The Magazine of Corporate Responsibility

SEC in Hot Seat, Facing Funding Fight and Criticism Over Ethics

by Marian Wang, ProPublica

Mary Schapiro, head of the Securities and Exchange Commission, is finding herself in the hot seat quite a bit this week. Today, she heads to the Hill today to advocate for a funding increase, which Congressional Republicans have said that her agency doesn't deserve.

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SEC Chairman Mary Schapiro

Schapiro has also been criticized for hiring a top lawyer for the agency who had financial ties to Bernard Madoff, whose massive Ponzi scheme the agency failed to pursue for years despite many red flags. The SEC's former general counsel, David Becker, was hit with a lawsuit last month by the trustee recovering funds for Madoff's victims.

Becker has said that he disclosed to Schapiro in 2009 that his late mother had an account with Madoff. He said the agency's ethics counsel told him that possible enforcement actions against Madoff "did not have a direct and predictable effect" on his financial interests and permitted his involvement in Madoff-related work, including helping determine compensation for Madoff2019s victims.

In letters to six Republican lawmakers this week, Schapiro said she had instructed Becker to sort out the matter with agency2019s ethics officer, the Washington Post reported yesterday. She also asked the SEC2019s Inspector General to investigate whether Becker had a conflict of interest.

The inspector general, David Kotz, had previously investigated the agency2019s failure to uncover Madoff2019s fraud. He found that while the SEC had failed to pursue Madoff, it "did not find that any improper professional, social or financial relationship on the part of any former or current SEC employee impacted the examinations or investigations."

That report was released in late 2009. Becker assumed the post as the SEC's top lawyer in early 2009 and served for two years. He had previously served in the same position from 1999 to 2002.

But that's not the only criticism the agency is facing this week. The Project on Government Oversight, an independent watchdog group, sent Shapiro a letter faulting the agency for failing to discipline employees and contractors for wrongdoing. From POGO:

A POGO review found that of at least 98 SEC employees recommended for disciplinary action since 2008, only 11 were fired or removed from their contract. While many employees received lesser forms of discipline, the SEC took no action whatsoever in the case of 10 employees, many of whom the OIG found to have committed serious offenses.

Some of the cases involved employees who were recommended for discipline as part of the inspector general's Madoff investigation, said POGO. A spokesman for the SEC declined to comment to Politico on the letter, but said it takes seriously the recommendations of the inspector general.

The SEC is tasked with helping to implement the Dodd-Frank financial reform bill. Congressional Republicans, who have long been quick to criticize the agency, have sought to slash the agency2019s budget despite urging from Wall Street lawyers and investor groups for the agency to be adequately funded.

As Forbes blogger Halah Touryalai has noted, the $1.4 billion SEC budget requested by the Obama administration is less than Bank of America's 2010 marketing budget alone, less than what Citigroup spent on marketing and advertising in 2010, and several times less than what JP Morgan has set aside to fight lawsuits.

ProPublica is an independent, non-profit newsroom that produces investigative journalism in the public interest.   This article is republished with permission under a Creative Commons license.

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1 Responses »

  1. The Government Accounting Office cited the SEC with material weaknesses in its accounting process, systems, and controls for both the years Ms. Shapiro has been at the top.

    If the SEC were attempting to raise cash on the public capital markets, the SEC would deny an IPO application because of the material weaknesses in accounting processes, systems, and control.

    Ethical behavior is cost free, but seems very elusive to this Administrative staff of the SEC.

    Please take a few minutes to read my public comment to the SEC from August 2010:
    http://www.sec.gov/comments/df-title-ix/short-sale-disclosure/shortsaledisclosure-11.htm

    Be sure to read the two attached documents at the bottom of the page.

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