By Bill Singer
I have spent nearly three decades on Wall Street, from my beginning in the Legal Department at Smith Barney, Harris Upham & Co., through two stints as a regulator, and eventually to my present role as a law firm partner representing public investors and industry clients. If there is one thing that has often set me apart, it has been my persistent agitation for substantive reform of our ineffective regulatory system--and make no mistake about that: I am no Johnny-come-lately to that pulpit! Search online and you will see years of articles and comments about unfair, abusive, ineffective, and corrupt regulation.
Now, I find myself amidst much company. Isn't that just wonderful! So much public hand-wringing by so many belatedly concerned regulators and politicians. Not that they will admit that my many years of complaints and criticisms have now been proven valid -- oh, no, that will never do. Off the record, privately, they may tell me that, but publicly it's quite another proposition. Once again I am urged to close ranks for the better of the industry. And once again, my response is unchanged: to hell with that.
In August 2008, way before the Madoff affair became public, I published a Blog entry in which I detailed a multi-year effort in futility to involve any U.S. securities regulator in an international securities scam. Every organization and agency politely listened, declined to provide meaningful updates, and essentially shelved the matter. In writing about that fraud, please mote that I ominously (and now presciently) ended that Blog with the following comment:
Once again, I have reached out to the U.S. regulatory community. Perhaps this third wave of fraud will not come crashing down upon our shores and send a tsunami back to the Old World. Then again, tell me, does anything really change when it comes to regulatory somnambulism?
But the cynics among you may say, well, Bill, that shot about "regulatory somnambulism" was funny, but you published that Blog entry a mere four months before the Madoff complaints were issued. Sure, Bill, you made a good point, but it's not like you spotted this regulatory malaise years ago. Well, how about if I show you an article I wrote nearly five-years ago on a similar aspect of the problem? Would that be proof enough that this issue of Wall Street's regulators not making much of an effort to follow up on tips alleging fraud is not of recent vintage?
Please consider my published column of January 2004 in Registered Rep. Magazine: Whistleblowers Save Your Breath. Here's how the article opened:
Bureaucracy that smacks of willful ignorance - that's what one would-be tipster (and client of mine) encountered when he tried to anonymously notify regulators of trouble at his broker/dealer.
As an attorney who has been practicing securities law for over two decades, I can attest that this experience is all too common.
Given the frequency with which regulators are unearthing impropriety at financial firms, it's a little hard to believe they're inhospitable to tipsters. But as the following story illustrates, the process of whistleblowing is one that frustrates potential do-gooders at every turn - to the point that it's reasonable to wonder whether regulators want to hear from these people at all.
Finally, I read with much laughter (sardonic, that is) about the alleged recent efforts by the Securities and Exchange Commission to find veteran staff to shore up its purportedly beleaguered ranks. I will write it here clearly and without equivocation: BALONEY!!!
For much of the past decade, just to make a point and demonstrate the realities of Wall Street's regulatory scene to my many friends among the press, I send out an unsolicited employment application to one regulator or another. Similarly, for the past decade I am routinely rejected. I got a postcard from the old New York Stock Exchange saying that they would consider my resume, but they never called back. NASD/FINRA informed me that they were "going in another direction" and would not offer me a position. I did get to meet with the vaunted Eliot Spitzer's staff, but they spent most of the interview asking about my press contacts and confirming my understanding that all press queries had to be directed to AG Spitzer. Perhaps one day I will digitally scan my impressive collection of rejection letters for you to read. However, for now, let me quote the verbatim contents of the most recent rejection letter, dated November 12, 2008, and sent to me by Director James A. Clarkson of the Securities and Exchange Commission's Regional Office Operations and Chair of the Hiring Committee for the Commission's Division of Enforcement:
Dear Mr. Singer:
I appreciate your requesting consideration for an attorney position with the SEC's Division of Enforcement.
Unfortunately, we are not in a position to explore employment opportunities with you given the limited open slots we currently have and in view of the substantial number of highly experienced applicants already under active consideration. We will, however, retain a copy of your resume in our files should our hiring situation change in the future.
Thank you again for your interest in the Division of Enforcement.
Okay, so, in summation, let me try to explain to you all why things like the Madoff fraud happen and why scams like the subprime mess go undetected. For starters, we have too many folks in regulation who push paper and fail to follow up. You remember those bureaucrats who knew about the 9/11 terrorists taking flight training but let the tip sit in their in-box of didn't pass the information on because of inter-agency rivalries? Okay, so we have the same issue with Wall Street's regulators. Lots of men and women going through the motions. Filling up one in-box. Moving the pile to another. Lots of internal reviews. Lots of kids just out of school wasting weeks proofreading the draft complaints of veteran regulatory lawyers. Far too much make-work. Very little action.
Then we have the problem of regulators just not wanting to be bothered. I mean, you know, you have to pick up a phone and listen to some nut like Harry Markopolous complain about some venerated guy like Madoff, and then you have to fill out a form, and then your bosses won't let you bother Bernie. And then there is that perennial pain in the ass Bill Singer. So, the regulators simply find it best to go through the motions. And if the process is so Byzantine as to deter most tipsters, so be it. In the end, our regulators tend to return to what they are most comfortable and proficient at: conducting drawn-out investigations, preparing lengthy reports of investigation, and then after much fanfare, the case settles quietly or dies a tortured death.
And last, but not least, you have this 27-year industry veteran attorney whose background includes two stints as a regulator, one tour in the Legal Department of a major wirehouse, a counsel position at an investment adviser/investment company, experience as a registered stockbroker, and experience as both an industry defense counsel and public advocate. This wizened professional applies for a position with the SEC. He figures that maybe now is the time to help the public and the industry. He figures that he has seen it all (or most of it). Of course, he expected, at the very least, an interview. Never got one--not even a cursory phone call. Alas, he is smiling and nodding his head in sad but knowing understanding. The SEC only has "limited open slots" and there are so many more "highly experienced applicants already under active consideration." Of course there are. Sure. Right now the SEC is overwhelmed reviewing the applications of similarly qualified lawyers. Yeah, right.
Add it all up. Do your own math. Fact is, nothing adds up. The entire system is predicated upon absurdity and stupidity. And perhaps the most amazing thing of all is that Congress seems intent upon preserving and renovating much of this crumbling edifice. For godsakes, three levels of securities regulation (federal, state, and self-regulation) and none of it works. They don't timely investigate. They don't want to be bothered. They don't want to hire veteran, competent regulators. Could the cause of this mess be any simpler to explain?
Please read this update: http://www.brokeandbroker.com/index.php?a=blog&id=105