SEC Failed to Monitor Bear Stearns Well Before Collapse

The SEC prematurely folded an investigation of Bear Stearns involvement in collateralized debt obligations:

In the report, obtained by CNBC, SEC Inspector General David Kotz says the agency inexplicably dropped the case in 2007, even after Bear Stearns had offered to pay a monetary settlement.

The report says the director of the SEC's Miami office, David Nelson, had an "ongoing personal relationship" with the Bear Stearns attorney in the case. In dropping the case, Nelson allegedly told his friend, "Christmas is coming early this year," adding Bear Stearns "can keep their money."

More importantly, the SEC's Inspector General notes that this investigation would likely have uncovered the problems that led to the demise of the investment bank.