By Michael Smallberg

The Securities and Exchange Commission (SEC) has posted an investigative report by the Office of Inspector General (OIG), first released by CNBC, that describes how an SEC regional office failed to uncover a Ponzi Scheme during a 2005 examination of Westridge Capital Management.

In February 2009, the SEC took emergency action and froze the assets of Paul Greenwood, Stephen Walsh, and their companies—Westridge Capital Management, WG Trading Investors, and WG Trading Company—for misappropriating as much as $554 million in investor assets in the operation of a Ponzi scheme.

But the OIG discovered that the SEC’s Los Angeles Regional Office (LARO) missed a key opportunity to uncover the Ponzi scheme back in 2005, failed to conduct a thorough examination of the investment adviser, Westridge Capital Management, and did not take the necessary steps to ensure that a follow-up examination of the broker-dealer, WG Trading, was conducted.

We’re still combing through the OIG’s report of investigation, but here are some initial highlights: