So an SEC whistleblower contacts the agency, and is assured by the enforcement attorney working on JP Morgan that it's a "confidential" investigation. The attorney then turns around and dimes the guy out to his employers.

Where do the Republicans find these candidates? Do they vet them carefully for moral and ethical problems, and then recruit the ones who don't pass?

More importantly: Why didn't the SEC stand up for whistleblowers by throwing the book at this sleazebag? Maybe the answer lies in the description of Demos as a "politically wired" Republican attorney:

George Demos is a Republican Congressional candidate from Eastern Long Island whose Web site bears the slogan "Fighting for Freedom," and touts his service as an enforcement lawyer in the New York office of the Securities and Exchange Commission. A bio says that he "handled some of the SEC's most significant investigations," including that of Ponzi scheme artist Bernard Madoff, and "worked tirelessly on the cases that never made the headlines."

But one case that never made headlines was his own: Demos' campaign Web site and public statements omit any reference to a report last March of the SEC's Inspector General (IG), which found he had improperly disclosed protected, nonpublic information about a whistleblower to the counsel for that whistleblower's employer, a major Wall Street bank, JPMorgan Chase. The IG's charges of misconduct grew out of an SEC probe that began in 2003 of JPMorgan and other big financial institutions suspected of illegal market practices.

Demos has denied he did anything improper, and his campaign declined to comment on the matter. But documents obtained by the Project On Government Oversight (POGO) -- a non-partisan non-profit based in Washington -- confirm that Demos was the staff attorney who was cited in the IG report for violating SEC rules. The IG referred the case to the agency's management for possible disciplinary action, but the SEC took no action. Soon after that, Demos quietly resigned from his job and launched his bid for a seat in the House of Representatives.

But the confidential information that Demos disclosed was used by a JPMorgan lawyer against one of the bank's own employees, a whistleblower who had alerted the SEC to possible wrongdoing by his employer, according to the report and other documents, some released under the Freedom of Information Act.

The Bush Administration sure had a knack for letting criminals get away with it, didn't they? They failed to stop 9/11, never caught bin Laden, and now we're learning about the total incompetence of the SEC in responding to Bernie Madoff's Ponzi scheme.

The U.S. Securities and Exchange Commission repeatedly missed chances to catch Bernard Madoff’s $65 billion fraud over 16 years by assigning inexperienced investigators and accepting “implausible” explanations after catching him in lies, the agency’s internal watchdog said.

At least six warnings from sources including a money manager, a “respected hedge-fund manager” and a firm that studied Madoff’s business failed to spur a “thorough and competent” probe, Inspector General H. David Kotz wrote in a summary of a report released today. Madoff, in an interview with Kotz, said even he “was astonished” when investigators failed to check trading records that would have exposed his scam.

“Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff’s trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme,” Kotz wrote.

This is not only an incredible report, it plays into a larger truth about the conservative conception of regulation as a needless bother rather than a diligent effort to protect the consumer. One incredible moment, referenced above but covered in detail by Zachary Roth, shows that Madoff basically thought he was caught and the scheme had been discovered by federal regulators, only to find himself safe once again.

The agency's biggest screw up, says the summary, was the fact that examiners never verified Madoff's trading through an independent third party.

The details of that failure are more astonishing still. Madoff at one point told examiners that all his trades were cleared through his account at the Depository Trust Company (DTC), a clearing agency -- and he gave the examiners his DTC account number. At that point, Madoff told Kotz in an interview, "I thought it was the end game, over. Monday morning they'll call DTC and this will be over." Amazingly, the SEC never followed up with DTC. Madoff said he was "astonished."

The summary almost makes clear that the SEC's right hand didn't know what the left was doing. It notes with astonishment that at one point, two Madoff examinations were going on at the same time within the agency, without either being aware of the other. It was Madoff himself who informed one team of the other's existence [...]

The final, failed Madoff investigation of 2006 -- triggered by a detailed Markopolos complaint -- was perhaps the most egregious. According to the summary, most of the investigative work was done by a staff attorney "who recently graduated from law school and only joined the SEC nineteen months before she was given the Madoff investigation. She had never previously been the lead staff attorney on any investigation, and had been involved in very few investigations overall. The Madoff assignment was also her first real exposure to broker-dealer issues."

According to the summary, that inexperience helps explain why, when Madoff told the examiners that he got such unprecedentedly good return simply because he had a good "feel" for the market, they took that nonsensical explanation at face value.

Bush's SEC didn't bother to check up on Madoff's dealings, and they took his explanations as good enough for them, because their attitude toward regulation was "don't mess with a good thing." Indeed, the entire stock market during the Bush years was kind of operating under a false reality in its own right. Madoff was a crook, but at least an honest crook. And even he couldn't get caught.

This is not just the story of one agency's embarrassing failure. The failure lied in the theory of government, existing to make profits for cronies and lay off the connected and the powerful. The failure to catch Madoff and the failure of conservatism are essentially the same stories.