Tuesday, April 14, 2009

Telling like it is at deepcapture.com.......from Patrick Byrne

April 13th, 2009 by Patrick Byrne

I seek to avoid criticizing individual public servants. Elected officials are fair game, in my view, but not public servants. They do not wake up and go into work wanting to do a bad job, I assume, and I have had too many tailwinds in life to criticize wantonly people who devote themselves to public service of any kind, simply as a matter of principle.

For Linda Thomsen, however, I’ll make an exception. (As Mr. Buffett says, “There are times when a man has to rise above his principles.”)

A few years ago, the San Francisco office of the SEC was conducting an investigation what seemed to many an observer to be collusion among short-sellers and crooked journalists who shilled for them using ammunition provided by “research shops” which were being fed their material by those same hedge funds, in a kind of “serpent-eating-its-tail” arrangement of financial hooliganism. It was a hard scheme to miss: any company shorted by Stevie Cohen (SAC), David Einhorn (Greenlight), Dan Loeb (Third Point), David Rocker, or a handful of others, could count on coming under the “where-there’s-smoke-there’s-fire” journalistic scrutiny of such worthies as Jim Cramer and Dave Kansas, Gary “Scaramouche” Weiss, Bethany “Long, Slow Thing” McLean and Roddy Boyd (both of Fortune Magazine), Carol Remond and Karen Richardson (both of DowJones), Floyd Norris and Joe Nocera, (both of the New York Times), and Herb Greenberg (MarketWatch), that “smoke” often being supplied by research shops of which those same hedge funds were clients. Oh, and invariably they’d be naked shorted as well, and show up on the Reg SHO Threshold List, and anyone noticing how this constellation of facts happened over and over with complete regularity could be counted on to be declared “wacky” by these same journalists.

I know this because I was invited to a meeting by the SEC staffers conducting that investigation. I’m pretty sure that “invitation” came in the form of a federal subpoena, but I am not completely clear on that, having over the last few years received enough such paperwork to wallpaper my bedroom. In any case, I arrived at the appointed hour, and was sworn in. My deposition was conducted by a man named “Mark” and overseen by his boss, Tracy, both of whose last names I see no reason to reveal. They both were the kind of federal employees that make one swell a bit with pride: They displayed neither favor nor enmity, but simply, white collar professionalism such as has largely been lost in Corporate America. They were prompt, prepared, and business-like, and, without being rude, challenged me as hard as they could while revealing to me as little as possible.

That said, try as anyone in that position might, it was impossible for them to be as blank to me as they wished. After all, if someone asks, “What do you know about the possibility that Colonel Mustard killed his victim in the library with a rope?”, then the possibility that the utterer suspects that Colonel Mustard did indeed kill someone, in the library, with a rope, is a reasonable inference to make. Especially if one has never mentioned Colonel Mustard, or the library, but the rope.

In this fashion, I became reasonably confident that while the New York financial press was bleating about how wacky I must be to notice patterns that every sane observer had noticed, those same patterns had been noticed by others better placed to do something about them than I. (Incidentally, normally I would be loathe to reveal the contents of such a deposition, but given that this is all moot now, yet tied to today’s news, and the bad guys are using FOIA requests to get this stuff anyway, it seems like the right thing to do.)

Somewhere around this time, Jim Cramer and others of the journalists mentioned above received their own subpoenas. All hell broke loose, because they made it break loose (see for example “Herb Greenberg, The Worst Business Journalist in America, on the Conspiracy“). Of course, in a world where editors had integrity, it would be considered somewhat unseamly to have journalists reporting on an investigation of which they, themselves, had become the targets (I’m not sure why I mention that: I suppose it seems like it should be germane or something). Interestingly, not all the press backed up their brethren: an editorial in a Houston Chronicle springs to mind in that regard (which I would be much obliged if a reader would locate for me). But by and large, the profession of business journalism stood mute while the reporting on a federal investigation was dominated by people who were themselves the target of that investigation.

