SEC under the microscope

SEC under the microscope

The dramatic failure of the Securities and Exchange Commission to perform its role as a protector of American investors and a guardian of fair and open markets is finally being questioned.

That it took the dramatic example of Wall Street figure Bernard Madoff’s $50 billion Ponzi scheme to focus the national attention on the SEC’s failures is both unfortunate and symptomatic of how lax the oversight has become. Not only was the SEC not doing its job, but the administration and Congress were not doing theirs in holding the SEC to a higher standard.

One of the first things the new Congress did was open hearings into the Madoff scandal. The House Financial Services Committee heard from victims of Madoff, people who lost their life savings.

SEC Chairman Christopher Cox has put the blame for not uncovering what Madoff was doing on the SEC’s career staff. Certainly it is of interest that one of the SEC’s attorneys assigned to examine Madoff’s operations in 1999 and 2004 is now married to Madoff’s niece. But that’s an anecdotal breakdown in SEC oversight; the SEC’s failure to police the marketplace under the Bush administration was more systemic.

A starting point

The Madoff inquiry is a good place to start. It is a case that captures the public’s attention and holds its interest. But Congress must use it only as a starting point to a larger inquiry into what went wrong and why in the banking, brokerage, insurance and mortgage industries.

From there, Congress can start taking a closer look at what could collapse next, and then a really close look at where the first $350 billion went in the Troubled Assets Relief Program, the Treasury Department’s bailout of the financial industry.

Putting the banks and bankers under as powerful a microscope as some in Congress demanded for the auto industry, which was seeking a small fraction of what had been given to banks under TARP, will make for some fascinating hearings. We can hardly wait.

And speaking of Madoff

We suspect there are a lot of criminals in New York City jails awaiting trial who are accused of stealing a lot less than $50 billion. Sending Bernard Madoff home under house arrest struck us as preferential treatment of the rankest kind.

A federal prosecutor has now made a convincing case for revoking Madoff’s bond and putting him behind bars.

It turns out that Madoff, who had been under a court order in another case to not dispose of his assets was caught mailing jewelry and other gifts to friends and relatives. Estimates of the value are as high as $1 million, but even if it turns out to be only a fraction of that, Madoff clearly cannot be trusted.

At best, the people Madoff fleeced will get only pennies on the millions of dollars they entrusted to him, but the government has a right and a responsibility to freeze every penny in Madoff’s control until the criminal and civil cases against him are concluded.