The SEC fucks up a lot. A whole lot. This is more or less a given. David Einhorn has been saying this for eons-- from personal experience, having dealt with the brain trust in the case of Allied Capital--, as has Bernie Madoff who, from the jail cell in which he rots, made no bones about the fact that he was eternally grateful that the regulator operated at the intelligence level wherein it wouldn't know not to stick its (collective) dick in a pencil sharpener. Still, for those of you who need just a little more proof, SEC inspector general David Kotz is happy to add some color.

About two miles separate the Securities and Exchange Commission's headquarters in Washington from the offices of Allied Capital, a District-based private-equity company. But over the course of an 18-month government probe into whether Allied Capital overstated the value of its holdings, nobody from the regulator ever visited the firm to ask questions, according to a new, internal SEC review that raises questions about the agency's oversight of the financial industry.

The SEC's watchdog found that the agency failed to properly pursue serious allegations made against Allied Capital, a public company that invests in small to midsize businesses. But after heavy lobbying by Allied Capital, the agency aggressively pursued [David Einhorn] who had challenged the value of Allied's investments. Among other things, Kotz questions how SEC officials decide to open investigations and whether they are unduly influenced by outside lawyers -- particularly former SEC officials -- in conducting the probes.

Einhorn has stated that he wants to see the redacted version of Kotz's report, which is understandable. In the event his request is not processed, however, we've a hunch as to the kind of stuff that was deemed necessary to blur out and Einhorny? It's something innocent hedge fund managers like yourself should never have to see.