Is the SEC asleep at the switch? There must a sea of red faces at SEC headquarters in Washington D.C. after this week's revelation that Peter Scannell took his evidence to the SEC last February only to be rebuffed. Frustrated by the SEC's inaction over six months Scannell eventually took his notes to Massachusetts's authorities. Galvin's office issued its subpoenas within hours.

After the SEC filed its "me too" actions against Putnam Investments and two of the fund firms investment professionals yesterday, Linda Thomsen, SEC deputy enforcement division director, spent repeatedly assured the media that the SEC is "taking steps to ensure all such tips get close scrutiny."

"We're working very hard to make sure we treat every whistleblower's complaint with the seriousness they all deserve," Thomsen told Dow Jones.

She did not explain why Scannell's tip was seemingly ignored though.

"We're looking into this matter. We're going to figure out what happened," was how she explained the matter to Reuters.

"We're working very hard to make sure we treat every whistleblower's complaint with the seriousness they all deserve," she added. "With respect to complaints and tips generally, we take them very seriously. They are very important and we are looking at our procedures for handling those."

Meanwhile Thomsen's boss -- SEC Enforcement Division chief Stephen Cutler -- went on CNBC to say that he had personally been tipped to the frequent trading by the Putnam portfolio managers Justin Scott and Omid Kamshad.

Interestingly, while the Massachusetts complaint filed by William Galvin detailed both the retirement plan issues first documented by Scannell and the separate case of portfolio manager trading, the SEC's complaint only covered the latter and not the former.

That means that the SEC has yet to follow up on Scannell's tip, much less explain how they apparently let it slip through the cracks.

Worse yet for the Commission, Scannell's tip was not the only one it misplaced. Reports are that the tipster in the Spizter-Canary case also first approached the SEC. Like Scannell, that unidentified tipster also grow impatient with the lack of action taken by the SEC and turned to his local authorities.

One issue the SEC faces that local authorities do not is the volume of tips. The SEC receives more than 1,000 tips a year. It has long been apparent that the SEC staff is both overstretched and under experienced when it comes to regulating the fund industry.

That excuse may not hold water with Washington's politicians, however. Yesterday Rep. Michael G. Oxley (R-Ohio), chairman of the House Financial Services Committee, called for a hearing to look into whether there is a need for new legislation to better regulate the fund industry. Those hearings are set for November 4 and will be overseen by Rep. Richard H. Baker (R-Louisiana.), chair of the subcommittee on capital markets.

Look for the SEC's lack of action in both the Canary and Putnam cases to come up during the hearing.

Also taking not of the SEC's failure to act was Senator Joe Lieberman (D-Connecticut). The presidential candidate authored a bill that calls for more cooperation between the SEC and state officials.

Of course it was only last spring that Congress appeared well on its way to passing a bill that would have locked Spitzer, Galvin and other state officials out of the Wall Street investigatory playground. What a difference a month or two will make in Washington.  

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