In a hearing which exposed failures by the government’s financial police, Congressman Stephen Lynch (D-Massachusetts) highlighted the existence of a “hotline,” which he said could be used by Wall Street firms to call off government inspectors.
BY MAT RENNER
Posted by Bulatlat
Washington, DC – In a hearing which exposed failures by the government’s financial police, Congressman Stephen Lynch (D-Massachusetts) highlighted the existence of a “hotline,” which he said could be used by Wall Street firms to call off government inspectors. The existence of a “hotline” has been confirmed by the Securities and Exchange Commission (SEC), though its purpose has been disputed.
The SEC – the federal agency tasked with policing the financial industry – has come under heavy criticism for incompetence and negligence in its role as the regulator of the giant Wall Street firms, the collapse of which has already cost taxpayers billions of dollars and continues to threaten the world economy. The most prominent example of SEC failure is the decades-long $50 billion Ponzi scheme – likely the largest financial fraud in history – orchestrated by Bernard Madoff. The fraud was identified by money manager and private investigator Harry Markopolos, the star witness at the February 4 hearing before the House Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.
Markopolos spent nine years trying to get the SEC to investigate Bernard Madoff for a scheme that Markopolos claims he identified in “minutes” and proved in “hours” using basic financial modeling. Despite dogged communication by Markopolos, the SEC failed to thoroughly investigate Madoff. After Madoff admitted his fraud in December 2008, the SEC publicly stated that they had received evidence of Madoff’s scheme and had failed to stop it.
During the hearing, Congressman Lynch said that current and former SEC employees complained to him about the existence of a “hotline” used by Wall Street firms to call directly to top SEC officials to “stop an investigation or slow it down.”
“The other thing that I keep hearing from some current SEC and former SEC is that there is a hotline. I was told that senior SEC management had actually gone to a financial services industry conference and basically said to the firms out there ‘If you feel that you are being too aggressively investigated, then I want you to call this office,'” Lynch said.
A February 2005 speech by then director of the SEC Office of Compliance Inspections and Examinations (OCIE) Lori A. Richards before an industry conference appears to back up Lynch’s statement.