Financial Regulator Makes Itself the Target

You might think that after missing the Bernard Madoff scandal despite repeated warnings, going soft on the big banks and other questionable decisions, the Securities and Exchange Commission couldn’t get any more embarrassed.

You would be wrong.

By now you know just how lax federal authorities have been in holding any of the too big to fail bankers accountable for our economic meltdown.

The chief culprits in looking the other way on financial fraud are the Justice Department and the Securities and Exchange Commission.

But never fear, the Justice Department has leaped into action – to investigate the SEC itself for possible fraud!

Even if it doesn’t turn out to be actual criminal fraud, the mess the SEC got itself into is likely to undermine whatever remaining shred of confidence you’ve got in the troubled financial regulator and undermine its credibility.

The SEC’s latest debacle stems not from one of its investigations but from some internal agency business. It seems that agency officials signed a $557 million lease for office space it didn’t need and couldn’t afford in downtown Washington D.C. – without competitive bidding.

Among the gory details: the agency’s chief, Mary Schapiro, apparently approved the lease in a 10-minute meeting without asking any questions. Also, the agency’s inspector general found that a key document justifying the lease was dated a couple of days after the lease was made, but was actually created a month later.

When the SEC realized the Congress wasn’t going to fund it at the optimistic levels the agency had projected, SEC officials tried to back out of the lease and the owner of the office space demanded $94 million in damages.

Of course, congressional Republicans couldn’t be happier to find such ineptitude on the part of top Obama administration officials.

For Schapiro, the leasing fiasco is only the latest to raise serious questions about her leadership and judgment. Earlier, when the SEC finally did get on then Madoff case, she allowed the SEC general counsel to make crucial recommendations to increase how much Madoff’s victims would be compensated – even though the general counsel’s mother was among the victims. Schapiro told a congressional hearing that she knew of the general counsel’s personal Madoff link but allowed him to stay on the case.

When he appointed Schapiro in December 2008, President Obama praised her as “smart and tough.” She may well be. But in her performance at the SEC, she hasn't demonstrated it.

If President Obama wants to continue to signal that he’s in bed with the big banks, that he’s clueless when it comes to the notions of accountability and government ethics, and that government actually is just a cesspool of waste and incompetence, he should hang on tight to Schapiro.

But if he doesn’t, he should sack her immediately and find somebody who can do the job.

 

 

 

 

 

 

 

 

Martin Column / Securities and Exchange Commission (SEC) - 07/09/2011

Culture of Greed 1, Crackdown 0

When President Obama appointed his new chief of the Securities and Exchange Commission, he promised she would “crack down on the culture of greed and scheming.”

But that culture seems to be getting the better of Mary Schapiro after the resignation of her agency’s top counsel, amid allegations of questionable ethics.

That former top counsel, David Becker, is among those whose family actually made money from the massive frauds of Bernard Madoff.

As SEC general counsel, Becker recently argued for a change in policy that would have allowed his family to keep more of the fortune they made from Madoff, rather than turning it over to pay those who lost money.

Becker might have been considered a curious choice for a new tougher SEC, considering that during an earlier stint as a top SEC lawyer earlier in the decade, Becker was among those who failed to crack down on Madoff, despite highly publicized warnings.

Now Becker has decamped back to the corporate firm from where he came, leaving Schaprio, his former boss, sputtering about what she can and can’t say about what she knew about Becker’s Madoff investments and when she knew it.

This is, of course, catnip to the Republicans looking for any opportunity to embarrass the Obama administration. Never mind that they oppose any kind of regulation of the financial industry at all.

What a great gift Schapiro and Becker have handed Republicans: proof that the Obama administration’s promises to protect us from the “culture of greed and scheming” were nothing more than a sham. Meanwhile, Becker slams the swinging door in our faces and goes back to his real job – representing the interests of big banks and financial interests.

