Forgiving The SEC

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SEC chief Christopher Cox admits that the agency bungled the Madoff matter. He says that the agency received warnings as early as 1999. For some reason those warnings did not make it from the staff level to the commission. That mistake may have bought Madoff an extra seven or eight years.

Cox also began the customary witch hunt. Those who missed the signals about the fraud must now face dismissals or public floggings.

According to The Wall Street Journal, "The review will include whether relationships between SEC officials and Mr. Madoff or his family members had any impact on the agency’s oversight."

The public is to believe that there is a conspiracy going on in the shadows of the agency. People married to other people helped cover up Madoff’s actions. Perhaps there were millions of dollars of bribes paid to important officials who took the money to build new vacation homes and buy expensive cars.

Probably not. A look at what has been required of the agency over the last decade is at least a partial explanation for its incompetence. The SEC has been forced to work with the Justice Department and state attorneys general to look at everything from the Bernie Ebbers fraud at Worldcom to the internet research scandal on Wall St. to the options backdating problems at tech companies. Each investigation took thousands of man hours by attorneys not skilled enough to become partners in major law firms. Dunces in suits.

Going back to Arthur Levitt and Bill Donaldson, old Wall St. hands who headed the SEC, the agency has said it was underfunded and poorly staffed. It has also been dragged from pillar to post to handle one crisis in the corporate and financial community or another. The SEC has been an organization of incompetents who have been too busy to handle even a modest amount of the ground that is their jurisdiction. And, Madoff fooled a lot of people with more brains that the agency has.

The SEC walks up Capitol Hill each year to ask for more money. Each year Congress tells it to take a hike. The Madoff disaster may belong in part at the agency’s feet but there is a lot more blame than that to go around.

Douglas A. McIntyre