If you haven’t seen Rep. Gary Ackerman crucify three senior SEC members for ten minutes it’s a must see. Start at the 00:24:10 mark.
What is infuriating to many people is the SEC’s response to being called out by Ackerman. They deflect, diminish, and claim executive privilege. Their response makes perfect sense when one understands the SEC is in bed with those who are gaming the system. What’s also upsetting is this is a rerun. The Senate met exactly one year ago to talk about the same issues! Last year GTM published two pieces from SEC whistleblower Garry Aguirre:
How Manipulators Game the Market
Our Engineered Meltdown: SEC Evidence
After having watched this video consider the following. There is evidence of foreknowledge the crisis management team knew a crash was coming and allowed it to happen. Gary Aguirre was fired from the SEC (right after a promotion) while investigating John Mack, just prior to his CEO appointment at Morgan Stanley. This is an excerpt from one of his letters to the Senate.
Gary Aguirre memo to Senate Banking Feb. 13, 2008
Courtesy of: InvestigatetheSEC.com:
Re: Hearing on the of State of the United States Economy and Financial Markets
Dear Chairman Dodd and Ranking Member Shelby:
As the current credit crisis unfolds, investors and the public must rely upon your Committee to uncover its causes and scope. Your hearing on Thursday, The State of the United States Economy and Financial Markets, offers an opportunity to question those regulators who are responsible for protecting the capital markets from this evolving crisis. I respectfully submit there are two key questions that penetrate to the core ofthis crisis:
1) Why did counterparty discipline fail?
2) Why did the SEC stop an investigation three years ago that could have averted the subprime crisis?
I will try to put these questions into sharper focus with the context below.
Where is the SEC?Over the past two months, the Wall Street journal, the New York Times, Reuters, CNBC and Forbes have all asked a single question: where was the SEC on subprime debt? Significantly, three years ago, the SEC was conducting an investigation that could have averted the subprime crisis. The investigation focused on Bear Stearns’ evaluation of subprime debt, the core issue in the current crisis. The investigation reached a point where Bear Stearns was told it would be charged. Then, for no known reason, the investigation was switched off. A recent Wall Street Journal article suggests that the effective prosecution of the Bear Steams case might have averted the subprime crises.
The Bear Steams investigation is stunningly similar to the SEC investigation of Pequot Capital Management which I headed. Like Bear Steams, the Pequot investigation appeared to be advancing towards a filing. Like Bear Steams, senior SEC management decided to halt the investigation. Like Bear Steams, the SEC was later forced to focus on the underlying abuse, but only after that abuse grabbed media attention. In Bear Steams, the underlying abuse was overvalued subprime debt. In Pequot, the underlying abuse was widespread insider trading by hedge funds.
We know why the Pequot investigation was stopped. According to a joint report by the Senate Judiciary and Finance Committees, a major investment bank, Morgan Stanley, retained an influential attorney who intervened at the highest level of the Division of Enforcement to stop the investigation. The two Senate committees concluded that senior SEC officials gave preferential treatment to a member of Wall Street’s elite and then fired the lead investigator (me) when he questioned that decision. None of the senior SEC officials who derailed the Pequot investigation were ever disciplined. Was the Bear Steams investigation stopped in a similar way? Did another influential attorney, hired by Bear Steams, place a call to a high-level official at the SEC?
Your Committee has oversight jurisdiction of the SEC. The SEC’s mission is to protect the capital markets and investors. It had a chance to protect the capital markets from the current subprime crisis three years ago, when it was investigating whether Bear Steams overvalued subprime debt. Why did the SEC call a halt to the Bear Steams investigation? Who made that decision?
Sincerely,
Gary J. Aguirre
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