The SEC

First let me say that this has nothing to do with me, but given my interest in all things financial and the government during this financial crisis, I read with interest the Office of Inspector General’s Report to Congress regarding the SEC. The SEC deserves credit for casting such a critical eye at itself. It should happen more often in government.

First the humorous side of the report, the SEC apparently has issues with Porn usage among employees.

Now the Serious.

It never crossed my mind that it would be legal for employees of the SEC to trade stocks. Not that they shouldn’t have rights to own whatever they want in a trust. They should. Trading individual stocks and bonds. Wow.

There is a SEC policy in place regarding trading and what employees can and can’t do according to this report, but if you know about actions of one company, even if you don’t trade that company, doesn’t that provide you insight into an entire industry ?

But wait there is more. According to this report,

” we have determined that the Commission’s current system in place to report the ownership and
trading of securities is insufficient to prevent and detect insider trading on the part of
Commission employees
or violations of the Commission’s rules.

The OIG investigation has found that the reports that employees are required to file when they buy, sell or own securities are not meaningfully reviewed or sufficiently checked for conflicts of interest.  Moreover, there is currently no system in place for the Commission to detect if an employee who has traded or owns a security failed to properly report such transaction.  “

Double wow.

And then there is this:
Allegation of Retaliatory Investigation
The OIG is investigating an allegation that Commission staff engaged in a retaliatory investigation of a company after it publicly complained about naked short selling.  During this reporting period, the OIG took extensive sworn, on-the-record testimony of the complainant and reviewed certain relevant documents.  The OIG plans to interview additional witnesses identified by the complainant and to take the sworn, on-the- record testimony of the Commission attorneys who worked on the matter.

If you want more information about Naked Shorting, this is one of my posts on the subject

The OIG report makes for interesting reading with ALLEGATIONS of intimidation, perjury, falsifying data to a court to get a judgment, and lots of abusive behavior within the employee ranks.  Then there is the irony of their lack of a definitive policy on the distribution of material non public information.

Finally, there is this nugget from the study:

Referrals to Department of Justice for Prosecution 6. Thats 6 SEC employees being referred to the Department of Justice for consideration of criminal prosecution. For the 6 months between April 1 and Sep 30 of this year. Out of only 3500 employees.

No wonder they released it on the Friday after Thanksgiving without any press release to let people know its available…

Here is a link. Check it out for yourself

http://www.sec.gov/about/oig/audit/2008/seminov08.pdf

and

Help ensure the integrity of SEC operations by reporting to the OIG suspected fraud,  waste or abuse in SEC programs or operations, and SEC staff or contractor misconduct by contacting the OIG.
Call:
Hotline# # (877) 442-0854
Main Office# (202) 551-6061
Web-Based Hotline Complaint Form:
http://www.reportlineweb.com/sec_oig
Fax:# # (202) 772-9265
Write:
Office of Inspector General
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549-2736
Email:
oig@sec.gov
Information received is held in confidence upon request.
While the OIG encourages complainants to provide information on how they may be
contacted for additional information, anonymous complaints are also accepted.

37 thoughts on “The SEC

  1. Ed Hardy shirts

    Comment by hrewj -

  2. Interesting piece on the Market Ticker by Karl Denninger this morning stating that “the SEC has a special call off the dogs hotline number.” Story of the article is Financiers Used “Hotline” to SEC Examiners.

    Comment by cmaniatis -

  3. tippee liability pursuant to 10b5 then in Dirks you trust….Go Hoosiers.

    Comment by ckashman -

  4. Totally off topic, but good job on the Simpsons last night. I think
    the ability to poke fun at one’s self is a great quality.

    Comment by chasep2001 -

  5. To sell or not to sell, that is the question. Whether tis nobler to suffer the slings and arrows of outrageous fortune, or take arms against a sea of shareholders and by opposing MAKE a fortune… and by a fortune, I mean a shit load… to end the heart-ache and the thousand natural shocks that middle class schmucks are heir to, tis a consumation devoutly to be wished. To sell, to get rich, to make a million… perchance to get caught– ay there’s the rub. For in that corruption of secrets publicly unknown what exchange investigators may come when we have shuffled off a thousand suspect shares. Thus, the SEC does make cowards of us all. Except you, Mark.

    Comment by les9 -

  6. The SEC is a joke. The black.dark.invisible.nonpublic market transactions of JUST pure equity options have grown to such a point that the whole public market system is fiasco.

