L’affaire Madoff gets more interesting by the day. I had though the failure to pursue the hedge fund scamster had more to do with incompetence and a disinclination to go after investment managers (insider trading cases, which is what seems to get the SEC’s enforcement division juices going, usually pick up penny ante players at big name firms, so they generate lots of media coverage without rocking any boats).

But the Congressional hearings today suggest that the SEC, or at least some of its members, think they have something to hide.

We are well over a year into the financial meltdown, and the regulatory officialdom was (at best) asleep at the wheel. Yet we’ve had almost no real inquiry as to who in power knew what when. Madoff was a particularly egregious case, due to the longevity of the fraud, the scale of the losses, the clear and multiple warnings, and SEC’s reluctance to do even basic follow up on detailed leads involving prominent and well connected members of the financial community (look what happened with the insider trading allegations against hedge fund Pequot Capital: like Madoff, precisely nothing).

From OpenLeft, “Bush SEC Holdovers Cite Exec Privilege In Stonewalling Congress About Madoff Scandal” (hat tip reader Tom). . BTW, Ive seen a lot of tongue lashings by Congressmen, but this is one of the most pointed I recall in quite a while:

This second clip is the one referenced in the piece below:

At a contentious Financial Services Committee hearing today about the failure of the Securities and Exchange Commission to prevent the Bernie Madoff scandal, the SEC’s General Counsel cited executive privilege as reason that he and the SEC’s enforcement branch were refusing to answer congressional inquiries. You can watch the video here – the executive privilege issue comes at about 5 minutes and 15 seconds into the clip. [in the one I found, see 3:23, but the whole thing is worth viewing] As you’ll see, SEC officials refuse to answer the committee’s basic questions about the Madoff scandal, and the agency’s acting general counsel, Andy Vollmer (a Bush holdover and maxed-out donor to John McCain’s presidential campaign) explicitly cites executive privilege as his legal rationale for refusing to provide basic information to federal lawmakers. Congress has a constitutional obligation to engage in basic fact finding, both in order to legislate reforms at the SEC and to publicly expose how our economy was destroyed by sharks like Madoff. Now, Bush holdovers at the SEC are using executive powers – powers that are now President Obama’s – to prevent Democratic lawmakers from doing their job.

And this from Investment Daily (its headline “SEC officials dodge questions; one claims privilege,” and posture is a departure from its usual tone) points out CLEARLY that the invocation of executive privilege has not been authorized by the Executive Branch (ie, the current Attorney General’s Office):

Members of the House Financial Services subcommittee on capital markets, insurance and government-sponsored enterprises hammered SEC officials today at a hearing looking into the alleged Bernard Madoff Ponzi scheme. Agency officials declined to comment specifically about how they missed the fraud after being tipped off over a number of years by Harry Markopolos, a fraud investigator who formerly worked for a hedge fund that competed with the Madoff fund. They said an ongoing investigation by the Securities and Exchange Commission inspector general kept them from commenting. At one point during the hearing, SEC acting general counsel Andrew Vollmer claimed executive privilege in declining to answer some questions. Subcommittee chairman Paul Kanjorski, D-Pa., asked Mr. Vollmer if he had obtained executive privilege from the U.S. attorney general. “No … this is the position of the agency,” Mr. Vollmer said. Did the SEC instruct him not to respond to questions? Mr. Kanjorski asked. The commission supports this position, Mr. Vollmer said, but “the answer is no.” Mr. Kanjorski asked if Mr. Vollmer was asserting executive privilege on his own. “No, I wouldn’t say that,” Mr. Vollmer said. SEC spokesman John Heine did not have an immediate response. Mr. Markopolos, appearing for the first time before a congressional committee, skewered the SEC. He detailed his frustrations in attempting to get the SEC to look into the Madoff operation. The “financial illiteracy among the SEC’s securities lawyers was pretty much universal with few exceptions,” he said in prepared testimony.

Congress might finally be growing a set. Better late than never.