How the SEC "Works"

Discussion in 'Wall St. News' started by flytiger, Nov 19, 2008.

  1. * Post deleted and rewritten below.
  2. New Post 11-19-08 07:55 AM

    As a quick primer, in Dec 2006, there was a Senate Judicial hearing that investigating the firing of Gary Aguirre, an SEC enforcement attorney. That hearing also resulted in a new SEC IG, whose findings against Linda Thomsen were dismissed about two weeks ago by an internal "judge" who has lifetime tenure. Specter accused the SEC panel, including Paul Berger, Aguirres' immediate supervisor, or perjury. I understand Aguirre is still after some justice, and it is a blockbuster. When you read this piece, ask yourself how we got the email. I don't know, but I can assume some very disgruntled insiders are whistle blowing. That 's a great thing. But ask yourself, what can you possibly do at the SEC to deserve this kind of money. I think then, you can better understand what has allowed us to fall into this morass.

    November 18th, 2008 by Mark Mitchell

    By some quirk of human psychology, it remains difficult for a certain segment of the population to accept the “deep capture” thesis – the notion that our nation’s regulatory bodies and parts of our media have been “captured” (at times, outright “corrupted”) by a powerful, moneyed elite. “No way,” we are told. “Maybe in Nigeria. Europe, sure. But to think it happens in America? That’s a conspiracy theory.”

    Yeah? Well, read this:

    <img src=""/>

    sec-email Email Illuminates “Deep Capture” of the SEC

    That is an email to Paul Berger, then the associate director of enforcement at the Securities and Exchange Commission. The author, a Washington lawyer, is referring to Ralph Ferrara, a former SEC lawyer who apparently managed to parlay his government service into mansions, maids and millions – by way of a plum position at a law firm called Debevoise & Plimpton.

    As you can see, the email was sent in January 2005, soon after the SEC had launched an investigation into alleged naked short selling, insider trading and other misconduct at Pequot Capital, a powerful hedge fund. That same month, the SEC’s lead investigator in the case, Gary Aguirre, was shut out of meetings in which the Commission’s top officials gave Pequot’s lawyers privileged information about the investigation.

    By the summer of 2005, some of the SEC’s top officials, including Paul Berger, were maneuvering to have the Pequot investigation whitewashed. When Aguirre tried to interview John Mack, formerly chairman of Pequot and then CEO of Morgan Stanley, he was told to lay off because Mack’s lawyers had “juice” with Berger and SEC Director of Enforcement Linda Thomsen.

    Aguirre complained about this in a formal letter to Berger. In response, Berger arranged for Aguirre to be fired – never mind that the SEC had just commended Aguirre for his “unmatched dedication.” At precisely the same time, Berger told Mack’s law firm that he was quite ready to leave public service, and that what he’d really like is to have a job at Mack’s law firm. The name of Mack’s law firm (the law firm with “juice”) was Debevoise & Plimpton – i.e., the same law firm whose multi-million dollar paychecks to former SEC officials had inspired that salivating email.

    Perhaps the lawyer who sent that email was merely updating Berger on his colleague’s career trajectory. I have no evidence that the lawyer was trying to influence Berger or the SEC. But the email is a good example of the kinds of conversations that occur with disturbing regularity at our nation’s market regulator. No doubt, those maids and millions were top of mind as the SEC’s associate director of enforcement considered whether he ought to bury an investigation into some serious crimes, fire the whistleblower, and simultaneously apply for a job at the alleged criminal’s law firm.

    In the summer of 2006, Aguirre wrote an 18-page letter to the U.S. Congress, blowing this scandal wide open. In this letter, Aguirre noted that his rank-and-file colleagues at the SEC believed that the naked short selling they were investigating had the “potential to seriously injure the financial markets.” So it was all the more appalling when–in November, 2006–the SEC leadership officially closed the investigation into Pequot. In doing so, the SEC said it had found no evidence of insider trading, but it said nothing about the far more serious charges of naked short selling and market manipulation.

    Two U.S. Senate Committees spent more than a year looking into this matter. In multiple reports (one more than 700 pages long), Senate investigators did not refer directly to “naked short selling,” but from their descriptions of “market manipulation” and “wash sales” (which are often used to hide naked shorts) it is clear that they believed that Pequot engaged in naked short selling, and that this crime did, indeed, have the potential to “seriously injure the financial markets.”

    The Senate concluded that everything about the case – the special treatment received by Pequot and Mack’s lawyers, Aguirre’s dismissal, Berger’s solicitation of Debevoise & Plimpton – was as seedy as can be.

    “At worse,” the U.S. Senate stated in one report, “the picture is colored with tones of a possible cover-up.”

