By Pam Martens and Russ Martens: June 19, 2015

Yesterday, Mary Jo White was in London to address the International Organization of Securities Commissions (IOSCO). While there, she commented on the U.K.’s new plan to hold senior managers in the finance industry responsible for fraud in their departments. Each senior manager will have a specific delegated responsibility and if fraud occurs in their area, he or she can be terminated and banned for life from the industry if the senior manager had knowledge of the fraud. White called the idea “intriguing.”

While White was chatting with her fellow securities regulators in London on this novel idea of actually holding crooked Wall Street bosses accountable, Thomas Hayes was on trial in another section of London over charges that he rigged the benchmark interest rate, Libor, on which interest rates on loans and financial instruments are set around the world. Yesterday, Hayes produced for the jury a “Guide to Publishing Libor Rates,” which his superiors at UBS had crafted for traders, teaching them how to manipulate Libor to benefit trading positions of UBS. Hayes’ bosses are not on trial.

In 2012 when JPMorgan Chase was caught using hundreds of billions of dollars of its depositors’ money inside its commercial bank to make wild, exotic derivative bets (London Whale affair) to benefit its own profits, while losing at least $6.2 billion in the process, neither the head of that unit, Ina Drew, nor the company’s CEO, Jamie Dimon, were charged. Only two low-level traders, Javier Martín-Artajo and Julien Grout, were charged in the matter for hiding losses on the trades. Both of these individuals live abroad and efforts to extradite them for trial in the U.S. have thus far failed, conveniently leaving the public in the dark about how much their bosses knew.

On October 21 of last year, the Inspector General of the Federal Reserve System released a sanitized report on the Federal Reserve Bank of New York’s supervision of JPMorgan Chase during the London Whale debacle. The skimpy report revealed that the staff of the New York Fed, one of JPMorgan’s regulators, had on three occasions – 2008, 2009, and 2010 – recommended an examination of the Chief Investment Office where the $6.2 billion in London Whale derivative losses were eventually discovered in 2012. The recommended examinations mysteriously didn’t happen. Jamie Dimon sat on the Board of Directors of the New York Fed – his own bank’s regulator – from 2007 through 2012.

On November 21 of last year, the President of the New York Fed, William Dudley, was himself hauled before a Senate panel to answer questions swirling around its coziness with the Wall Street firms it regulates. One deal at Goldman Sachs was allowed to proceed because it was “legal but shady” in the opinion of a New York Fed official. Shady is clearly the best one can hope for in the midst of epic corruption on Wall Street today.

The Senate hearing was triggered by a run of regulatory failings by the New York Fed and the September release of internal tape recordings made by Carmen Segarra, a former bank examiner at the New York Fed who says she was fired in retaliation for refusing to change her negative examination of Goldman Sachs. Portions of the tape recordings were released by ProPublica and public radio’s This American Life, showing a lap dog regulator afraid to take on a powerful Wall Street firm.

In 2012 Wall Street On Parade broke the story that Dudley, head of the body supervising JPMorgan Chase, had an outrageous conflict of interest that had actually been vetted and approved by the New York Fed. According to internal documents, Dudley’s spouse had previously worked for JPMorgan Chase and was receiving $190,000 annually in deferred compensation distributions from the bank. The $190,000 was to continue until 2021.

That kind of a conflict also comes under the heading of “legal but shady,” which appears to have blossomed into an art form at Wall Street regulators.

Then there was the SEC’s case against a shady and illegal deal called ABACUS at Goldman Sachs. On April 16, 2010, the SEC explained the deal as follows:

“The SEC alleges that one of the world’s largest hedge funds, Paulson & Co., paid Goldman Sachs to structure a transaction in which Paulson & Co. could take short positions against mortgage securities chosen by Paulson & Co. based on a belief that the securities would experience credit events.”

In other words, Paulson helped Goldman select dogs that would default or receive credit downgrades and then made easy bets that they would. That sure sounds a lot like fraud to a lot of folks.

The SEC complaint goes on: “…after participating in the portfolio selection, Paulson & Co. effectively shorted the RMBS [Residential Mortgage Backed Securities] portfolio it helped select by entering into credit default swaps (CDS) with Goldman Sachs to buy protection on specific layers of the ABACUS capital structure. Given that financial short interest, Paulson & Co. had an economic incentive to select RMBS that it expected to experience credit events in the near future. Goldman Sachs did not disclose Paulson & Co.’s short position or its role in the collateral selection process in the term sheet, flip book, offering memorandum, or other marketing materials provided to investors.”

According to the SEC, Paulson & Co. paid Goldman Sachs approximately $15 million for structuring and marketing ABACUS. By October 2007, 83 percent of the bonds in the portfolio had been downgraded and 17 percent were on negative watch. By Jan. 29, 2008, 99 percent of the portfolio had been downgraded. The SEC estimated that investors lost more than $1 billion in the deal while Paulson made a similar amount.

Goldman Sachs bought its way out of the mess with a payment of $550 million to settle charges. No one from Paulson & Co. was charged with anything, including its founder John Paulson – who, instead, had an auditorium named for him at NYU following a donation of $20 million. Only a low midlevel salesman, Fabrice Tourre, was charged, faced trial, and found liable on 6 of 7 civil fraud charges in 2013.

Last year, American Lawyer published excerpts from 2,000 pages of documents it had obtained from the SEC under a Freedom of Information Act (FOIA) request, revealing that James Kidney, a veteran trial attorney at the SEC, had pushed the SEC to investigate higher ups in the Goldman Sachs ABACUS scam.

In other words, except for the nature of the scam, James Kidney is telling a very similar story about his experience at the SEC as Carmen Segarra is exposing in how the New York Fed backs off when allegations are made against Goldman Sachs.

As regulators wring their hands over the intractable problem of changing Wall Street culture for the better, two words come to mind: “heal thyself.” Yesterday, James Kidney authored a guest article for Wall Street On Parade on how the SEC could begin to reform itself. Let’s hope Congress gives it a read.