not a big fan of government, so we didn’t do it.” One of the more telling things that one of the higher-ups at the agency told me; he said “Look, my whole career has been spent regulating guys in silk suits. These mortgage brokers, they’re not bankers. They have little storefronts. Those are guys in polyester suits.”
He said that, and that kind of summed it up for me. These were kind of white-shoe regulators, and the mortgage brokers were, you know…
TA: They didn’t want to get their fingernails dirty.
Read the entire interview here.
Audit Interview: Jack Dolan
CJR, December 19, 2008 09:06 AM
What follows is the Harry Markopolos complaint to the SEC, circa November 2005, identifying 29 red flags that Madoff was a fraud. This highly detailed complaint was filed regarding the apparent Fraud at Madoff Securities. It was ignored by the Christopher Cox SEC, which was too busy concocting schemes to dismantle the SEC rather than…Read More
Today’s NYT (and Monday’s WSJ) each have articles which compare Madoff investors with those of recent $400 million dollar hedge fund fraud Bayou Group. I believe this misunderstands the applicable law of partnership, fraud, and investing. Hedge fund investors are limited partners, and as such, they have a fiduciary duty to their other partners. Regardless…Read More
With everyone tsk-tsking the Madoff scandal — the amount lost, the after-the-fact obviousness, the SEC incompetence — I thought now was as good a time as any to look at the actual research, due diligence and manpower thrown at investigating managers and funds. Not surprisingly, it is tiny — at least, when compared with the…Read More
Atkins was republican SEC commissioner from 2002 to 2008; Cox says SEC failed to act on allegations against Madoff; Investors lost up to $50 billion in Madoff’s alleged scheme; Analysis by Paul Atkins, Former SEC Commissioner
The Madoff Scandal – Interview with Former SEC Chairman Arthur Levitt
Here’s an excerpt from Bailout Nation, about a subject under much discussion today: The incompetence of the S.E.C.
Part IV: Market Failure
Chapter 14. Casting Blame
Over the course of two terms, Bush appointed three SEC Chairmen, each ill-suited for the position. It was a veritable parade of poor choices for the role of regulating stock markets. His first appointment, Harvey Pitt, was a securities industry defense attorney and was wholly unsuited to the position. Instead of representing the interests of investors, Pitt was an industry lapdog. Pitt pledged a “kinder and gentler” SEC just when the opposite was needed in the midst of a huge run of corporate misfeasance.
In an era of corporate accounting scandals, Pitt had close ties to the accounting industry. And for inexplicable reasons, Pitt met with the heads of companies under active SEC investigation. As a Wall Street lawyer, Pitt had “recommended that clients destroy sensitive documents before they could be used against them – advice that seemed to find echoes in the SEC’s investigations into Enron and its shredder-happy auditor, Arthur Andersen.” Pitt had to recuse himself from many of the SEC’s votes — they were frequently about the clients he had represented as a defense attorney. By July of 2002, Senator (and future GOP presidential candidate) John McCain was calling for Pitt’s resignation.
Pitt, not surprisingly, demoralized the agency. To investor advocacy groups, having Pitt as SEC chief was like putting Osama bin Laden in charge of Homeland Security.
The next SEC Chairman Bush appointed was William Donaldson. He is the one who allowed the net-cap rule to be exempted for the five biggest banks in 2004. Instead of 12 to 1 leverage, banks levered up 30 and even 40 to 1 after the waiver. It isn’t glib to say the financial meltdown was three times as bad as it might have been for Donaldson’s SEC agreeing to this waiver. It would be charitable to call his chairmanship undistinguished.
Here’s a question for you: What is the actual purpose of FoF ? In theory, they are supposed to do the due diligence, the forensic accounting, the deep background checks that ordinary investors cannot. Then once they identify a group of funds they want to allocate capital too, they are supposed to run the asset…Read More