    Comment by jcraddock -

  7. Are you saying Chris Cox is right or wrong about Fannie Mae and
    Freddie Mac being ‘naked shorted’ ? I briefly reviewed your comments
    re naked shorting from 2005.I don’t believe you made the dividend
    argument for share accounting such as Fannie Mae or NFI or Freddie
    Mac,in which no investor ever claimed to my knowledge having not
    received their dividends, etc. – but only voting with micro cap
    shares.But we’ve come along way since 2005 when you wrote that and I
    don’t presume you’ve missed the Chairman Mao’s ,I mean Cox’s,
    explanation of the Freddie Mae and Fannie Mac collapse as being
    caused by evil naked short selling did you ? I mean I’m amazed you
    haven’t commented on Chris Cox claim that Fannie Mae and Freedie Mac
    are victims of trillions of ‘naked short selling’ damage ! Haven’t
    you heard the ‘news’ from Chris ‘Naked Shorts’ Cox himself !? I
    believe lieing about NFI being ‘naked shorted’ followed by
    Northern Rock being blamed on that in planted stories in the UK was
    a warm up for Chris Cox like the big fat lady singing,mee mee mee ,
    ‘Naked Short Selling.’ But somehow I don’t buy his lie and it sounds
    like a fraudulent claim to me and the spreading of an incorrect rumor
    over the internet that SEC Cyber Czar John Reed Stark should be
    investigating regarding his own boss’s rumor ! Are ‘Bobo
    O’Brien’ and Chris Cox on the same team ? Have I entered the
    twighlight zone ?

    Comment by Tony Ryals -

  8. Hey Mark, I know nothing about insider trading but lets say I know a financial advisor that knows about a local stock going belly up or take off for that matter. What keeps him from telling “Aunt Matilda” or some other distant relative about it and taking advantage and then kicking back the money later? I am sure I’m not the first “Joe” to think of this. They do it with ghost payrolls all the time in family business’s to keep “expenses” up for later tax reasons. Why would’nt they do it for this also? You have to keep it small to keep it under the radar but apparently Martha didnt think of “Aunt Matilda”.Thanks for the thoughts.

    Comment by Frankie from Lawnside -

  9. Pingback: Mark Cuban’s Public Battle against the SEC | nPost Blog

  10. just keep poking that bear with the stick mark…
    he wont bite….

    Comment by Noteguy -

  11. The idea of a government watchdog not being able to stop it’s own employees from insider trading is a bit scary. Chock it up to another example of inefficient and broken government. Exactly, Agreed.

    Comment by Aetrex -

  12. I wish you all the luck in your ordeal. Maybe you can sue John McCain for misusing the word, “Maverick”. :)

    Comment by Ahmnodt Heare -

  13. B”H

    Mark – It is ridiculous that the SEC is chasing you when I handed them a case on a silver platter against the entrenched management of a public company, and it was ignored? Click this link for more details:

    http://www.utipu.com/app/invited/id/a0999af36f9b47d387999dd91384a3c3

    david portnoy
    portnoy@utipu.com

    Comment by David Portnoy -

  14. I doubt Mark is sticking it to the man
    because He and I understand the metaphor…

    Comment by Tim W -

  15. Pingback: footnoted.org » Blog Archive » Some post-Thanksgiving turkey…

  16. Do you think this posting will help or hurt your case? Even if this does not involve you, it will be added to the long list of why they ‘hate’ you. But of course, that’s the point of posting it. Maybe you should expand and launch GovtSleuth.com; then you can keep track of all abuses in all departments of the U.S. Government.

    Comment by econ365 -

  17. Pingback: theceodaily.com» Morning Update » December 1, 2008

  18. With all due respect, the only thing SEC related that I care about right now is wether Fllorida can knock off undefeated Alabama, and if they do will Florida leapfrog over UT into 2nd place in the BCS.

    I still hold out hope that Florida wins that game in an ugly unimpressive fashion and OU goes to number one with UT getting the two spot. Then we’ll have Texas v OU for the National Championship.

    All Big 12 title game and Texas gets a chance to prove once again they are the better team.

    Side note, I heard that Obama may pass legislation to deregulate the Cubs and allow free trading to the highest bid.

