WALL of SHAME MR COX chairman of the SEC

SEC Faulted for Missing Red Flags at Bear Stearns

Inspector General’s Scathing Report Says Agency Failed to Require the Investment Bank to Rein In Its Risk-Taking

WASHINGTON — The Securities and Exchange Commission missed “numerous potential red flags” leading up to the shotgun sale of Bear Stearns Cos., and failed to require the investment bank to rein in its risk taking, according to a scathing report from the agency’s inspector general.

Inspector General David Kotz said it is “undisputable” that the SEC “failed to carry out its mission in its oversight of Bear Stearns.” Bear Stearns, one of the most aggressive investment banks, agreed to be sold to J.P. Morgan Chase & Co. in March after the firm’s clients fled and it was running out of cash.

[Cox, Christopher]

Christopher Cox

In 2006, the report says, the SEC staff “identified precisely the types of risks that evolved into the subprime crisis in the U.S. less than one year later.” Yet the agency’s staff “did not exert influence over Bear Stearns to use this experience to add a meltdown of the subprime market to its risk scenarios,” the report says.

Coming as the independent investment banks that the SEC once oversaw are effectively disappearing, the report amplifies doubts about the agency’s future when Congress and the next administration turn to redraw the regulatory landscape in the aftermath of the financial crisis. The findings may also bolster critics who blame the crisis on years of looser regulations that allowed Wall Street firms to take on greater risks without adequate oversight.

“These reports could be nails in the coffin for the agency,” said Jacob Frenkel, a former SEC enforcement attorney who is now a lawyer at Shulman Rogers.

Excerpt from WSJ

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~ by behindthematrix on October 8, 2008.

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