The Sixth Estate

My last installment on the Project on Government Oversight’s new dump of Inspector-General reports on the Securities and Exchange Commission (SEC) involves Bear Stearns. Once again, this is a report which the Inspector-General decided not to publish on its website, presumably because it contains embarrassing contents.

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Recently, I’ve explored issues of dubious investigations at the Securities and Exchange Commission (SEC), the American law enforcement organization charged with enforcing stock trading laws — a job it seems spectacularly bad at, or maybe deliberately bad at.

Another example of this can be shown in the pair of reports issued by the Office of the Inspector-General surrounding the Ponzi scheme operated by Texan billionaire Allen Stanford. Stanford’s scheme was valued at $8 billion, which is enormous but still dwarfed by Bernie Madoff’s far larger scheme. Incredibly, the OIG documents (here and here) reveal that the SEC knew about Stanford’s crimes for years, before finally taking action in 2009. Stanford is now before the courts, being represented by the same lawyer who once defended Iran/Contra criminal Oliver North.

Stanford’s scheme involved CDs (known in Canada as GICs), which both large investors and ordinary Americans sunk their life savings into. In this case, I really do mean “sunk.”

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One of the most phenomenal aspects of the stock market mayhem of the past two years was the discovery that the American Securities and Exchange Commission (SEC) is one of the most inept law enforcement organizations in the country. There have still been virtually no prosecutions or lawsuits, despite evidence of massive fraud. Despite large amounts of evidence being presented to them by concerned outsiders, the largest fraud in history, that of Bernie Madoff, was similarly missed.

The SEC possesses an outside oversight body, an Inspector-General, who monitors the organization, identifies wrongdoing, and makes recommendations for improvements. Most of the reports are public and unclassified, and most of them even (used to) appear on the organization’s website. Curiously, however, not all of them do. In fact, some of them were even removed from the website, according to the Project on Government Oversight (POGO).

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Recently I reported on a batch of reports the Project on Government Oversight recently acquired, dealing with how the U.S. Securities and Exchange Commission (SEC) completely failed to properly enforce American trading laws in the lead-up to the 2007-2008 credit crisis.

The reports also identify some disturbing internal misconduct within the organization — which helps us understand why they weren’t so worried about misconduct by outsiders. In 2008, for instance, the organization investigated two of its in-house employees (known only as Employee A and Employee B in the uncensored report) for illegal insider training:

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