    Comment by Jeff in Dallas -

  19. are you serious or just attempting to garner public favor in your upcoming case? I totally agree with you in investigation cases where it is not public knowledge that some one or company is being investigated and as soon as it becomes public the market will react negatively. But Im sure you are aware that ALL filings are now electronic and posted to public record immediately on EDGAR. So SEC employees do not have any more advance knowledge of SEC filings than anyone else, they just might have better visibility of them, and very few would even have that. If you want to see what’s going on just take a look at the EDGAR database and interpret what you find like everyone else. I’m sure most people are unaware of EDGAR but surly you Mr. Cuban are not, which leads me to believe you are attempting to manipulate public opinion by blogging to the masses instead of taking your medicine for your own personal failure. Personally I like you and respect what you have accomplished, but don’t tarnish your maverick persona by pleading a baseless case to the uninformed masses.

    Comment by Troy -

  20. I think you’re one of the coolest, smartest entrepreneurs of our time. Good on you, because you also have pretty decent fashion sense.

    Comment by patricia -

  21. Nice work sticking the SEC in a glass house while they’re throwing stones.
    Now hopefully along with increased government oversight of industry we’ll
    have increased oversight of the government by the citizenry.

    http://chaosoutoforder.wordpress.com/

    Comment by mbilinsky -

  22. Pingback: Cuban Strikes Back…Again « Chaos Out of Order

  23. In the OIG Audit report (http://sec.gov/about/oig/audit/2008/semiapr08.pdf), they write: “In the other inquiry, the OIG is reviewing allegations that a Commission manager committed perjury in a letter to a Senator that discussed naked short selling in the context of a particular enforcement matter.” If you are referring to this, I’m pretty sure the “aggrieved” entity is Jag Media and the issue was brought by one of their paid consultants (link and name withheld so as not to give credence to the allegation).

    Comment by Jeff Mitchell -

  24. I worked for the OCC (Options Clearing Corporation theocc.com) for several years, and were were not allowed to own or trade stock options. I understood why, because I was privy to information that other folks were not.
    So I find it amazing that the governing body of the markets would allow employees to trade stocks. it’s a clear conflict of interest. you would just assume they’d not be able to do so.

    but you know what they say about assumptions..

    Comment by Mark -

  25. Pingback: tinyComb » Blog Archive » The SEC Blows A Whistle At Itself

  26. Mark, you have the “retaliatory investigation” regarding the naked shorting allegation backwards. The company that complained was Universal Express (USXP) where the CEO, Richard Altomare, used naked shortselling as an excuse for the decline in the company’s share price– which the SEC later proved was the result of the guy selling boatloads of stock even after a court order specifically barred him from doing so. Altomare was subsequently tossed in jail for not being truthful about his assets.

    You can read more about this in the NY Times at: http://norris.blogs.nytimes.com/2008/06/26/what-will-you-bid-for-a-lawsuit/. Gary Weiss has written extensively in his blog about USXP as well.

    Comment by Jeff Mitchell -

  27. Pingback: uglychart.com: a blog about stocks » Blog Archive » links for November 30th

  28. Wow. The pot calling the kettle black. The alphabet boys have some splainin to do.

    Comment by Justin -

  29. Wow.

    Who watches the watchmen, etc. etc.?

    Comment by researchrants -

  30. Well Mark, that will sure help your case with them regarding MAMA.

    Contrition never entered your head?

    Comment by MikeM -

  31. SEC=Severely Ethics Challenged security and exchange commission

    Comment by Fred Grott -

  32. You would think the SEC would have sufficient safeguards in place to prevent insider trading within it’s own ranks. The idea of a government watchdog not being able to stop it’s own employees from insider trading is a bit scary. Chock it up to another example of inefficient and broken government.

    http://www.ballardpresents.com

    Comment by ballardpresents -

  33. Marc,
    Glad you are up on this.Love watching it all play out.FYI was guided to this article rom twitter.

    Comment by Andrew Coffey -

  34. Pingback: Mark Cuban Weighs in on the SEC IG’s Semiannual Report to Congress

  35. Wonder how many of them bought yhoo late last week :)

    Comment by Tyler -

  36. Tell me exactly how you can try to stick it to The Man,
    when you are The Man. One can only wonder…

    Comment by Michael O'Neill -

  37. Mark – Hang in there. It appears you have them in your cross hairs – good luck!

    Comment by MLM -

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