Isn't it great, how our SEC is such an ardent watchdog of Wall Street's wrongdoing?

CBS News has learned that two attorneys at the Securities and Exchange Commission (SEC) are under "active" criminal investigation by the FBI for trading stocks based on inside information.

Accusations against the two lawyers - a man and a woman whose names have not been released - are detailed in a report by the SEC inspector general obtained exclusively by CBS News.

The report, based on a review and analysis of "more than two years of e-mail and brokerage records," puts increased pressure on a commission that has come under fire lately for failing to detect the $60 billion Bernard L. Madoff Ponzi scheme, and turning a blind eye to the Wall Street financial crisis.

"We ought to be outraged if there is one insider trading information that’s leading to personal profit," Sen. Charles Grassley, R-Iowa, the ranking member of the Senate Finance Committee, told CBS News.

In response to the IG report, Grassley sent a letter to SEC Chairman Mary Schapiro expressing that outrage and requesting detailed information about the stock holdings and trading practices of all SEC employees.

"It’s hard to imagine a more serious violation of the public trust than for the agency responsible for protecting investors to allow its employees to profit from non-public information about its enforcement activities," Grassley said in his letter to Schapiro.

According to the report, the male attorney under investigation by the FBI works in the Office of the SEC's Chief Counsel and "has access to a tremendous amount of nonpublic information."

The report alleges both the male attorney and female attorney - who works in the enforcement division - "traded in the stock of a large financial services company" despite being told by another SEC employee of ongoing "investigations of that company." The report calls this is a direct violation of SEC rules.

I like it when people use creativity to make their point, don't you?

NEW YORK, Jan 1 (Reuters) - A statue stolen last month from Wall Street financier Bernard Madoff's Florida home has been returned undamaged, and with a note attached, to a country club where the accused swindler is a member, Palm Beach police said on Thursday.

The attached note read: "Bernie the Swindler, Lesson: Return stolen property to rightful owners. Signed by The Educators," according to police.

"We don't know who that is," Sgt. Chris Proscia told Reuters. "We think it was done just to prove a point."

My, this just gets better and better, doesn't it?

Investigators believe that Bernard Madoff has stuffed hundreds of millions of dollars in Ponzi profits into offshore tax havens from which they could prove tricky to recover.

In the weeks since his Dec. 11 arrest, forensic accountants have been scouring Madoff's books as federal officials ready an indictment against the hated hedge-funder, who remains under house arrest in his $7 million Upper East Side penthouse.

The accountants believe Madoff regularly sent bundles of money to offshore accounts in the Caribbean and Europe, the Observer newspaper in London reported yesterday.

[...] The tax havens are designed under local laws to be nearly impervious to subpoenas or other investigative inquiries, making it notoriously tough for US officials to seize or even see what's there.

Just think how much money and effort it would have saved if the Bush administration had only enforced the rules that were already in place!

Dec. 21 (Bloomberg) -- The FBI has had to shift agents from terror and other crime work to Wall Street investigations including the alleged Bernard Madoff Ponzi scheme, said David Cardona, head of the New York office’s criminal division.

The Federal Bureau of Investigation has had to engage in “triage” in responding to successive frauds involving subprime mortgages, auction-rate securities and Madoff, who prosecutors said confessed this month to bilking investors out of $50 billion, Cardona said in an interview yesterday.

“We have to work those cases which we think pose the greatest threat,” he said. “In this case, it’s a threat to the financial system and Wall Street. It’s the same with mortgage fraud. I’m ramping these squads up.”

Special Agent Rachel Rojas, who once worked on tracing terrorist financing and al-Qaeda, now oversees 15 agents investigating mortgage fraud, said Cardona, a career agent with 23 years at the bureau who once worked as a New York state accountant. He declined to say how many other agents he has reassigned from anti-terror work to financial-crimes.

Via Skimble, a most interesting theory:

I have yet to see this reported anywhere, but an anonymous commenter named trademonster on an investment forum said this (notice the dates):

01-09-06 06:49 AM
I've heard that SEC is going to shut down Madoff financial and all of their hedge funds for SEC violations. Can anyone confirm this?

And this:

01-14-06 02:52 PM
I actually got some update and found out that it's Spitzer's office doing the investigation not SEC. But I don't know what the scope of the investigation is.

Suddenly Spitzer's dalliances with a hooker don't seem quite as fundmentally important to the financial health of this country.

We need people who understand the system to police it. No matter how sanctimonious or egomaniacal you may find him, Spitzer understands the financial system. If these posts are true, somebody in power was more interested in the the details of Eliot Spitzer's transactions than Bernard L. Madoff's. They were obviously more interested in killing the watchdog than in catching the billionaire burglar.

And via Corrente, something even more interesting from Michael Isikoff's Newsweek story about the FISA whistleblower:

[Under the secret and illegal "Stellar Wind" program of domestic warrantless surveillance,] NSA was also able to access, for the first time, massive volumes of personal financial records—such as credit-card transactions, wire transfers and bank withdrawals—that were being reported to the Treasury Department by financial institutions. These included millions of "suspicious-activity reports," or SARS, according to two former Treasury officials who declined to be identified talking about sensitive programs. (It was one such report that tipped FBI agents to former New York governor Eliot Spitzer's use of prostitutes.) These records were fed into NSA supercomputers for the purpose of "data mining"—looking for links or patterns that might (or might not) suggest terrorist activity.

Lambert asks an important question: How did the suspicious activity report on Spitzer's financial transaction get from the NSA to the FBI?

He also notes the convenient timing, because Spitzer at the time was looking into the monoline insurance companies - another important piece of the Wall St. crash.

Was the Bush administration using illegally obtained information to take down political enemies? Oh, I think it's a safe bet. And do you suppose they were deliberately trying to keep Spitzer from exposing extensive Wall St. fraud?

What do you think?