April 23, 2010 12:09PM

SEC Incompetence

There has been much speculation that the Securities and Exchange Commission (SEC) released its charges against Goldman Sachs on the eve of a Senate vote on new finance regulation in order to help Democrats win that vote. Perhaps that theory is wrong: It now looks more likely that the SEC timed its Goldman case in order to divert attention away from two SEC inspector general (IG) reports criticizing the commission.

In one of the reports, the SEC IG found that several of the top staffers at the SEC were spending their days surfing the web for porn, rather than looking for securities fraud. One senior manager spent almost 8 hours a day looking a porn, getting to the point where he even filled up his government issued hard‐​drive with porn. His actions were not some isolated incident. Over 30 employees were found to have regularly used SEC computers to download and view porn. Some of the senior employees had salaries as high as $222,000 a year. Sounds like nice work, if you can get it.

But the porn charges are the least of the SEC’s worries. Also released was the IG’s report on the SEC’s failure to stop the Stanford Ponzi scheme. The report shows a clear pattern of incompetence at the SEC. Given the SEC’s failure to act on the Madoff scheme, and the repeated warnings about Stanford, one has to wonder how good SEC investogators are at discovering fraud if they don’t even pursue the clear‐​cut cases brought to them.

The IG report does help explain the SEC’s poor track record. The SEC’s head of enforcement made it very clear that the staff was “to bring more Wall Street types of cases.” Perhaps ones like the recent Goldman case? The head of enforcement even goes so far as to ask the staff working on the Stanford case, “What are you bringing these cases for?” Clearly the SEC only seems to care about fraud if its catches a big headline. Since the SEC was first warned about Stanford, investors placed about $8 billion more into the Ponzi scheme, far more than the damages alleged in the Goldman case.

If anything should expose the current financial regulatory bill being debated in the Senate as a fraud, it should be the fact that it leaves the SEC still standing. Even worse, it reduces Congressional oversight of the SEC by removing it from the appropriations process.