More Power Centers at the SEC: The Wolves Will Be Roaming

One of the charming facts of the Chrsitopher Cox incompetency years at the SEC was that he was real good and creating burauratic infrastructure which slowed down and eliminated a lot of harrassment of Wall Street by the SEC.

Now that the clueless Mary Schapiro is in charge, she is listening to her hungry staff for clues. She admits this in a recent speech:

In speaking to our enforcement staff, I’ve been told that these [Christopher Cox]special procedures have introduced significant delays into the process of bringing a corporate penalty case; discouraged staff from arguing for a penalty in a case that might deserve a penalty; and sometimes resulted in reductions in the size of penalties imposed.

Following the advice of her staff, she is ratchtiing up the power of her staff big time:

At a time when the S.E.C. needs to be deterring corporate wrongdoing, the penalty pilot sends the wrong message. The action I am taking to end the penalty pilot is designed to expedite the commission’s enforcement efforts to ensure that justice is swiftly served to those public companies who commit serious acts of securities fraud.

Another immediate change I am putting in place to bolster the S.E.C.’s enforcement program is to provide for more rapid approval of formal orders of investigation — the permission slips given out by the commission that allow S.E.C. staff to use the power of subpoenas to compel witness testimony and the production of documents. When I was a commissioner, formal orders were routinely reviewed and approved within a couple of days by written approval of the commission or by “duty officer” — a single commissioner acting promptly and on behalf of the entire commission.

Today, however, many formal orders of investigation are made subject to full review at a meeting of all five commissioners, necessitating that they be placed on the calendar sometimes weeks in advance. In investigations that require use of subpoena power, time is always of the essence, and every additional day of delay can be costly. To ensure that subpoena power is available to S.E.C. staff when needed, I’ve given direction for the agency to return to the prior policy of timely approval of formal orders by seriatim approval or where appropriate, by a single commissioner acting as duty officer.

Schapiro is creating the opportunity for individual enforcement agents to create their own feifdoms, for harrasment, shakedowns and who knows what kind of corrupton. SEC harrasment of corporate America is going to increase dramatically under Schapiro. Of course, this will do nothing to stop the real bad guys of Wall Street becasue they are way, way ahead of Schapiro and SEC enforcement agents. They always have been. No further proof of this fact is needed then the news that the former head of the New York branch of the SEC invested his mother's money with Bernie Madoff.

Former Director of the New York Branch of the SEC Invested With Madoff

In a remarkable single spaced 162 page document, filed with the U.S. Bankruptcy Court in Manhattan, Bernie Madoff's victims are listed---thousands of them, including many doctors and CPA's, and the baseball great, Sandy Koufax, part of a famed medical clinic, the Mayo Foundation, the consulting firm, McKinsey & Company, and Ira Sorkin, who formerly headed the New York branch of the SEC from 1984 to 1986 (Madoff's scam likely started in the 1970's, but was certainly in full operation during Sorkin's watch). Sorkin is currently Madoff's lawyer. Sorkin also appeared to supervise the account of Rosalie Sorkin, his late mother, who also had funds with Madoff. (Madoff sent his reports on Rosalie's "investments" to Ira's office.)

Now, explain to me again how expanding the SEC under the clueless Mary Schapiro is going to help fight fraud, when the semi-sophisticated Sorkin fell for Madoff rap, hook, line and wallet.

Madoff's rip off of Sorkin's money is an object lesson in the how bad guys get in to the heads of regulators.

As for Schapiro, word is out that it is the SEC lifers that are getting into her head. They have smooth talked her into everything but running the office from Honolulu beaches. But rest assured, somewhere in the dark, the bad guys are circling Schapiro. She'll never see them coming.

The Fish Are Really Beginning to Stink in the Lehman Non-Bailout

Last week came news that GW's cousin George Herbert Walker was able to buy the crown jewel of Lehman, Neuberger Berman on the cheap for $1.2 billion with no money down.

Today, NYT's Ira Ross Sorkin is breaking news of some activities at the time of the bankruptcy that can't seem to be properly squared by Hank Paulson and company:

In the early hours of Sept. 15, after the government refused to rescue the foundering Lehman Brothers, something odd happened. The Federal Reserve lent tens of billions of dollars to a subsidiary of the newly bankrupt bank.

In other words, government officials who had refused to risk taxpayers’ money on Lehman before it collapsed did just that after it collapsed.

On Monday the Fed lent the Lehman unit $87 billion through JPMorgan Chase. After being repaid on Tuesday, it lent another $51 billion — putting the bailout, arguably, in the same league as the initial $85 billion bailout for the American International Group.

This mystery loan is just one piece of the larger Lehman puzzle. Who lost Lehman? Why, and how? Three months later, those questions still nag...

...no one, least of all government officials, has fully explained why Lehman, one of the grand old names of Wall Street, was allowed to fail while so many others were rescued...

he recently disclosed documents detailing the Fed’s loan to Lehman’s subsidiary cast some light on a failed effort to prevent Lehman’s implosion from cascading through the financial system.

The loan, according to these documents, was a “carefully thought-out decision” to stabilize the market by propping up Lehman’s broker-dealer business, called LBI New York, so it could stay afloat long enough to “facilitate an orderly wind-down” of tens of thousands of trades with the other Wall Street firms. The unit was kept out of the Lehman bankruptcy.

That might seem like a reasonable explanation. But Henry M. Paulson Jr., the Treasury secretary, and Ben S. Bernanke, the chairman of the Fed, have said that they did not have legal authority to lend any money to Lehman. The firm, officials said, did not have enough collateral.

“We didn’t have the powers,” Mr. Paulson insisted. He also said Lehman’s bad assets created “a huge hole” on its balance sheet, adding that he had actually tried to find a way for the government to provide money to help support a deal between Lehman and Barclays, but legally could not. His explanation has evolved over time, however. He told reporters the day after Lehman went bankrupt: “I never once considered that it was appropriate to put taxpayer money on the line in resolving Lehman Brothers.”...

Whatever the case, the Fed’s loan to the Lehman subsidiary makes all these explanations increasingly hard to square. Mr. Paulson said Lehman had lacked the collateral for the government to backstop a deal between Lehman and Barclays. But then the Fed turned around and lent a Lehman subsidiary billions, based on that same collateral.

Bottom line, Hank Paulson did not like Lehman and so he took it down. The payoff to the Bushies, so that they would go along, was Neuberger Berman, no money down.

(HTnick)