This guy is selfless, diligent, still after Justice. Great individual. He will not embarrass you if you are his friend. And Gasparino, at the time, with Judy Burns of the WSJ said he had nothing.........
Gary Aguirre interviewed on MADF
Gary Aguirre on the SEC
After a successful career as a trial lawyer, Gary Aguirre turned his attention to public service, trading in a lucrative practice to become a government lawyer tasked with investigating financial crimes.
In the course of an investigation into possible insider-trading by hedge fund Pequot Capital Management, Aguirre pushed to subpoena Wall Street star John Mack, now the chief executive of finance giant Morgan Stanley. The investigation was halted by Aguirre's supervisor and the SEC allowed the case to die.
A subsequent report by the internal SEC watchdog found that Aguire's supervisors acted improperly in firing Aguirre and shutting down his investigation. While the report recommended punishment against four officials in the chain of command, Cox declined to hold them accountable.
Aguirre continues to closely follow the activities of officials in Washington, DC, and executives on Wall Street. I spoke with Aguirre about the significance of the Madoff fraud and the failure of SEC to stop it.
Matt Renner: Why was Madoff able to hide his activity from oversight?
Gary Aguirre Madoff was an investment adviser, which means the SEC had regulatory authority over him. He engaged in a classic kind of fraud called a 'Ponzi' Scheme, which means that he gave phony profits to some investors which he took from the pockets of other investors. That kind of fraud is difficult to detect until investors can't get their money back. Then it comes to light. In this case, we know that there were repeated complaints to the SEC over a period of nine years. The SEC was told Madoff was operating a Ponzi scheme. So, it is stunning that the SEC failed to investigate those allegations and uncover the fraud. It's a new low for the SEC.
MR: What oversight powers does the SEC hold over this type of financial activity?
GA: An investment adviser is a regulated entity. The SEC can obtain a stay order, can bring the whole business to a halt, they can go in and look at records without a subpoena, they can conduct an audit. SEC has considerable regulatory authority to examine the ongoing business activities and do whatever is necessary to protect the public.
MR: Why do you think the SEC didn't use these regulatory powers in this case?
GA: We can't really prejudge it at this point. There is a lot of talk in the media that there were personal links between SEC staff and Madoff. One has been identified; I'm not sure he was the only one involved. But stepping beyond personal connections, in general, I believe that the SEC has been reluctant to apply the securities laws to the big players, to Wall Street's elite. They have often gotten a pass. The SEC is focused on the small players.
In the investigation that I conducted, which is now the subject of a Senate report, there was suspicious trading activity involving both a hedge fund involving an $18 million profit. They also detected a $150,000 profit by a low-level employee of General Electric (GE) and a Taiwanese kung fu instructor. SEC passed on the hedge fund case where the trading indicated millions in profit and SEC focused on the GE employee and the kung fu instructor. The SEC and the US attorney rigorously prosecuted the low-level GE employee, but both passed on any investigation of the major hedge fund.
This is not a rarity; it is more the practice. The exception is when they look at an elite player on Wall Street. Not only is it an exception, if you try to pursue a big player as I did; it can be career-shortening experience. At the SEC, it is a culture of deference. That culture is intolerant of investigations into the Wall Street elite. Keep in mind that the SEC was created to keep an eye on Wall Street, so it has completely lost sight of its mission and that is why we have a situation like the one with Madoff.
MR: What is it about the culture at SEC that steers them away from looking at the big Wall Street players?
GA: All the agencies have to some extent or another a revolving door [where government employees rotate out to the private sector and earn more money]. But at the SEC, what you rotate into is an enormous salary leap. SEC managers may make $200,000. That same person may make $2 million as a starting salary on the outside and can move up from there. Now, when he leaves, I'm not sure he's worth $2 million as a lawyer, but he takes his Rolodex with him and that Rolodex is gold. The system maintains itself, because those that stay know their turn will come if they play the game. They see a director or associate director move onto a $2 million job with a Wall Street law firm. Then, the departed employee calls back to his former colleagues and says, "you know I really don't think there is much of a case against so-and-so, I'd like for you to take a look at it." And the case goes away; the system goes on in perpetuity.
MR: Did you see the revolving door in action in your case?
(On January 31, 2005, prior to the phone call mentioned below, an email beginning with the word "Yowza!" was sent from Jan Lower, an attorney at the Debevoise and Plimpton law firm, to Aguirre's supervisor Paul Burger. The email described in detail the potential earnings that a former SEC official could receive at the Debevoise and Plimpton law firm - $2 million a year.)
continued..................
