One should note in this regard that, in his reports in the Stanford case, the Inspector General said the exact opposite of any claim that the SEC was free to ignore the possibility of giant frauds. The IG's report in Stanford shows that the SEC was just as negligent there as in Madoff: its conduct was awful. Suffice to say that from 1997 onward, everyone in the SEC who dealt with the Stanford matter either knew Stanford was a Ponzi scheme or was at minimum aware that this was a real possibility. Yet for eleven or twelve years the SEC did nothing; as in Madoff it came up with one reason after another to do nothing though there were clear ways to stop the fraud, and it allowed a $7 billion Ponzi scheme to flourish. As the IG showed, the SEC had, indeed, a policy -- one relevant to Madoff too -- of usually not going after Ponzi schemes because they usually involved too much work to ferret out and prove. In other words, far from implementing a policy, with use of associated proper discretion, of enforcing Congress' statutory mandate against fraud, the SEC, as shown in the IG's report in Stanford, had a policy in contravention of Congress of not enforcing the bar against fraud when it came to huge Ponzi schemes that were ripping off people to the extent of billions upon billions of dollars. The SEC had no discretion to contravene Congress' antifraud policy, yet it did so and now claims, absurdly, that it was exercising proper discretion.
That the SEC was contravening Congress' antifraud policy was made clear by the Inspector General in his two reports in Stanford. Citing the canons of ethics governing the SEC, the IG said "The Commission's staff has the obligation to continuously and diligently examine and investigate instances of securities fraud." (Report of March 31, 2010, p. 10, emphases added. Report of June 19, 2009, p. 2, emphases added.) The IG also said, quoting the SEC's Regulations Concerning Conduct, that --The [SEC] has been entrusted by Congress with the protection of the public interest in a highly significant area of our national economy.'" Report of March 30, 2010, p. 10. See also, Report of June 9, 2009, at p. 3 (There is a "serious duty" on the Commission and staff, because they are "entrusted [by Congress] with powers and duties of great social and economic importance to the American people.") The SEC has an "obligation" to act "diligently" against securities fraud, and must do so to protect "a highly significant area of our national economy" -- does that sound as if the SEC's own Inspector General thinks the SEC has policy discretion to be horribly negligent in failing to competently investigate and stop what probably are the two biggest Ponzi frauds in history? I don't think so, as it is sardonically said.
So the SEC's own Inspector General has no truck with the stupid claim that the SEC is free to act with horrible negligence against major securities fraud. The judge in the Katrina case also bashed -- "bashed" is the only word for it the kinds of dumkopf arguments being made by the SEC, although he of course did it when the same arguments as are being made by the SEC for immunity from suit were made for the same purpose by the Corps of Engineers. (It is not wholly fortuitous, one thinks, that the same arguments for evading liability were made by the government in what may be the biggest municipal disaster in American history (pace Galveston) and in the biggest fraud-disaster in American history, both of which would have been avoided but for the kind of governmental negligence and incompetence that seem to have become de rigueur for the federal government).
Responding to the government's assertion that it was immune from liability for its terrible negligence in the Katrina case, the federal judge there (Stanwood R. Duval, Jr.) said that the government had the burden of proving that the discretionary exception to liability is applicable. For the discretionary exception to be applicable, an agency's choice of action (or inaction), said Judge Duval, must be an exercise of policy, which will not be the case if it violates some mandatory rule or is otherwise impermissible.
The government, said the judge, "seeks its cover in arguing that virtually every decision is one based on policy." But as said by the Fifth Circuit Court of Appeals, under such an interpretation --virtually any decision to act or not to act could be characterized as a decision grounded in economic, social or public policy and, thus, exempt'" from liability. "[T]he exception" from liability for proper discretionary action would thereby --swallo[w] the rule'" against immunity for negligence. Thus, --in determining whether the discretionary function applies, we examine the nature and quality of the activity to determine if it is the type that Congress sought to protect.'" (Slip op. p. 100, emphasis added.)
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