Reflections beyond the Aguirre Memo's

Certainly these past few weeks raises some concern over where the heads of Securities Regulators and Congressional oversight has been.

As if the allegations by Mr. Aguirre of SEC cover-up were not enough, the public was also witness to a spectacle of equal concern; that of a turf war between the Senate Banking Committee and the Senate Judiciary committee over the protection of our capital markets.

Digging deeper into the timeline to the Aguirre allegations of protectionism within the SEC we come to learn that Kathleen Casey, the top aide to Banking Chairman Richard Shelby and in consideration for a post as SEC Commissioner, was in possession of material information regarding this issue as early as mid-March 2006.

According to the May 30 memo by Aguirre, what was presented to Casey was not simply the 18-page document we have now seen published throughout mainstream media but instead a 42-page sworn statement with an additional 46 exhibits.  The data he says support his allegations of insider trading fraud regarding a well known hedge fund, a top Wall Street Executive, and an SEC effort to cover-up the investigation.

While in possession of such critical information the Senate Banking Committee proceeded to hold a public hearing on the role of the hedge fund in the capital markets on May 16, 2006.  Hedge Funds were one of the major topics of discussion in the Aguirre memos to Congress.

Amazingly the Banking Committee, with 2-months under their belt to investigate the Aguirre allegations, never mentioned word one about the charges alleged by Aguirre.  Instead, Banking Committee Chairman Richard Shelby and ranking member Paul Sarbanes elected to downplay the issue until the Senate Judiciary Committee saw fit to take control of an out of control situation.  Then and only then did the Chairman of the Banking Committee step forward to claim responsibility for such an investigation informing the Judiciary committee that the regulation of the capital markets was their responsibility.

Clearly Senator Shelby, who has routinely blocked committee member efforts to hold public hearings on hedge fund abuses, had been hedging on this issue never being exposed to the public.  Why else risk the appearance of impropriety and favoritism at a time when the policing of these markets have never been more in question?

So how conflicted has the SEC and possibly the Banking Committee become?

Consider that in 2001 insider trading and illegal shorting activities involved several small hedge funds run by managers Hilary Shane and John Mangan.  The funds they controlled had illegally sold short Compudyne at a time when they possessed non-public material information.  Also included in the illegal shorting activity in Compudyne is alleged to be a more established figure to Wall Street, co-Chairman of Friedman Billings & Ramsey (FBR) Emanuel Friedman. 

While Shane, in 2004, was bared by the NASD for her participation in the fraud and Mangan was merely fined by the SEC in 2005, Friedman remains free of all charges despite SEC filings by FBR that indicate a settlement has been in the works for better than 2 years.  Sources close to this story indicate that the SEC is attempting to appease Friedman in these negotiations instead of taking the hard stance necessary in passing the message along to future violators and Wall Street executives.

Instead of a message of significance the SEC is passing a message of complacency.  Depending on who you are, we will work with you until you are satisfied.  Friedman remains free of any SEC enforcement despite all the public articles and SEC filings that admit his personal involvement.

If we now fast forward to what Aguirre alleges today, it would appear that the SEC is not even willing to negotiate a soft enforcement against Wall Street's most respected instead willing to look the other way completely.

The allegations of insider trading regarding Pequot Capital dates back several years.  It has been nearly a full year since the SEC terminated Aguirre after Aguirre sought a subpoena against one of Wall Street's finest, and yet the SEC contends that the investigation is still on going.  The SEC all but admitted this when they threatened Mr. Aguirre just prior to his testimony before the Senate Judiciary committee citing privilege to on on-going investigation.

So how is it the SEC can immediately seek out insider trading charges on Martha Stewart, and make the episode extremely public, yet years after the fact still are quietly investigating this matter?  This episode is based on 18 NYSE referrals and could involve upwards of $18 Million or more in illegal profits. According to the accused, the SEC has never even spoken to the individual or the firm involved. 

The Senate Banking Committee has had their opportunity and they have repeatedly elected to ignore the tell tale signs.  It is not just the opportunity to address this smaller issue but the more global opportunity to address the lack of regulatory commitment against the powers that run Wall Street.  This past decade alone fines exceeding tens of billions of dollars have been lobbied against Wall Street firms, most against our big name firms, and yet not a single executive or compliance officer was held accountable.  How can that be?