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Paul Kiesel
Paul Kiesel
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The Ignorance of the SEC

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A Preface Concerning The Washington Times

"Maybe, I think, I can get the Washington Times expelled from the association (the American Society of Newspaper Editors)." – Al Franken on the "scandalous breach of journalistic ethics" at The Washington Times.

When thinking of the journalistic integrity of The Washington Times, words like "accuracy," "fact-checking," "objectivity," and "interesting-news-articles" don’t immediately come to mind.

In fact, a story Al Franken retells in his book, "Lies and the Lying Liars Who Tell Them," captures the mentality (journalistic and political) of the Washington Times. The story starts with Mr. Franken performing his stand-up act at the White House Photographers Dinner, and how he goes into a "McCain riff." The "riff" or "bit" deals with McCain’s time at the Hanoi Hilton in an ironic way (not mean-spirited at all), and the Washington Times reports on Mr. Franken’s routine terribly inaccurately.

Now, Mr. Franken likes McCain. He tells a story prior to his riff on McCain about how he finds the senator to be estimable in character and professionally (they had a mutual friend who died, and the story behind that relationship is what Mr. Franken found likeable and sincere about McCain). But the Washington Times journalist who wrote a story on Franken’s act the following day was devoid of any ability to sense laughter in the room and humor in Franken’s witty storytelling.

An article was subsequently published, reporting on that event, and Mr. Franken objected to the veracity of its content. He got a chance to publicly refute it as a keynote speaker at the American Society of Newspaper Editors, which is where the earlier Franken quote on The Washington Times is extracted from:

"I call the Washington Times and ask for their managing editor. I get a guy named Bill Giles. Giles tells me that there is no way that McCaslin’s story is true (McCaslin who was credited with writing the ficticiously-driven Franken article, claims his editor wrote and inserted the article under McCaslin’s column as if it was a common procedure at the newspaper). He’s adamant. An editor would never inserts something into a columnist’s copy without consulting him. It would be a total violation of every journalistic tenet.

"Well that threw me for a loop. So I call McCaslin, and he says no, it wasn’t the managing editor who inserted the copy. It was Wes Pruden, the executive editor. My next call is to Pruden who answers his phone.

"I tell him who I am and explain the situation. And I ask him, ‘Do you ever insert copy into a column without consulting the columnist?’ A pause. then, ‘Yes, we do that.’

"I thank Pruden and call back Giles. ‘Yeah, I just talked to Wes Pruden. And he confirmed McCaslin’s story. You know that policy you said you had. Your paper evidently violates it all the time.’ There was silence on the other end of the line. Then, ‘Okay. Thanks. That’s good to know.’ ‘One other thing,’ I say. ‘When do you plan to tender your resignation?’ Another beat of silence, then, ‘Thanks. Thanks for calling.’

"So I went to the dinner (the American Society of Newspaper Editors dinner), told the group the same story I just told you. There was sort of a collective shrug that said: ‘Yeah, that’s the Washington Times.’"

Bernie Madoff Whistleblower

However, today, The Washington Times published a very interesting article (I’m just as surprised) on a whistleblower who explicitly tipped off the SEC, back in 2000, on Bernie Madoff’s burgeoning Ponzi scheme, and how the SEC neglected to inquire further into this information or even verify that what they were being told was accurate or not.

Incidentally, I came across this gem of a story at TheWashingtonNote.com.

Here is the first half of the article outlining the "regulatory incompetence" of the SEC and how Madoff’s business affairs were connected to the global scandal of toxic mortgage assets:

DE BORCHGRAVE: Ignorance is not bliss by Arnaud de Borchgrave

In 2000, Harry Markopoulos, a Greek-American leading expert on derivatives, wrote to the Securities and Exchange Commission‘s Boston office to inform the federal watchdog of markets that Bernard L. Madoff was running "the world’s largest hedge fund fraud." He stipulated, "My name not be released to anyone other than the branch chief and team leader in the New York region, without my express permission."

Mr. Markopoulos was worried about his safety and that of his family. He said his report was written solely for the SEC’s internal use." He was clearly afraid of assassination. But his red flag was only one of 28 such warnings to the SEC in the first eight years of the 21st century.

A Greek-American friend of Mr. Markopoulos, now in Switzerland, wrote in his blog, "He nailed Madoff, listing the back-door marketing and financing schemes as if he were an insider. But the SEC did not respond. Powerful political voices ordered the SEC not to proceed. I am not naming names because libel laws mostly favor the criminal in Europe, and their names will never get past libel lawyers. The largest investors were not Jewish charities as was reported by New York newspapers, but French, Spanish and Swiss private banks."

Mr. Markopoulos predicted the implosion of all the main funds (which he named) that dealt with Mr. Madoff four years before they imploded. That nobody listened or did anything about it is an even bigger scandal.

A total mental meltdown of 3,000 SEC bureaucrats, each presumably endowed with average mental faculties, and a headquarters festooned with red flags, taxes credulity.

Cognoscentis laugh at the idea that Mr. Madoff, still under house arrest secured by $10 million bail, was a lone-wolf operator. That his brother, two sons, nephew and niece and his wife Ruth did not know stretches credulity. Mr. Madoff himself knew the jig was up almost 18 months before the end. As Taki Theodoracopoulos, a friend of Mr. Markopoulos, says in his blog from Gstaad, Switzerland, "the great con artist had more than a year to prepare how to con the government about who was in on the con. The so-called ‘feeder funds’ now claim they knew nothing and are themselves victims. But they should have known. Whatever happened to due diligence?"

Mr. Madoff continued his fraudulent operations with impunity till last September when he was arrested in the $50 billion Ponzi scheme, a tad larger than Charles Ponzi’s original scam that bilked investors out of a mere $15 million in 1920, equal to about $150 million today. Who was Mr. Markopoulos afraid of? That’s the mystery that remains to be elucidated.

Another is the interesting relationship between Mr. Madoff’s niece Shana, a rules-compliance officer at her uncle’s business, and her now husband, Eric Swanson, an attorney and former SEC compliance officer. Mr. Swanson was also tasked with reviewing Madoff’s business in 1999 and again in 2004. He married Shana in 2006. A co-founder and former head of the Nasdaq stock exchange, Mr. Madoff was widely regarded as beyond reproach. He also bragged about his ties to the SEC.

The Madoff affair is not unconnected to the global scandal of toxic mortgage assets, a criminal enterprise of subprime mortgages that slowly engulfed the entire world in 2006 and 2007 and felled financial houses on both sides of the Atlantic, triggering humongous bailouts at the expense of the taxpayer.

Also not unconnected was Jerome Kerviel, the 32-year-old French junior trader who rocked the financial world a year ago with what was then the biggest trading loss in history – $6.3 billion at the Societe Generale. The bank spent three days unwinding $65 billion of bets Mr. Kerviel had made on its derivatives desk. Both Mr. Madoff and Mr. Kerviel demonstrated in their own way the advantage of cyber heists over bank robberies with a gun and a note at a teller’s window.

For the rest of the article, click here.