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In late 2004, Kathleen Furey, a senior attorney in the New York office of the Securities and Exchange Commission (SEC), started investigating a financial advisor who, she thought, might have violated the Investment Company Act of 1940 and the Investment Advisors Act of 1940. Her story was told in a Bloomberg News column yesterday (May 15). The two acts that Furey thought the advisor might have violated were the same ones that the agency used in its case against Bernard Madoff, who ran the biggest Ponzi scheme of all time, according to San Diego attorney Gary Aguirre, who represents Furey. The SEC was broadly criticized for blowing the Madoff case until after he had confessed the scheme to his sons. Furey, however, according to a legal filing she made demanding that the SEC release more information, was told by a supervisor that the office did not look into violations of these acts.

Later, she complained about this policy to higher-ups, including the internal SEC investigator. For three straight years, she had received promotions and raises. After she complained about the refusal to pursue investment management cases, she was never promoted again, although she was given work of the kind that employees two grades higher were doing. She expects to sue the agency for retaliation, says Bloomberg.

Aguirre says Furey's whistleblower actions are shedding light on the so-called revolving door. This is the quiet process by which lawyers move from the SEC to Wall Street law firms and sometimes back. Through the revolving door, Wall Street firms basically control the SEC. Three of her superiors that she cites for regulatory laxity have already gone into private practice. Bloomberg points out the most disquieting aspect: the person in charge of the New York office during the years Furey complained of regulatory lapses, George Cannellos, has been named co-director of the enforcement division of the SEC. The other co-enforcement chief, Andrew Ceresney, is a former law partner of Mary Jo White, the new head of the agency. She had a top government post, then went to the white shoe firm of Debevoise and Plimpton, from which she recruited Ceresney after she was named head of the SEC.

Comments
10

start at the top and work down,

May 17, 2013

murphyjunk: I assume you are saying the most important part of this tale is at the bottom -- suggesting Mary Jo White, formerly of Debevoise & Plimpton, will continue the revolving door phenomenon at the SEC, which she now heads. Thus, the SEC will continue to be run by Wall Street law firms. If that's what you are saying, I fear you are right. Best, Don Bauder

May 17, 2013

Sure, if you want to kill a snake, you cut off its head, not clean up its turds.

May 17, 2013

Murphyjunk: That is a perceptive observation. Best, Don Bauder

May 17, 2013

Buyer beware seems the only sheriff. The SEC, which deceives investors worldwide, should be dissolved. The FBI should handle these cases, or State government. Reform will occur after a crash, 2008 wasn't enough apparently.

May 19, 2013

Psycholizard: There are several factors at work. Congress, deliberately, has always kept SEC funding down. Pay is higher at other bureaucracies, and securities work is highly complicated. I deplore the open door, but I can see why SEC lawyers are so tempted. The SEC is a civil agency without criminal powers, but I have long thought there should be more criminal penalties for financial fraud. The FBI would be the investigator. There are lots of such cases now, but not enough. Best, Don Bauder

May 19, 2013

In other branches of the law, detailed knowledge of the ins and outs of the criminal' business isn't considered a qualification, usually. Most DEA agents would have difficulty cooking crystal meth for instance. Skill at cooking books seems to be a qualification at the SEC. If the SEC can't be disbanded, hiring personnel on loan from the Justice Department would be a start. We need career law enforcement in these positions, they would then know when the probe should go criminal. I don't buy that sophisticated knowledge is needed to crack these cases. In Madoff's case, experience in closing games of three card monte would be perfect training.

May 21, 2013

Psycholizard: Disagree. Sophisticated financial frauds are extremely difficult to unravel. That is deliberate. As I have said before, "The essence of financial fraud is contrived complexity." Lawyers and accountants help the scamsters make the fraud almost impenetrable. Best, Don Bauder

May 21, 2013

Finding fraud is not that hard, usually the interest rate offered is unreasonable, and the books are unreadable. I'm sure you have lost count of the con artists you have spotted that way. Many like Madoff, are found out when they can't raise requested funds. Let me correct myself however, because you have a point. Let's say anyone with experience cracking local, relatively small schemes, is qualified to take on Wall Street cases, they don't need to be Wall Street lawyers. Perigrine or Dominelli were no different than Madoff, except add two zeros. These cases are tough and frustrating, and that's another reason for using career prosecutors.

May 22, 2013

Psycholizard: Of course these cases are tough. In the case of Peregrine, there appears to have been interference from Washington D.C. to make sure John Moores didn't get justice. Best, Don Bauder

June 3, 2013

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