Schapiro’s Porn-Surfing S.E.C. Looks the Other Way as Wall Street Shafts Main Street—Again

April 29, 2012

This week, Mary Schapiro tore herself away from the S.E.C.’s extensive stash of taxpayer-funded pornography long enough to explain her agency’s wholesale failure to pursue financial fraud charges against Lehman Brothers.

The occasion was 60 Minutes’ interview of Lehman Bankruptcy Examiner Anton Valukas, who said a jury would have to weigh executive claims of ignorance against mountains of documentary evidence that even CEO Dick Fuld was fully aware that Lehman’s fraudulent Repo 105 practice concealed billions in losses from investors.

http://www.cbsnews.com/video/watch/?id=7406224n

When Lehman declared bankruptcy in 2008 with $613 billion in debt, the company destroyed the previous record of $104 billion held by WorldCom since 2002. http://articles.marketwatch.com/2008-09-15/news/30748651_1_lehman-bonds-...

The Securities and Exchange Commission, as it turned out, was on Lehman’s premises throughout much of 2008 as the company entered its death spiral. As such, the S.E.C. had unfettered access to internal documents that showed the unprecedented rot inside of the Lehman.

The S.E.C., for example, knew all about the May 16, 2008 letter from Lehman insider Matthew Lee describing Lehman’s practice of concealing massive holes in its balance sheet--$50 billion in the instance Lee wrote about—through Repo 105 transactions. Lehman used Repo 105 to push toxic assets out of its back door every quarter to conceal its massive debts, only to take those assets back on days after the quarter passed.

The S.E.C. has thus known about Lehman’s Repo 105 fraud for nearly four years. Indeed, Lehman’s shady accounting practices were a public topic of discussion while the S.E.C. was on site at the company. Max Keiser, for example, wrote about Lehman’s “peek-a-boo” accounting schemes on the Huffington Post in July 2008. http://www.huffingtonpost.com/max-keiser/peek-a-boo-accounting-and_b_111...

The S.E.C. took no action against Lehman four years ago, and in fact has taken no action against the company since the executives were made aware of the fraud now known as Repo 105.

Lehman’s internal “Repo 105” tag has been publicly known since March 2010, when Lehman Bankruptcy Examiner Tony Valukas published the Lehman bankruptcy report. http://www.jenner.com/lehman/VOLUME%201.pdf

The Lehman bankruptcy report includes some 8,200 footnotes over the course of more than 2,200 pages—not including thousands of pages of appendices—granularly describing the company’s fraudulent but unsuccessful effort to conceal its record-smashing insolvency.

With the publication of the huge bankruptcy report, the S.E.C.’s failure to take action begged one rather huge question: what exactly was the S.E.C. doing if not investigating potential criminal fraud charges?

The answer emerged one month later, when the public learned that S.E.C. officials—rather than pursuing Lehman—had been watching porn for the past five years.

"It is nothing short of disturbing that high-ranking officials within the SEC were spending more time looking at pornography than taking action to help stave off the events that brought our nation's economy to the brink of collapse," said Rep. Darrell Issa.

http://articles.cnn.com/2010-04-23/politics/sec.porn_1_sec-employees-sec...

Despite the exposure of S.E.C. officials as incompetent perverts who missed the nation’s financial collapse because they indulged their sexual fantasies on the nation’s dime, Mary Schapiro has done and continues to do nothing about Lehman.

Schapiro is worse than worthless. She rationalized the S.E.C.’s failure this week: "the illegality of conduct is sometimes not quite as clear-cut as it seems to be or as reported to be, and it makes bringing cases extremely difficult."

http://www.reuters.com/article/2012/04/25/us-sec-lehman-idUSBRE83O16R201...

“Clear-cut,” of course, is not the legal standard required to bring a case. If it were, there would be no need for a jury to weigh mountains of incriminating and contemporaneous documents and emails, on the one hand, against Dick Fuld’s claim on the other hand, made years after the fact, that he was ignorant that Lehman engaged in an accounting sham each and every calendar quarter.

Nevertheless, to understand just how preposterously high a hurdle Schapiro’s “clear-cut” standard actually is, consider another case in which the S.E.C. found the evidence insufficient even to investigate—that of Bernie Madoff.

In May 2005, an accountant from Erie, PA named Harry Markopolous submitted a 17-page email to the S.E.C. The title of Markopolous’ email was certainly clear-cut: “The World’s Largest Hedge Fund Is a Fraud.”

http://articles.businessinsider.com/2008-12-17/wall_street/30025507_1_po...

The email described in intricate detail how Madoff’s published hedge fund performance data could not have been real, leading Markopolous to the logical and only conclusion: “Madoff Securities is the world’s largest Ponzi Scheme.”

http://www.nytimes.com/2009/01/04/opinion/04lewiseinhorn.html?pagewanted...

As noted, the S.E.C. did not find Markopolous’ email persuasive enough to even open an investigation. But how convincing was it actually? Writer Michael Lewis and phenom hedge fund manager David Einhorn found it “devastatingly persuasive.” Id.

The S.E.C.’s mission under Mary Schapiro is categorically clear: watching porn instead of prosecuting or even investigating Wall Street criminals.

Schapiro, of course, claims that the Lehman matter is still under investigation. Sadly, there is only way to conclude that Schapiro isn’t lying through her teeth when she says this: the S.E.C. will continue “investigating” Lehman until the 5-year statute of limitations runs—starting next year—on nearly of all Lehman’s crimes. At that point, Mary Schapiro and the S.E.C. can pat themselves on the back for a job well done—and hope for job treats from Wall Street.

It doesn’t get any more clear-cut than that, Mary.