Gary Aguirre interviewed on MADF
Gary Aguirre on the SEC
After a successful career as a trial lawyer, Gary Aguirre turned his attention to public service, trading in a lucrative practice to become a government lawyer tasked with investigating financial crimes.
In the course of an investigation into possible insider-trading by hedge fund Pequot Capital Management, Aguirre pushed to subpoena Wall Street star John Mack, now the chief executive of finance giant Morgan Stanley. The investigation was halted by Aguirre's supervisor and the SEC allowed the case to die.
A subsequent report by the internal SEC watchdog found that Aguire's supervisors acted improperly in firing Aguirre and shutting down his investigation. While the report recommended punishment against four officials in the chain of command, Cox declined to hold them accountable.
Aguirre continues to closely follow the activities of officials in Washington, DC, and executives on Wall Street. I spoke with Aguirre about the significance of the Madoff fraud and the failure of SEC to stop it.
Matt Renner: Why was Madoff able to hide his activity from oversight?
Gary Aguirre Madoff was an investment adviser, which means the SEC had regulatory authority over him. He engaged in a classic kind of fraud called a 'Ponzi' Scheme, which means that he gave phony profits to some investors which he took from the pockets of other investors. That kind of fraud is difficult to detect until investors can't get their money back. Then it comes to light. In this case, we know that there were repeated complaints to the SEC over a period of nine years. The SEC was told Madoff was operating a Ponzi scheme. So, it is stunning that the SEC failed to investigate those allegations and uncover the fraud. It's a new low for the SEC.
MR: What oversight powers does the SEC hold over this type of financial activity?
GA: An investment adviser is a regulated entity. The SEC can obtain a stay order, can bring the whole business to a halt, they can go in and look at records without a subpoena, they can conduct an audit. SEC has considerable regulatory authority to examine the ongoing business activities and do whatever is necessary to protect the public.
MR: Why do you think the SEC didn't use these regulatory powers in this case?
GA: We can't really prejudge it at this point. There is a lot of talk in the media that there were personal links between SEC staff and Madoff. One has been identified; I'm not sure he was the only one involved. But stepping beyond personal connections, in general, I believe that the SEC has been reluctant to apply the securities laws to the big players, to Wall Street's elite. They have often gotten a pass. The SEC is focused on the small players.
In the investigation that I conducted, which is now the subject of a Senate report, there was suspicious trading activity involving both a hedge fund involving an $18 million profit. They also detected a $150,000 profit by a low-level employee of General Electric (GE) and a Taiwanese kung fu instructor. SEC passed on the hedge fund case where the trading indicated millions in profit and SEC focused on the GE employee and the kung fu instructor. The SEC and the US attorney rigorously prosecuted the low-level GE employee, but both passed on any investigation of the major hedge fund.
This is not a rarity; it is more the practice. The exception is when they look at an elite player on Wall Street. Not only is it an exception, if you try to pursue a big player as I did; it can be career-shortening experience. At the SEC, it is a culture of deference. That culture is intolerant of investigations into the Wall Street elite. Keep in mind that the SEC was created to keep an eye on Wall Street, so it has completely lost sight of its mission and that is why we have a situation like the one with Madoff.
MR: What is it about the culture at SEC that steers them away from looking at the big Wall Street players?
GA: All the agencies have to some extent or another a revolving door [where government employees rotate out to the private sector and earn more money]. But at the SEC, what you rotate into is an enormous salary leap. SEC managers may make $200,000. That same person may make $2 million as a starting salary on the outside and can move up from there. Now, when he leaves, I'm not sure he's worth $2 million as a lawyer, but he takes his Rolodex with him and that Rolodex is gold. The system maintains itself, because those that stay know their turn will come if they play the game. They see a director or associate director move onto a $2 million job with a Wall Street law firm. Then, the departed employee calls back to his former colleagues and says, "you know I really don't think there is much of a case against so-and-so, I'd like for you to take a look at it." And the case goes away; the system goes on in perpetuity.
MR: Did you see the revolving door in action in your case?
(On January 31, 2005, prior to the phone call mentioned below, an email beginning with the word "Yowza!" was sent from Jan Lower, an attorney at the Debevoise and Plimpton law firm, to Aguirre's supervisor Paul Burger. The email described in detail the potential earnings that a former SEC official could receive at the Debevoise and Plimpton law firm - $2 million a year.)
continued..................
