Mark Calabria

Thanks mainly to the efforts of the Inspector General at the Securities and Exchange Commission (SEC), we know that the agency's staff was nothing less than asleep at the wheel as imbalances and frauds built up in our financial system. Worse, we also know several employees spent a considerable portion of their work day visiting pornographic websites, rather than monitoring the capital markets. The most obscene part, however, is that years after these discoveries have been made, the employees in question have yet to lose their jobs. Yes, some left the agency voluntarily, while others remain on paid administrative leave (sounds like a vacation to me). But none have been fired.

In an extreme instance, dealing with a SEC employee who ignored the warning signs of Bernie Madoff's Ponzi scheme, both the SEC's human resources department and an outside legal consultant recommended that the employee in question be terminated. SEC Chair Mary Schapiro's response? No, as such "would harm the agency's work." I'd think having incompetent employees would harm the agency's work.

Sadly, Madoff was not the only fraud ignored by the SEC. Allan Stanford ran a $7 billion Ponzi scheme. His 20,000 clients are still, years later, waiting to see how much they will recover. That delay did not stop the head of the SEC enforcement office in Dallas, which has oversight of Stanford, from leaving the SEC to represent Stanford. After a DOJ investigation, the SEC has reluctantly decided to bar said lawyer from appearing before the agency for a whole six months. So, apparently it's not just current SEC employees that get a pass, but also former employees as well.

Mark Calabria is Director of Financial Regulation Studies at the Cato Institute.

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Mark Calabria

Mark A. Calabria, is director of financial regulation studies at the Cato Institute.