Posts Tagged ‘Christopher Cox’

Too Little, Too Late Department: SEC Offers Mea Culpa on Madoff Flop

December 17, 2008

Yesterday morning, I posted a story saying that the Bernard Madoff scandal represented a new low point for the U.S. Securities and Exchange Commission, underscoring the need for fresh leadership at this small yet critical federal agency.

Last night, I was happy to see that the leader of the agency, chairman Christopher Cox, has recognized the failures of his leadership and of the organization he leads by putting out a press release with the bland title, “Statement Regarding the Madoff Investigation.” It should have been titled, “Statement Regarding Our Failure and Abdication of Our Responsibility.”

“The Commission has learned that credible and specific allegations regarding Mr. Madoff’s financial wrongdoing, going back to at least 1999, were repeatedly brought to the attention of SEC staff, but were never recommended to the Commission for action,” wrote chairman Cox. “I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them.”

Although it’s too little and too late, chairman Cox has now ordered a “full and immediate review of past allegations regarding Mr. Madoff and his firm and the reasons they were not found credible, to be led by the SEC’s Inspector General.”

One potentially explosive issue is that the SEC may have reined in its investigation of Madoff due to a serious conflict of interest. One of the SEC’s investigative teams was led by a lawyer named Eric Swanson–the husband of Shana Madoff, a niece of Bernard Madoff and daughter of his brother Peter Madoff, the firm’s chief compliance officer. A New York Times story delves into the issue.

This may explain why the SEC NEVER used its subpoena power to obtain information about Madoff. Rather, it relied on information voluntarily produced by Madoff and his firm, information we now know that was full of lies.

Trying to understand your mistakes makes sense because it may help you avoid making the same mistakes in the future. But instead of making such a big stink about investigating past failures, I think the public would be better served if the SEC told us it was putting most of its power and resources behind uncovering the next big fraud–or making sure another one doesn’t happen.

Who Should Obama Appoint to Head the SEC?

December 16, 2008

The Bernard Madoff scandal is the last straw for the existing leadership of the U.S. Securities & Exchange Commission.

That the SEC was warned repeatedly about Madoff, and even conducted several inquiries into his firm, but did not uncover the massive fraud proves that the important agency needs a major overhaul.

SEC chairman Christopher Cox has proved to be an ineffective leader, to say the least. Most famously, Cox assured investors nine months ago that Bear Stearns was fine. It collapsed three days later.

It gets worse. According to a story by Stephen Labaton in today’s New York Times, the SEC has been plagued by some pretty shady behavior, including botched investigations and “accusations that several SEC employees have engaged in illegal insider trading and falsified financial disclosure forms.”

This is unbelievably appalling! The agency tasked with enforcing securities laws is allegedly breaking those very laws! Check out this link to the reports of the SEC’s inspector general.

Many people don’t realize this but the SEC was created as a result of the 1929 stock market crash and related financial shenanigans. The main reason for the creation of the SEC in 1934 was to regulate the stock market and prevent corporate abuses relating to the offering and sale of securities and corporate reporting. Sounds relevant today, no?

In fact, a strong regulator overseeing financial markets is more important than ever in today’s complex, fluid and interconnected global economy.

So who would be an ideal leader to overhaul the agency and take it into the future?

I am not sure. But I think we need someone with same gravitas and experience like past SEC chairman Arthur Levitt, who ran the SEC from 1993 to 2001 and was widely credited with upgrading the agency and serving as a strong advocate and protector of investors.

Although chairman Cox is a smart guy with law and business degrees from Harvard, I think experience has shown that he did not have a full understanding of today’s financial markets. So whoever gets the job needs to have a lot more experience working on or with Wall Street.

I am throwing out a few ideas here just to get the conversation started:

John Thain, former CEO of Merrill Lynch
Warren Buffett, investing legend
Joel Seligman, leading scholar of SEC and president of University of Rochester
Lynn Turner, former chief accountant of the SEC
Laura Unger, former SEC Commissioner and Acting Chairperson of the SEC