SEC: Do as We Say, Not as We Do

According to a recent report, some SEC employees have been too busy breaking rules to govern the actions of others.
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Perhaps it would have been better if regulators had merely "been asleep at the switch," as President-elect Barack Obama said last week.

Sadly, the reality is much worse for at least some workers at the

Securities and Exchange Commission

, who have been very busy doing things other than what they were hired to do.

Its semi-annual report to

Congress

-- which was conveniently released the Wednesday after Thanksgiving -- read like a shopping list of things not to do at work. After reading this report it's no wonder

Bernie Madoff

got away with as much as he did. Perhaps the newly nominated SEC chairman

Mary Shapiro

will do a better job than Christopher Cox in getting the workers to do the jobs they were actually hired for.

First, let's decide which is worse: personal trading while working at the SEC or surfing for porn. Let's start with porn. Now it wasn't just "accidentally" clicking on a Web site that was sent via email. This was a calculated effort to bypass the filters on blocked Web sites after getting numerous denials, according to the April-through-September report. There's more than one way to peel an onion. Maybe if the SEC used those smarts to track down fraud instead of sexually explicit material, it would be more effective. Even after the Office of Inspector General recommended that management take disciplinary action, some employees had gone unpunished as late as September 2008.

Some staff members violated commission rules governing employee securities transactions. Obviously when you are trading your own account it's hard to find time to regulate other people's trading. This investigation, as of September, is still pending. However, maybe the employee is just doing due diligence. It's important to know securities fraud in order to detect it.

Then there's the photography business that was run with government resources -- confirming that government work doesn't pay well. Luckily it wasn't sexual photographs; wedding portraits, maybe? The employee was only suspended for two weeks after using agency email, Internet phones and printers for several years to run this business. Either SEC employees are really good at covering their tracks, or their bosses are clueless. Considering all the fraud that is just now being discovered, bet on cluelessness.

Some SEC employees used their positions to bully people, like the time a worker called a family member's broker to make sure the broker was aware he worked for the SEC.

SEC employees falsified records and personnel forms. They even misused the government parking permit.

Even worse, several of the employees, according to the report, hadn't been punished even after the Inspector General recommended doing so. Apparently it's hard to get fired when you're a government worker.

Obama last week chose

Mary Shapiro

to lead the SEC in his incoming administration. Shapiro is the former head of the National Association of Securities Dealers, which was combined with the regulatory agency of the

New York Stock Exchange

(NYX)

to become FINRA. At least FINRA has consistently pursued broker misdeeds.

The SEC may have missed Madoff's years-long, $50 billion fraud -- but it did manage to snare the CEO of

National Lampoon

(NLN)

Daniel Laikin, who spent $68,000 to boost the price of National Lampoon's shares.

The SEC has also recently targeted Mark Cuban owner of the Dallas Mavericks for insider trading involving Mamma.com, now known as

Copernic

(CNIC)

, to avoid losing $750,000. They got Paul Berliner, formerly a trader at Schottenfeld Securities, for spreading rumors and fined him $130,000. And don't forget they famously went after Martha Stewart for her insider trading of

ImClone

, now owned by

Eli Lilly

(LLY) - Get Report

.

Does it seem like the SEC follows

People

magazine when pursuing what it believes to be fraud?

It wouldn't be the worst thing they were doing on the job.