Then the investigation was shit-canned. There’s no other way to describe it: the investigators were summoned to Washington, publicly crapped upon from a great height by SEC Chairman Chris Cox, the Enforcement Director who signed those subpoenas stood by idly while this happened to her staff, and we returned to our regularly scheduled programming of Muzak and bromide business reporting interrupted occasionally by B-list actors pitching Grandmother-Safe financial products and narcissistic hustlers promising that for real this time they wanted to make you money, Mad Money!

That Enforcement Director was Linda Thomsen.

That would be the same Linda Thomsen who, for the entire 14 year duration of her service in the Enforcement Division of the SEC (the last four as Director), missed the $67-billion-and-counting walking Ponzi scheme/human brown stain known as Bernie Madoff, though concerned citizen Harry Markopolis not only did the work for the Enforcement Division, he all but spray-painted his findings on the lovely Italian marble of the SEC’s posh new DC headquarters.

That would also be the Linda Thomsen who, regarding Mr. Markopolis, acquitted herself so handily in this infamous exchange with Congressman Gary Ackerman.



That would be the same Linda Thomsen against whom the SEC’s Office of the Inspector General recommended disciplanary action for her role in hanging out to dry SEC Senior Investigator Gary Aguirre, due to his impertinence in subpoenaing Morgan Stanley CEO John Mack, a Wall Streeter “with juice” (in the words of Aguirre’s boss), just because a trail of clues in “the most important insider trading case in 30 years” led directly to him.

That would be the same Enforcement Director to whom a recent report of the SEC’s own Office of the Inspector General was obliquely referring, in page after page, for 55 pages, in a report explaining how three well-organized 6th graders could have handled the nation’s naked shorting complaints better than did the SEC’s Enforcement Division.

That Linda Thomsen is the same one whose resumption of employment with white-shoe law firm Davis Polk & Wardwell (I say “resumption” because Ms. Thomsen worked at Davis Polk until she joined the SEC in 1995) was announced today in this gem (”SEC Enforcement Chief Joins Davis Polk“) from the Blog of Legal Times (”Law and Lobbying in the Nation’s Capital”).

The announcement reads, with no detectable irony:


Linda Thomsen, who headed the SEC’s enforcement division until February, is starting as a partner in the firm’s white-collar defense and government investigations and enforcement practices in June. She will be joining former SEC commissioner Annette Nazareth, who started at Davis Polk last year, and Robert Colby, who joined the D.C. office this year after serving as deputy director of the SEC’s trading and markets division…


Thomsen practiced in Davis Polk’s New York office before joining the SEC in 1995. She started at the commission as assistant chief litigation counsel and went on to become head of enforcement in 2005. After leaving the SEC earlier this year, Thomsen says, “I had no preconceived ideas about where I was going to go, or what I was going to do.” - Translation: “I swear, it never occurred to me to go work for the law firm defending wealthy clients against whom I was overseeing cases until weeks ago.”

At the firm, Thomsen will advise clients on internal investigations and defend them against SEC probes. - Comment: Probes such as those ones she was overseeing weeks ago.

After serving at the agency for 14 years, Thomsen says she understands the kind of questions clients should be asking themselves to stay out of trouble with the commission. “I think I know and can see the kind of issues that get people into trouble, and the kinds of processes that cause them to, perhaps, ignore warning signs,” says Thomsen. - Comment: Yes, I am sure Ms. Thomsen is one of the world’s most recognized experts on the subject of processes that cause people to ignore warning signs.

Thomsen headed the enforcement division as it came under fire for failing to catch Bernard Madoff’s Ponzi scheme, as well as problems that contributed to the meltdown on Wall Street. In response to critics, Thomsen vehemently defends her former division. “I think the professionalism in the division of enforcement is really unparalleled,” she says. ‘If you look at the totality of the enforcement efforts…it’s really a record that I know I’m proud of.”

Considering the world-historic implosion of the US capital market occurring to vamp-til-Ray accompaniment of Ms. Thomsen’s blind-piano-player-in-the-cathouse Enforcement Division, I’m at something of a loss for words with which to comment upon Ms. Thomsen’s “pride”.

But it is nice she landed on her feet.

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