Four People Who Get Why Wall Street Can Scoff: Susan Antilla

There are many ways to fix an accident-prone organization, though I’m partial to the NPR Method, in which moronic blunders are followed by the hasty departure of the offender, and, if called for, a quiet, off-site farewell party for the chief executive.

That isn’t the way things happen at the U.S. regulator charged with keeping the financial markets safe, where high-level heads roll about as often as billion-dollar schemesters get caught. The watchdog that missed Madoff; that fired an investigator who pushed to question a powerful Wall Street executive; and that got itself in the news for employing dozens of on-the-job porn-watchers, has stepped in it again.

This time, the Securities and Exchange Commission’s former general counsel, David M. Becker, was involved with the Madoff bankruptcy case even as he had a personal stake in its outcome. Becker and his two brothers inherited a $2 million Madoff account when their mother died in 2004, yet the agency’s ethics counsel -- who was supervised by Becker -- allowed him to work on policy related to the Madoff Ponzi scheme that could have benefited the three brothers.

The ethics guy, William Lenox, thought Becker’s personal stake didn’t present “a financial conflict of interest,” according to an e-mail to Becker on May 4, 2009. Things sure got financial early last month, when Becker learned he had been sued. Irving Picard, the trustee liquidating Madoff’s defunct firm, is seeking $1.5 million -- the difference between the initial investment by Becker’s mother and the amount the brothers cashed in after she died.

Becker didn’t respond to telephone messages at his home. SEC spokesman John Nester said Lenox had no comment beyond the text of his 2009 e-mail. SEC Chairman Mary L. Schapiro told lawmakers at a congressional subcommittee hearing that she wished that Becker had recused himself.

The thing I wonder is whether there’s any way to get this agency on track. Two whistleblowers, a professor, and a just-retired regulator offered their thoughts:

-- Harry Markopolos, who badgered the SEC to go after Bernard Madoff years before the Ponzi man confessed to his sons and got arrested, pointed to problems broader than the SEC when I caught up with him on the phone March 10. Markopolos says there are too many regulators, and that an efficient approach would combine them all in a single agency that stocks the peccadilloes of finance’s sometimes nefarious players in one handy computer system. If that doesn’t fly, at least we should move Washington regulators like the Financial Industry Regulatory Authority and the SEC to New York, where they belong: “If you are really a regulator, go to where the action is.”

-- Gary Aguirre isn’t exactly a neutral commentator on the SEC, but you can’t say he doesn’t have an insider’s view. The SEC paid him $755,000 in 2010 to settle claims it wrongfully fired him after he pushed to depose Morgan Stanley Chief Executive Officer John Mack in an insider-trading investigation. Today, he says the SEC “has been so compromised by its connections with Wall Street, it cannot function.” To make things right, Aguirre would require that at least five years go by before an employee could get on a financial firm’s payroll. The way things are now, “a guy at the SEC makes $200,000 a year, leaves for a $2 million a year job, and when he needs a favor, calls an old pal at the SEC.” The Government Accountability Office plans to release a study on the revolving door issue in July.

-- Peter Henning, law professor at Wayne State University Law School in Detroit, says an effective SEC would move away from “low-hanging fruit” cases against inside traders to the more pernicious action in derivatives markets. Financial companies are digging out of the holes that their exotic credit contracts caused in the crisis, he says, but the SEC needs to keep a vigilant eye on them because “these companies are like crack addicts -- they will smoke the thing that gets them high and increases their revenue.”

-- Denise Crawford retired last month after 19 years as a state securities regulator; she was commissioner of the Texas State Securities Board and the most recent president of the North American Securities Administrators Association, the state regulatory group. Not that the other folks I talked to were shy with their opinions, but there’s nothing like someone who’s no longer on anyone’s payroll if you want to hear straight talk. The SEC has “a failed culture” and doesn’t work anymore, she said. Echoing Aguirre, she said the agency “hires lawyers who ultimately will go to private practice and make big bucks” -- no formula for protecting investors. “Maybe it’s time to do away with the SEC.”

In fairness, when all is said and done, I might be going too far to suggest the SEC should, NPR-style, show the door to every employee who embarrasses the agency with horrific judgment. You can’t stage a showy ouster or resignation when the revolving door already has deposited your employee at a new and much better-paying job. It keeps things simpler not to have all that firing drama anyway, and even has me thinking of a new slogan to replace the agency’s old “The Investor’s Advocate” motto. The SEC: Government’s Judgment-Free Zone.

(Susan Antilla is a Bloomberg News columnist. The opinions expressed are her own.)

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