How the SEC Coddled Corporate Wrongdoing

The Washington Post today has a fascinating article describing how the SEC, under its loathsome former chairman Chris Cox, coddled corporate wrongdoing in the guise of "efficiency." As CJR's Audit column points out, the article today builds on a report from the SEC's inspector general, which cataloged the castration of the enforcement staff.

Leading off the article was a description of how the SEC watered down penalties that the enforcement staff has sought to impose on Biovail Corp., a longtime anti-short selling crybaby.

The five enforcement officials caught a morning Acela train bound for Washington. Based at the New York office of the Securities and Exchange Commission, the team was seeking agency approval to impose tens of millions of dollars in fines on a drug company, Biovail, which had allegedly used the crash of a truck hauling depression medicine to cover up financial losses.

But when the group arrived at SEC headquarters on that winter day early last year, it was barred from the room where the commission was meeting, according to a person familiar with the case. Chairman Christopher Cox and his colleagues reviewed the case inside. When the doors opened, the enforcement officials learned the commission had knocked down the penalty to a small fraction of what they had sought.

Biovail was, of course, the subject of a famous 60 Minutes segment that swallowed whole the company's line that it was a victim of short-sellers. There's never been a repudiation or even a follow-up from 60 Minutes on Biovail, just as Forbes.com has shown no accountability for its shilling of the stock scam Pegaus Wireless.

There's been a lot of chatter lately about the extent to which the financial press as a whole failed to anticipate or properly report the financial crisis. But that's really a small part of a much bigger problem, which is a business media that turns a blind eye to corporate fraud. It happens a great deal more than some of us are willing to admit.

Yes, the SEC was to blame for failing to adequately penalize Biovail. But to what extent, I wonder, were SEC honchos influenced by the kind of positive media coverage that the company was able to generate from 60 Minutes?

© 2009 Gary Weiss. All rights reserved.