The Objective Standard Blog

Thursday, May 20, 2010

Does the SEC Care about Fraud?

Posted by Daniel Wahl at 4:41 pm

Anyone concerned with freedom in the financial markets should read this new, internal review by the SEC, in which the Commission admits that it:

failed to “take appropriate action” related to fraud at Allied Capital, a politically-connected company staffed with former SEC employees;
did not visit Allied’s offices a single time during their “investigation”—“even though they were located just blocks from the SEC”;
never investigated “whether Allied was a Ponzi scheme, because of how it financed its dividends” (using proceeds raised from the sale of stock to uninformed investors);
“inexplicably” deleted the work papers from an examination of Allied in which an SEC employee expressed concerns that the company was engaging in a Ponzi scheme;
vigorously investigated David Einhorn—the man who exposed Allied’s fraud —both “after Allied met with [SEC] officials” and “without any evidence of wrongdoing” on the part of Einhorn;
gave clearance to an SEC employee who “supervised the investigation against Einhorn” to register as a lobbyist for Allied immediately after leaving the agency;
took no action when Allied admitted to the SEC that one of the company’s “agents” had engaged in “illegally obtaining Einhorn’s phone records”;
concluded soon after the investigation that Einhorn was not guilty of violating federal securities laws but never told him what his status was with respect to the law and whether he was still being investigated “despite his request for such notification.”

The SEC is under new management and, according to The Washington Post, has promised “to fix the problems.” But since then it has:

sucker-punched Goldman Sachs with charges of fraud for letting sophisticated investors pick what they want to buy from a list of what other investors want to sell;
continued with the fraud charges against Goldman despite a 3-2 split along party lines among the five commissioners;
timed the charges to coincide with the push for financial legislation by Obama.

The SEC has not been and is not concerned with prosecuting fraud. Since its inception, the SEC has pursued not justice, but power, and it has used that power to support its political masters. The case against Goldman is more of the same.