Below is a story that originated out of London today. In any event, it ties in nicely with my How the Financial Elites Enronized America story, so I'm just reposting it below for a quick review. It should be a self-evident truth that an honor system among regulators that have consistently failed to regulate is not the smartest system to use.
LONDON (MarketWatch) - Two attorneys at the Securities and Exchange Commission are being investigated by the Federal Bureau of Investigation over possible insider trading, according to an internal SEC report. The report, which was published on the Web site of CBS News, said the investigation into the two enforcement lawyers - a man and a woman - began in January last year.
Among the suspicious activity identified, the report said the female attorney sold all of her shares in a large health-care company around two months before an investigation into the company was opened in her group. Both attorneys also traded in the stock of a large financial-services company, even though they had been told of three separate investigations into that company. Both denied any wrongdoing.
The report was also critical of the SEC for not monitoring the trading by its employees. The Commission has essentially no compliance system in place to ensure that Commission employees, with the tremendous amount of non-public information at their disposal, do not engage in insider trading, the report said.
It added that the regulator uses an honor system for employees to report stock trades, but it doesn't perform spot checks or get duplicate records from brokers to validate the trades and there is widespread, poor understanding of the reporting requirements