SEC Incompetent on Madoff Fraud; Time to Scrap the SEC?

The 22-page "executive summary" of the Inspector General report on the Securities and Exchange Commission's multiple failures to investigate and detect the Bernard Madoff fraud is out today and available at http://www.sec.gov/.

The full report (some 400-500 pages according to press reports) should issue later this week or early next week.  

One item caught my attention.   There is a paragraph about the attorney staffing problems at the Commission, and in particular, its failure to have many lawyers on staff with a familiarity with the various federal securities laws.  (Emphasis mine.)   Instead, the Commission's lawyers tended to have general litigation experience.    That is amazing -- litigating without having the faintest idea as to the context or significance of many of the issues.   That could explain how mega-Ponzis like Madoff, or Marc Dreier, don't appear on the radar screen but "small" or totally-seemingly-insignificant cases get brought (such as one that was chronicled in the New York Times a few months back, the article did appear on a Saturday this past summer).  

There are a lot of experienced, credible and honest lawyers "out there" who would love to work for the federal government, and many of them have securities experience.   In addition, many of them have so-called "deal" or "transactional" experience, and if anything, that "real world" experience of dealing with compliance issues and difficult clients is much more useful than being a simple, garden-variety litigator.   Why aren't these people being hired?    Was the Bush Administration using the same criteria for hiring SEC lawyers that it was apparently using for hiring Justice Department lawyers?

The SEC failed the American people.   Its failures may be organizational.   Working for the SEC the last few years may end up being a black mark on one's resume, just like working for Enron.   I had been thinking that the calls to dismantle the SEC were an overreaction.   Now, I am not so sure.  

More comments will follow in a new blog entry, when the full report is issued and only after I am able to read it cover to cover (unlike our Congressmen and -women) in order to know what I am talking about.