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Anyone doubting the veracity of this blog, and my tenet that the SEC is co-opted and dangerously out of control, got a hell of a wake up call if they listened to the Senate Judiciary hearing today, wherein the SEC was called onto the carpet over its handling of the matter of Gary Aguirre's firing, and the Pequot/Mack insider trading/stock manipulation investigation.
It was pretty clear to me that Senators Specter and Grassley weren't buying a word of the SEC's pitch, and further were increasingly annoyed at the lawyerly non-answers that the SEC personnel tried to respond with.
Aguirre was composed as he gave testimony today. He was clear, believable, detailed, reasonable, and generally meticulous in his testimony. It supported his previous testimony.
The SEC argued that they never used political considerations to decide whether to investigate or subpoena a subject.
The fireworks came down to this:
"Gary is a liar, unbalanced, erratic, and a rat bastard."
Gary's response: "Not one shred of fact or paperwork backs this BS."
Gary also pointed out that the grand total of insider trading investigations leveled against hedge funds is 6 - 3 in PIPES cases, 2 against small funds that have generated a whopping $160K worth of fines, and a third that took 5 years to file. That's it.
Linda Thomsen rebutted that it was a growing and very important/challenging area the SEC was planning on pursuing.
For those who haven't learned via my blog, that is what the SEC says when they've done squat, and want to appear to care about whatever they are talking about.
They are "considering" this "challenging" area. Just as they have been "considering" the "challenging" area of violating all the 1934 mandates for prompt delivery - in fact, 72 years after that Act was passed, they are still considering that area, all the while as the number of delivery and receipt failures skyrockets to the current $63 billion number we now know from the SIA summary of NYSE member firms.
They certainly consider challenging areas a lot.
Got to give them that.
The discussion from the SEC folks universally lambasted Aguirre as a kook, a loose cannon, a malcontent, a tantrum thrower, etc. Exactly the same charges leveled against Ed Gray, the regulator who tried to rein in the S&L nightmare. It seems that the repertoire doesn't really change over the decades. Of course, other than hot air, there is exactly no evidence that the SEC is telling the truth, and plentiful evidence for Gary Aguirre's position.
Oh. That.
As to the two step merit increases, it is now a "overly generous" evaluation.
Hanson, Aguirre's supervisor, was hung by Specter after he was forced to admit that he had referred to Mack as a "bad guy." That was after the SEC had taken the position that there was no reason for Aguirre to view Mack as a valid suspect. Kind of uncomfortable, in the time-honored tradition of folks caught flat-footed, his memory failed him as to why he referred to Mack as a bad guy. Just couldn't remember. Slipped his mind. Drew a blank. Specter seemed unconvinced, to say the least.
Now, however, he can certainly recall that he doesn't think that Mack is a bad guy. So he did then, but doesn't now. But can't recall why that is. Maybe because Mack fired people? That was the best he could marshal.
"Why were you standing over the dead body, holding a bloody knife, screaming "You're a bad guy"?"
"Uh. I don't remember?"
I loved it. Nothing better than really smart guys who recall every nuance of what a wingnut Aguirre was, but suddenly get amnesia when written evidence surfaces that casts doubt as to the veracity of their statements.
Eric Ribelin, current SEC branch chief for the office of market surveillance, said flat out that he felt that Aguirre was tenacious and professional in his behavior. This contradicted the testimony of the other SEC guys - Kreitman, Hanson. Ribelin indicated that he was surprised that Paul Berger, who was usually aggressive, was unsupportive of the Pequot investigation.
Ribelin had sent Hanson an email that said, point blank, that he felt that as far as the Pequot investigation, "Something smells rotten."
Ribelin was extremely sharp, believable, genuine in his testimony, and threw a huge monkey wrench into the SEC official stance that Aguirre was a kook. Ribelin indicated that he had discussed with Hanson how Hanson felt that they had to proceed cautiously regarding Mack, given his prominence, and that he had to be pursued cautiously. Ribelin proposed, as had Aguirre, that they just call Mack and ask some basic questions. Hanson didn't reply.
Hanson insisted that merger and acquisition data was highly confidential, and that nobody was told this info.
Which of course ignores that data shows strong evidence of big moves ahead of M&A activity. So who is doing all that trading? And why? The SEC's position is that that data just doesn't get out.
That's our regulator.
Aguirre says that Mack was given the opportunity to triple his money on a deal he was given by the guy trading for Pequot, immediately following all the funny trading in GE. The notion was that Mack gave Sanborn (the trader) the tip, in exchange for a piece of the "Fresh Start" deal he'd been trying to get into for a long time. He got in the night of his discussion when it is alleged that he might have traded the GE tip - that was Aguirre's smoking gun as a quid pro quo. And the tripling of the value was re-emphasized by Specter, after Hanson obviously dishonestly claimed that he wasn't aware of any investment that had done more than double.
On the topic of the "re-evaluation" that was done on Aguirre, in his absence, while he was on vacation, all the SEC folks tried to do the pass the hot potato dance. Nobody knew the answer as to whether there had ever been another re-evaluation, in the history of the SEC. Ever. Nobody had looked into that at the SEC, apparently, before testifying to Congress, when they knew that was going to be a big part of the hearing. So nobody could tell Specter how many times it had happened in the past.
Specter seemed to feel it was never. Ever.
Specter also asked point blank whether they felt that it was suspicious that he had gotten all these favorable reviews, and then suddenly had been fired.
After the inspector general refused to answer Specter's question about whether the justice department is advising the Inspector General not to discuss the matter with the Judiciary Committee, "The plot grows thicker all the time."
After providing a 30-second summary that captured the harassment of Aguirre by the SEC, contradictory sworn testimony, suspicious disciplinary actions, only interviewing Mack once the statute of limitations had run out, the Inspector General NEVER bothering to interview Aguirre before deciding his firing was kosher (which Specter incredulously called "extraordinary), etc. etc. etc., Specter clearly was agitated and clearly very annoyed.
After Grassley, who was equally angry and agitated with the SEC, had heard a bunch of the testimony, he cut the SEC off and proposed legislation that would stop a government agency from hassling whistleblowers like Aguirre - the SEC is subpoenaing all his correspondence with Congress, which both Grassley and Specter went nuts over - and justifiably so, as Aguirre pointed out that he had already supplied an exhaustive amount of data to the SEC.
As he closed the hearing, Specter said, "We are not finished with this."
His last words were that this is "Very, very troubling, at a minimum."
Yes, Senator. You are correct. What you are seeing is a regulator acting like a private company trying to engage in a cover-up of its nepotism and obstruction of justice. Exactly like one. And its ego and power is such that it thinks it can tell Congress to pound sand.
Any questions?