In one of the most stunning displays of arrogance and incompetence rolled into one, today’s hearing before the US House of Representatives Financial Services Committee has to be seen to be believed. Naked Capitalism caught the most telling moments with links to the video here.
The gist is that the SEC was warned in specific terms by an independent investor that the Bernie Madoff ponzi scheme was underway but somehow could not find sufficient evidence to pursue an enforcement action. One of the SEC’s compliance attorneys left the agency and then married Shana Maddoff, Madoff’s niece! (See ABC story here.) The attorney, Eric Swanson, has only said through his current employer that while at the SEC he did not have anything to do with the Madoff case once his relationship with Ms. Madoff began. Ms. Madoff worked for her uncle Bernie’s firm as, wait for it, his “compliance lawyer.”
The New York Times, for once, has a good story that makes clear that Swanson was involved in SEC investigations that implicated the Madoff family, including a three investigation of a firm in which the Madoff firm had invested. It was during that period that Mr. Swanson first met Ms. Madoff, though they allegedly did not begin a romantic relationship until a year after that investigation ended.
Still no alarm bells made their way to the SEC’s 5 member Commission to reconsider the investigation of the larger Madoff ponzi scheme. Today the General Counsel of the SEC, Andy Vollmer, invoked “executive privilege” in order to refuse to answer Congress’ questions. He indicates in an exchange with the committee that the SEC’s Commission approved his exercise of the privilege, at least implicitly.
But one comes away with the distinct impression that he was making this up as he went along under the relentless questioning from the committee, including a tongue lashing from Cong. Ackerman (D-NY), the likes of which I have not seen since Tom Lantos skewered Yahoo CEO Jerry Yang for his company’s role in aiding the Chinese government investigate a dissident. No doubt Vollmer, if not the head of the SEC’s Enforcement Division Linda Thomsen will also quickly exit the stage of public service.
Unfortunately the new head of the SEC, Mary Schapiro, does not inspire confidence. She is a product of the same regulatory culture that has bred such lassitude at the SEC. The same whistleblower who brought the head of Madoff to the SEC on a platter, testified that her former entity, the self regulatory organization known as FINRA, was “very corrupt.”
My candidate to Chair the Obama era SEC? U.S. Attorney Patrick Fitzgerald.