SEC Wistleblower: More Madoffs to come.

December 27, 2008

Just when you thought we’d unwrapped that last gift of the Bush Administration, a former SEC investigator says there are more surprises under the tree.


Matt Renner of interviewed former SEC investigator Gary Aguirre. The SEC fired Aguirre and shutdown his 2005 investigation of Pequot Capital Management, when he pushed to subpoena then Pequot chairman John Mack, current CEO of Morgan Stanley. After Morgan Stanley took a $9 billion hit from sub-prime mortgage backed investments in 4th quarter 2007 and accepted a $5 billion bailout from the China Investment Corporation, the Bush Administration selected Mack and his firm to manage the Fannie Mae/Freddie Mac buyout. Go figure.

Here’s what Aguirre had to say to Truthout regarding the fraud in progress on Wall Street (emphasis mine):

AG: I believe that the SEC has been reluctant to apply the securities laws to the big players, to Wall Street’s elite. They have often gotten a pass. The SEC is focused on the small players


MR: Do you think there are other Madoffs out there?

AG: We have to look back in history. Yes, I do. I believe there are other Madoffs out there. I don’t think that the banks are finished collapsing and imploding, and I think we will also see more evidence of market abuse and insider trading. The way it works is when markets are going up, none of this comes to light. But when you have the markets begin to go into free fall and people begin losing money, it becomes hard to conceal the fraud. That’s what happened in Madoff’s case. In 1929, when the market crashed and the Senate Banking Committee surveyed the rubble, they discovered all kinds of fraud by Wall Street elite.

I’m not sure that all of the dirt has come to light at this point. I think one reason for that is because [Treasury Secretary Henry] Paulson, a representative of Wall Street, has been pumping money into the system. We’re transferring trillions of dollars from taxpayer’s pockets to Wall Street to try to stem the downward cycle that we are in and perhaps to some extent we have. But that may help conceal the extent of the fraud. It is when the veneer is completely stripped away; that’s when you discover the fraud. To the extent that we are pouring trillions into the capital markets, we may delay, postpone or even prevent the full extent of the fraud from surfacing. But I think it is out there and I don’t think the downward cycle has ended yet. As long as it continues, we’ll discover more.

In retrospect, the fraud that pervades Wall Street is exactly what we should expect under the blind eye of an administration run by people — that is to say, Republicans – who believe that markets self-regulate and the main job of government is to hand out favors (“spread the wealth”) to fellow members of The Club.

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