09/22/2010 05:26 pm ET Updated May 25, 2011

The SEC: An Underground Agency

It has been nearly three years, and still the biggest scandal in modern Wall Street history continues--the $336 billion auction rate securities (ARS) fraud is still wrecking lives. I was at the center of the investor group that managed through pressure, both political and personal, to redeem $200 billion--but not until the ARS market crash had closed hospitals, ruined lives, trashed charities, and destroyed municipal services. The damage has yet to be undone, and $136 billion remains under challenge. How many jobs would those billions buy? How many lives would it change? How will redemption of these deceptively sold securities, pawned off as "cash, better than Treasury bonds, and completely liquid" contribute to consumer and investor truth/confidence? ARS was a great deal, the brokers said--until it wasn't!

Why is the Securities and Exchange Commission still protecting the banksters and broker holdouts? The Commission refuses to answer. It is now operating as a kind of underground agency; it has received from Congress an exemption from the Freedom of Information Act (FOIA), claiming it needs to protect the "proprietary concerns" of the very financial industry it examines and "prosecutes." Why can't we get a statement from SEC head Mary Schapiro on the ARS scandal? The same SEC failed to act under former Commissioner Chris Cox, and we now see the same duck and cover tactics.

The coverup continues. Ms. Schapiro's former stewardship of the Financial Industry Regulatory Authority (FINRA) the industry's trade association, is also under fire. Ms. Schapiro sold $650 million in ARS in late 2007 out of Finra's own portfolio without a word to the public. What did she and FINRA know, a nd when did they know it? That sale coincides with the same dumping of ARS holdings by banker-broker CEOs--in complete silence right up to the time of the Feb. 2008 ARS market crash. Ms. Schapiro walked away from F INRA with a golden parachute estimated between $3-$10 million, but she has yet to admit this to anyone.

The fact is that FINRA and the SEC played along with the rest of the financial industry in the ARS scandal to produce a silently scripted theft of enough money to run 20 percent of the entire federal government. These facts need to be exposed and acted upon. If enforcement breaks down on a scandal of this size and magnitude, what can we expect of the much lauded new financial regulations and the Basel accords?