    Last month – after naked short selling and other hedge fund tricks contributed to the biggest financial cataclysm since 1929 – the SEC inspector general issued a 191-page report confirming just about everything in the U.S. Senate reports. It is impossible to read these reports without concluding that this is the biggest scandal in the history of the SEC–a scandal that entailed a cover-up of precisely those same crimes that “severely injured” (or rather, nearly vaporized) our financial markets.

    The SEC leadership responded to the inspector general last week by assigning an SEC employee, who happened to be an administrative judge, but who had no jurisdiction and was not acting in her capacity as a judge, to issue a short document stating that the SEC was innocent – that nobody had acted inappropriately in the case of Aguirre and Pequot Capital. With this document in hand, the SEC announced that it had been “cleared” by “a judge” – making it sound as if there had been some sort of official, independent ruling.

    In other words, the corrupt SEC leadership tried to convince us that the corrupt SEC leadership would have the final say on whether the SEC’s leadership was corrupt. The cover-up continued. There was a time when the nation’s journalists would swarm on an abomination such as this. But, alas, there was hardly a peep from our media. Indeed, The Wall Street Journal and other publications helpfully reported that a “judge” had “cleared” the SEC leadership of wrong-doing.

    But this scandal is not under the rug yet. And it might grow in magnitude. In a civil case brought by Aguirre, a federal district court ruled earlier this year that the SEC is far from “cleared,” and that it must hand over thousands of internal documents pertaining to the Pequot investigation. The SEC has largely ignored the ruling, turning over documents with much of the relevant stuff blacked out, but it is doubtful that the commission will get away with this. Tomorrow, the court will hold a hearing at which the SEC will likely be ordered to hand over more documents – including those containing evidence of the “market manipulation” (read: “naked short selling”) that helped “seriously injure the financial markets.”

    Meanwhile, Paul Berger, the former associate director of enforcement who tried to bury this case, has been made partner at the law firm of Debevoise & Plimpton. I’d tell you how much he’s getting paid for his “juice,” but I hesitate to incite a citizen insurrection.

    * * * * * * * *
    Mark Mitchell previously worked as a writer for the Wall Street Journal editorial page, chief business correspondent for Time Magazine in Asia, and as the editor responsible for the Columbia Journalism Review’s online critique of business journalism. Send tips to
  3. The SEC's revolving intermingled door from low pay "SEC" to high pay "Corporate Legal Largesse" has been going on for many years and just gets worse and worse....

    When a SEC employees makes rank....they are happy because of what this means ....on the "real money side"....

    The SEC needs to be one of the many government based institutions.....and replaced with a different system.....It is no different than a third world police force supporting the drug trade...."It is the only way for them to make any money".....

    As I have proposed in previous posts....this involves a worldwide effort to promote a Worldwide Direct Access Exchange for all securities.....

    Boiler plate low cost entrants
    Boiler plate universal accounting
    A singular 24/7 internet based electronic "BATS-like" direct access system.....
    No account minimums...
    No Margin...but shares are 1x.2x.3x.4x
    All asset classes
    No more mutual funds/hedge funds....replaced by management shares...and are preapproved....all instruments on worldwide exchange....
    Universal costs....20 cents per 100 shares....
    Position size limitations versus size of market....
    Availability....any approved financial entity.....
    Information and reporting...boilerplate Wiki model....
    Policing...International Securities Monitor....Worldwide

    Simplified and effective...

    The GS, MS models are dead and not desirable....Their models are tainted as has been made clear by the antiquated corrupted model mentioned above....and their flaws are reflected in the current economic crisis.......

    It is high time that legalized insider trading and other contra-public tactics are put to a much needed change in the securities engine business model....worldwide....

    Trust and a much needed high level of public participation can be made possible by the establishing of the new worldwide securities exchange model.....

  4. SEC and its complicity in naked short selling is small potatoes compared to the money machine controlling Bush and Co.

    The entire republican machine is operating under "deep capture".
  5. Thanks for the news.
    Some people have a problem with authority figures;
    they think[wrongly] if they can find a flaw in a policeman, that means they get to speed through a school zone.

    No [zero ], repeat ,no/zero amount of regulation/regulators can ever take the place of personal responsibility.

  6. No, on two counts. Read the piece carefully. It's the first time that the Pequot thing is mentioned in naked shorting. When Aguirre hit that, they nailed him. First time we really saw that.

    Two, yes, Bush is complicit. But the dems are taking all the money. Dodd and Schumer are steering these guys thru the minefields.

    What I find very reassuring is, the public is catching on. These guys need to be crushed. And until you crush them, they will continue to destroy the rest of us.