SEC proposals reveal what went wrong on Wall Street

A long list of plans revealed today by a top U.S. Securities and Exchange Commission official to expand regulatory oversight of financial markets -- increased examinations, stepped-up enforcement and more subpoenas to compel truth-telling -- sound great on paper. But the list raises a larger question that has not been answered, or even asked. What has the SEC been doing until now? The director of the SEC Enforcement Division, Robert Khuzami, announced the agency's plans Wednesday in a speech to the New York City Bar Association, according to the Reuters international news service. Khuzami, a former federal prosecutor who took over the SEC's oft-maligned Enforcement Division in March, said there would be a "general sense of renewed urgency" to find and stop wrongdoing in the financial markets like the reckless practices blamed for the recent meltdown. The SEC has been under fire for failing to identify and stop those practices, and also for failing to detect massive frauds, like the multibillion-dollar scheme run by Wall Street insider Bernard Madoff for decades. "No one has told me to bring more cases," Khuzami said, according to Reuters. "What they have told me is we need to be vigorous advocates for investors." But why would Khuzami have to be told to do that? Why wouldn't the SEC do that -- why wasn't the SEC doing that -- as a matter of course? Isn't that the agency's reason for being. The same idea applies to other changes now underway that Khuzami announced Wednesday. Khuzami said the SEC is creating new divisions to probe cases involving asset management, foreign corrupt practices, market abuses, municipal securities and public pensions, and structured products, Reuters said, and a new group has already been set up for abuses in the subprime mortgage market. Does that mean the SEC wasn't already doing these things? Khuzami's announcement of a new office to investigate complaints and tips also is cause for concern. It's nice that the agency plans to do this going forward, but what has it been doing? Did it really take a massive economic collapse and subsequent worldwide recession to convince the SEC that these steps were necessary? Doesn't anybody in Washington know how the game is played?

Madoff case is a distraction, albeit a huge one

News that confessed swindler Bernie Madoff has been ordered to stay in jail until his sentencing in June must be some solace for his many victims, but it should not be confused with the current turmoil in the economic system. Madoff, who pleaded guilty last week to running a massive Ponzi scheme that defrauded investors of billions (!) of dollars over 20 years, lost his appeal of a federal judge's decision to jail him immediately after his plea, according to the Reuters international news service. The former Nasdaq chairman had apparently hoped to be released on bail prior to sentencing on charges that probably mean the 70-year-old will die in prison. But a federal appeals court said he was a potential flight risk and could have secretly stashed money overseas. Madoff had been confined to his luxury Manhattan penthouse for three months after his arrest in December and seems to have been seeking to return until at least June. "The defendant has a residence abroad, and has had ample opportunity over a long period of time to secret substantial resources outside the country," the judges said. But Madoff's crimes, while devastating to his victims, simply do not approach the level of misconduct on Wall Street that led to the loss of trillions of dollars in investments and devastated the world economy. The wheeler-dealers who gamed the financial system with recklessly over-leveraged investments and the regulators who let them do it, sometimes knowingly, still must face legal reckoning.

AIG bonuses demonstrate what's wrong with Wall Street

Even with Saturday's agreement to rework its system for paying bonuses to employees, American International Group still stands as a trillion-dollar example of corporate greed gone wrong. The giant insurer caused widespread outrage this week when its plans were revealed to pay hundreds of millions of dollars in bonuses despite getting $180 billion in bailouts from taxpayers. Since appointing a new chairman late last year, when news of its faltering financial situation was revealed, AIG has cut executive salaries and plans more cuts in its AIG Financial Products divisions, where the massive investments in default swaps and below-prime mortgages that nearly sank the company originated, according to the Cable News Network (CNN). But AIG still committed to pay hundreds of millions of dollars in bonuses to its executives, including $165 million due Sunday. The new company chairman, Edward Liddy, told Treasury Secretary Timothy Geithner in a letter that 2008 bonuses would be recalculated and that 2009 bonuses would be reduced by 30 percent. The Obama administration as sharply criticized AIG for agreeing to pay bonuses after taking bailout funds from the federal government. But imagine how much the executives would have gotten had their company actually been making a profit!

Madoff conviction might only be the beginning

If the Western economic system is ever to regain respect from the everyday people it was supposed to benefit, today's conviction of Wall Street financier Bernard Madoff is only the first in a long line of similar cases -- most still to be filed. The former Nasdaq chairman pleaded guilty on Thursday to running a $65 billion investment fraud thought to be the largest in Wall Street history, according to the Reuters international news service. The 70-year-old is expected to be sentenced to prison for the rest of his life. At a federal court hearing in Manhattan, Madoff admitted to setting up a worldwide Ponzi scheme from the beginning, but said he expected to be able to get himself and his clients out of it quickly, Reuters said. "I am painfully aware that I have deeply hurt many, many people," he told U.S. Judge Denny Chin in his first public acknowledgment of the fraud. "When I began my Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme." Madoff, who read from a prepared statement, said he was unable to shut down the scheme, which used money from new investors to pay earlier investors for 20 years. "As the years went by, I realized that my arrest and this day would inevitably come," Madoff said. The scandal has increased scrutiny of Wall Street and government regulators who were supposed to be monitoring investments and preventing wrongdoing. The scam was first brought to the attention of the U.S. Securities and Exchange Commission in 1999, Reuters said. Investors -- some of whom attended today's court hearing, included hedge funds, banks, Jewish charities, the wealthy, and small individual investors in North and South America and Europe. Madoff could get a sentence as long as 150 years for the 11 charges against him, which include securities fraud, money laundering and perjury, Reuters said. Sentencing is scheduled for June 16.