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Kanjorski and Ackerman Undress the SEC and SIPC

By Larry Doyle on December 17, 2009 at 8:30 AM in Bernie Madoff, Current Affairs, Economy, SEC, Sense on Cents (Larry Doyle blog)

Having written about the massive regulatory failures on Wall Street for the better part of 2009, I am heartened by the House Finance Sub-Committee on Capital Markets hearing last week. The bell that tolled in this hearing deserves to ring loud, long, and clear across our great land.

Rackets operate best in the dark. Well, let’s get that flashlight out again. First a little background on SIPC, then two riveting video clips after the fold.

For those unaware, SIPC (the Securities Investor Protection Corporation) is an insurance fund in which member firms pay premiums to cover losses. From SIPC’s own website, we learn:

What SIPC Covers . . . What it Does Not

The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC.

Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well as investment contracts (such as limited partnerships) and fixed annuity contracts that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.

It is important to recognize that SIPC does not work the same way as the Federal Deposit Insurance Corporation in terms of blanket protection of losses.

For this insurance coverage, SIPC charged its member firms an annual premium of $150 from 1996 until April 2009. That is no joke. Wall Street firms paid a token $150 a year to promote the idea that your investments were protected. While SIPC did have a $1 billion reserve fund, that was woefully insufficient to cover the losses incurred in the Madoff scam. Make no mistake, though, the SIPC annual premium of $150 should also be looked upon as a scam.

Think of it. Individuals pay far more for auto insurance than Goldman Sachs paid for investor insurance for over 12 years.

Are you getting increasingly pissed off? America should be extremely pissed off. The SIPC coverage has been a critical part of the Wall Street racket.

What follows are two video clips from last week’s Congressional hearing on securities investor protection reform. The first 7-minute video clip highlights Rep. Paul Kanjorski (D-PA) undressing the SEC’s Mike Conley and SIPC’s Stephen Harbeck for the massive failure of the governmental and non-governmental financial regulatory system.

Kanjorski certainly hits on America’s rage at the dysfunctional financial regulatory system. My only concern with Kanjorski’s delivery was his very deferential comments directed toward SEC Chair Mary Schapiro. I can only guess he is not aware of the outstanding lawsuits against FINRA, including the Standard Investment Chartered vs. FINRA which alleges Schapiro and other FINRA executives of lying.

This next video clip is Rep. Gary Ackerman’s (D-NY) undressing of SIPC’s Stephen Harbeck. Ackerman rails on Harbeck and SIPC for the token $150 annual insurance premium paid by SIPC member firms. While we can watch Rep. Ackerman confront SIPC Chief Harbeck, how did we get here in the first place? Why haven’t heads rolled? Who is truly protecting American investors?

America deserves to know the full extent of the Wall Street racket that was and to a large extent still is facilitated by the regulatory incest between Wall Street and Washington. Will this hearing be a start, a finish, or merely a pit stop along the way?

candymarl

Why does Ms. Schapiro still have a job? She admitted that she was informed about Madoff in front of Congress and did nothing. Why wasn’t she fired? Guess she knows the right people.
http://www.sonicninjakitty.wordpress.com Sonic Ninja Kitty

Thank you for this post, LD!

The government-special interest connection is ruining our country. I don’t say ‘business’ because not ALL businesses are in on the scamming. Mid and small sized companies rarely have this type of influence. Additionally, a special interest can be another country.

Ban lobbyists. Fix campaign financing. Clean out congress and start over with new representatives. They should represent the PEOPLE of the US, not special interests.
creeper

The problem with arguing that Madoff’s investors should be covered lies here:

The cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm are protected by SIPC.

There never were any securities to cover. The investors just handed their money over to Madoff with seemingly no documentation of where it had gone. Where it went, as with all Ponzi schemes, was to pay off the earliest investors.
creeper

Hmmm…sorry, I missed the reference to “cash”. I suppose on that basis Madoff’s victims could make a case for recovery.

They sure can’t make a case for intelligent investing.
Docelder

It was intended it sounds like to cover investor monies held until they were invested, or monies from stocks sold and not yet transferred in the event the legitimate firm went out of business and outstanding transactions were in the pipeline. Did it ever anticipate fraud? Certainly not on this scale, but ever. I think this is the question… is or was fraud covered?
RICHARD FRIEDMAN

creeper: understandably, you cannot just view this video and have a complete understanding of all the issues. Please be aware that part of the SIPA statute makes reference to the “legitimate expectations” of the investor based upon their receiving confirmation of the purchases of actual (as opposed to fictitious) securities. The customers had every right to believe that Madoff was purchasing actual securities as evidenced in their statements and by the SEC stating numerous times that Madoff was clean. The fact that he never bought actual securities is irrelevant. That is the purpose of SIPC to protect people when something like that happens. The purpose of the SIPA act was to make the American investor protected when leaving their securities with the broker/dealer in street name. That is why SIPC is covering securities, even though none were purchased.

The cruel irony of all of this is that without the SIPA Act, what Madoff did could never have happened in the first place. While SIPC was created to protect investors, its very creation was the catalyst which allowed Madoff to create his scheme in the first place.
Scott

Never underestimate the creativity and duplicity of con artists. They will do anything to separate you from your money and securities. In one case, a group of fraudsters created a fake mirror image of the Securities Investor Protection Corporation (SIPC)’s website and used the “look-alike” site to mislead investors.
In order to warn investors about this scam, SIPC issued a press release which exposed a fictitious entity known as the International Brokers Association. The IBA website mimics almost exactly the look, feel, and content of SIPC’s website – with one notable exception. In the “members” area of the SIPC website, investors can confirm whether a brokerage firm is a member of SIPC by doing a search against the SIPC database. The IBA website, by contrast, simply lists IBA’s supposed members. Included among IBA’s members are fraudulent firms that do not appear on SIPC’s membership list and that are not registered with either the SEC or FINRA.
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