 

 

 

 

Around the Web / Martin Column / Securities and Exchange Commission (SEC) - 03/09/2011

One Would Hope

The head of President Obama’s Security and Exchange Commission went before Congress Wednesday to wring her hands about how the Lehman fiasco “raises serious concerns” about the effectiveness of post-Enron reforms.

“One would hope,” SEC chair Mary Schapiro told a congressional committee wanly, that the post-Enron Sarbanes-Oxley Act “would have prevented this kind of conduct.”

Eight years after Congress passed reforms that were supposed to prevent another Enron or WorldCom scandal, the Lehman mess reminds us how the government regulators and the accountants that are supposed to be vigilant watchdogs against destructive, deceptive bookkeeping continue to fail. They have remained in cahoots to ensure that the financial titans can ignore the rules and then evade the consequences for their bad and even fraudulent decisions.

According to the bankruptcy trustee’s scathing but sober 2,200 page report, Lehman used a financial maneuver known as Repo 105s, manipulating their financial reports disguise its bad debt from investors and the public as the company’s condition worsened before it finally went bankrupt, triggering the worst economic collapse since the Depression. The Repo 105 transactions secretly moved billions of dollars of debts off of Lehman’s books.

One would hope that President Obama and the Democrats would finally recognize  in the Lehman debacle that while Wall Street chieftains like Lehman CEO Richard Fuld may indeed be masters of a universe, it’s an alternate universe far from our own.

In that alternate universe, the bankruptcy trustee’s report detailing his company’s accounting shenanigans actually absolves Fuld of responsibility for his company’s demise. He told the New York Post the report showed he did nothing illegal.

After all, Fuld was CEO, way too busy to be bothered with details like how his company was hiding $50 billion worth of bad debt. In Fuld’s alternative universe, the Sarbanes-Oxley requirement that CEO’s sign off on the accuracy of their company’s financial statements didn’t apply to him.

In that alternate universe, when a court-appointed bankruptcy states that Fuld “was at least grossly negligent,” that amounts to getting a seal of approval.

Though Fuld’s company declared bankruptcy, his own fortunes did not suffer in any sense that someone forced to live in this universe, rather than that alternative one, would recognize as suffering. Between 2000 and 2008, he took home $484 million. He left with a $22 million retirement package. In fairness to Fuld, that’s a paltry sum by Wall Street standards for the head of a failed firm. By comparison, Merrill Lynch’s Richard Prince was paid $166 million before he left.

Also in fairness to Fuld, he was not the only one whose conduct was criticized in the Lehman report. But in Fuld’s alternate universe, when the trustee found that Lehman’s accounting firm, Ernst & Young, failed to show professional standards of care, that amounts to an award for public service.

In that alternate universe, the little people are just incapable of understanding why it’s better for Lehman to have concealed its debt to make the firm look healthier while it was in fact going down the toilet in 2008.

And taking a big chunk of our economy with it.

While I and most others who are not Richard Fuld find grounds for at least a thorough  criminal investigation rather than vindication in the Lehman trustee’s temperate prose, Fuld does have one point.

Everything that Lehman did to cook its books was done under the noses of federal regulators. So, Fuld insists that everything Lehman did was hunky-dory.

One would hope that the president and the Democrats would recognize that back here in the universe the rest of us live in, millions are suffering because of the deceit, arrogance and cluelessness of the bankers who seem to have escaped the meltdown with their wealth and power intact.

One would hope that if President Obama and the Democrats were serious about real reform, they would be making the Lehman report Exhibit One in an effort to discredit the financial lobbyists and their pals in Congress who are foiling efforts at sensible, robust regulation.

One would hope that the president and the Democrats would be determined to correct the mistakes of the past and not repeat them. One would hope the Lehman report would cure, once and for all, the president and the Democrats’ stunning lack of curiosity about how the financial industry blew up the universe we all live in. One would hope that the president and the Democrats wouldn’t find it acceptable to live in a universe where its masters aren’t accountable for their actions, but the rest of us are.

Executive Pay / Lehman / Martin Column / Securities and Exchange Commission (SEC) - 03/19/2010