Sunday, January 16, 2011

The SEC as a Joke, Edition 2,387,889

While the SEC continues to pursue a multitude of headline grabbing cases involving the non-crime of insider trading, exclusively of those who are not regime connected, real financial crime goes unchecked by the agency.

Using the same blueprint of the NY branch of the SEC, which failed to catch Bernie Madoff's scam, the Los Angeles branch of the SEC missed several red flags and failed to uncover an alleged $550 million Ponzi scheme run by Westridge Capital Management that lasted more than a decade, according to the SEC inspector-general.

A report by SEC inspector-general David Kotz found that SEC examiners in its Los Angeles office missed “a significant opportunity” to uncover the alleged scheme in 2005 and failed to conduct a “competent” examination of the investment adviser.

Examiners “had in their hands evidence of potential fraud, but did not take the basic steps necessary to investigate the matter further,” the report found.

Bottom line: The bad guys always have incentive to capture the supervising government agencies, and some of them do. The key is to abolish the useless SEC and leave investigations to the private sector. Private sector investigations would come at a Ponzi operator from a hundred different directions and make it impossible for the bad guys to capture the entire industry. SEC operations simply suffocate the development of such operations through a combination of regulations and the development by the SEC of misplaced confidence by investors in the agency.

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