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Report: The Securities And Exchange Commission May Have Messed Up Again

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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.


The Securities And Exchange Commission Requests A Little Credit Where Credit Is Due, Please!

Yesterday, the Wall Street Journal ran a front page story reporting that the Securities and Exchange Commission had "blown" the cover of whistleblower Peter C. Earle. The article claimed that Earle, a former employee of Pipeline Trading Systems turned government informant, had his identity "inadvertently" revealed through a "gaffe" on the part of an SEC lawyer, who showed a Pipeline exec "a notebook from the whistleblower filled with jottings about trades, calls and meetings." The executive was said to have recognized Earle's handwriting and told his colleagues, who had previously suspected but did not know for sure that "Pete's the whistleblower." The story was easy to believe because if you've been keeping up with the SEC over the last number of years, you know that this sound exactly like something they'd accidentally do. Except that whereas the regulator fully copped to, for example, missing Madoff while trying to access 385 times/day, it says that this accusation? Is bull shit. It did not "inadvertently" "blow" anyone. Here's its strongly worded letter to the Journal saying as much: The Securities and Exchange Commission in no way exposed Peter Earle as a whistleblower, and our use of his notebooks in an investigative deposition was neither "inadvertent" nor a "breach" or "gaffe" ("Source's Cover Blown by SEC," Page One, April 25). It was a deliberate decision, which SEC lawyer Daniel Walfish discussed in advance with his supervisor, who was present for the deposition in which the notebooks were exhibited. Nor did the fully authorized use of the notebooks in any way compromise Mr. Earle or the integrity of the SEC's investigation of the Pipeline Trading Systems matter. Although it was widely known among executives of Pipeline and Milstream Strategy Group that Mr. Earle had approached the SEC after he was terminated from Milstream—a fact volunteered by several witnesses and acknowledged by Mr. Earle long before any use of his notebooks—the SEC declined to confirm his identity and still treated his status as a cooperating witness as confidential. The SEC made sure to obtain all of the notes of the approximately six Milstream traders, and in the SEC's deposition of Gordon Henderson (the supervisor of Mr. Earle and the other traders), the SEC used other traders' notes along with those of Mr. Earle. The use of these traders' notes—highly relevant evidence prepared in the ordinary course of their work at Milstream—in no way revealed whether Mr. Earle or any other trader was or was not cooperating with the SEC. George S. Canellos Director New York Regional Office U.S. Securities and Exchange Commission New York SEC Did Not Blow Source's Cover [WSJ] Earlier: SEC Burns Whistleblower In The Most SEC Way Possible

Securities And Exchange Commission To Make A Couple Calls Re: Vikram Pandit's Breakup With Citi

The Securities and Exchange Commission has launched a probe into the messy departure of Vikram Pandit as chief executive of Citigroup and whether the board of directors of the big bank properly disclosed his ouster, the FOX Business Network has learned. One person familiar with the matter says the SEC’s inquiry is informal and has not reached the level of a full-blown investigation. But it is a sign the SEC is clearly interested in the circumstances surrounding Pandit’s official “resignation” from the big bank. Those details have been in dispute since the October 16 announcement. Both Pandit and Citigroup chairman Michael O’Neill have said in interviews and during conference calls with analysts that the decision was Pandit’s to leave the firm. [FBN, earlier]