SEC tries to ride Goldman back to credibility

April 16, 2010

Can the Securities and Exchange Commission ride Goldman Sachs back to credibility? Perhaps, but it will take more than one high-profile lawsuit to restore the reputation of America’s top financial cop. L’Affaire Madoff was pretty close to a brand killer. But the move is powerful evidence — and warning — that the agency is out of the doughnut shop and back on the beat.

The all-points bulletin went out not long ago. Under the leadership of a new chairman and enforcement director, the SEC’s Obama years have marked a hard switch from the laissez-faire enforcement posture of the Bush administration. In 2009, the regulator opened twice as many investigations as in 2008, with fines up 35 percent. The new assertiveness helped tamp down talk on Capitol Hill that the SEC should be merged with the Commodity Futures Trading Commission or subsumed into a giant super-regulator.

But aggression can also lead to unforced errors. The regulator was impatient with the New York attorney general’s office during its tag-team litigation effort against Bank of America. So it dumped its legal partner and went it alone. The result: A judge threw out a $33 million SEC fine against BofA regarding bonuses paid to Merrill Lynch employees. And the judge called a later $150 million settlement between the two sides “half-baked justice at best”.

The SEC also failed to execute in its case against Cohmad Securities and the firm’s involvement with Bernard Madoff. In February, a federal court dismissed the SEC’s “flimsy” charges that Cohmad helped enable the notorious Ponzi schemer. And little has transpired in the more than nine months since the agency filed an insider trading complaint against former Countrywide boss Angelo Mozilo.

So a failed case against Goldman for alleged securities fraud might leave the SEC in worse shape. It would also open the watchdog to charges that the timing of its charges, right in the middle of a debate over financial reform, was merely an attempt by the Obama administration to intimidate Wall Street into supporting its get-tough legislation. But in the meantime, the financial industry will be looking hard over its shoulder for the first time in years.

Comments

There has been quite a lot of sanctioned/ignored corruption going on.

The SEC is tossing off the shackles of the Bush administration where corruption was allowed and the mainstay of all things financial.

One can only hope the SEC is aiming for a zero tolerance, canary in the mine approach in the long term.

This current case sounds fairly open and shut. Not much Goldman Sachs can do to cover this up except jawbone non stop. But it aint us they have to convince, but a judge and jury.

Problem is that this is a fairly easy to understand fraud, people wont be confused with science on this one.

Designing a product to deliberately fail then selling it so you can collect commission and the insurance when it fails is straight forward. Even worse letting a client design the most toxic package they could, then selling it to someone else as a top notch gold plated deal, so when it fails they could make even more on the insurance… pretty low.

Wonder if there will be more whistle blowers….. from GS and JP Morgan and the others.

There should be criminal charges from this, and this is what will tell us how serious the SEC is. If they get a civil conviction and dont go for the criminal, then they are just playing a game of make believe regulators.

There is also the matter of gold and silver manipulation by GS and JP Morgan that regulators have been ignoring. These are criminal activities that should be investigated and prosecuted.

Posted by Kina | Report as abusive
 

This was the biggest crime of all time selling worthless paper zero $ derivatives around the world.Criminal charges should apply here just as in the madoff case. Scams are prosecuted, premeditated criminals are locked up folks…..

Posted by DOUBLEDIPPER | Report as abusive
 

This recent conviction of GS is the right thing happening to this country and am glad that this administration has made its “national interest” to bring the thieves &/or criminals to justice.
One reason that makes this country the envy of the world is how justice prevails. When most of this rhetoric was noticeable in the lower courts for your common citizen of the past (and still does today), but since this economic disaster, it is starting to show in the higher circles of both citizens, as well as corporations. Someone (President Obama) or a group amongst us has to stand-up and declare “enough is enough”.
Let’s bring back the US to what used to be this envy of the world.
I’m sick and tired of all those who care as much of the country as to what they are as a Democrat or a Republican. When will our pride show? If 9/11 brought us together as a national interest, this economic downturn should be considered no less.
Lets start to recognize who has a conflict of interest against the national interest. Hold those citizens’ or corporations’ feet to the flame, to stem this evil from our lives.
Lets start talking and discussing of “our Administration”, rather than “Democratic Administration”.
The common citizen who is affected the most, doesn’t care whether we are a capitalist or a socialist society, so long as his hard work pays off to put bread on the table. He then can look towards his role to support those crooks within the society who have lived a parasitic life.
I hope this President is resilient upto the end, to stand up and clean this “old house”.

Posted by KipK | Report as abusive
 

I really hope the SEC is serious about this. It would be sad to find out that this was just an attempt to make an example of one company in order to appease the public.

I still have not learned of any good reason for the glass-steagall act being repealed. If I understand it correctly, this act erected a wall between the activities of commercial banks and investment banks in order to protect the money of depositors on the commercial side of the banking industry. What was the benefit of removing this restriction? Who did it benefit? And if it was a mistake to remove this restriction then why is it not being put back in place?

Yes there needs to be criminal prosecution. But there also needs to be some repair work done on our regulatory system. Not the least of which is a rule that forbids a person working for the SEC to enter into employment or consultation with any of the firms they are responsible for regulating.

As it stands, players from Wall Street and Washington play musical chairs all the time. Our regulatory system has to be focused more on behavior than on rules. And government MUST also be transparent. The people must be allowed to inspect the rule making process. And for God’s sake please put civics and economics back into our k-12 school system. We need educated participants in our economy not mindless worker sheep.

Posted by Benny_Acosta | Report as abusive
 

[...] Reuters doesn’t go that far but also declares the SEC is using Goldman. They note clumsy efforts to scramble after the meltdown and pursue firms have been swatted down by courts and judges. Some judicial dismissals of SEC’s after-the-act ham fisted enforcement are scathing. [...]

 

Some folks act shocked, shocked that Goldman could be accused of fraud.

Well there are a number of things that Goldman and other banks aren’t facing charges for that have been very ethically questionable:

* Bailouts of AIG CDSs at 100 cents on the dollar
* Ability to borrow from the Fed nearly interest free, which amounts to outright theft from American taxpayers since this money can be lent right back to taxpayers at great profit.
* Use of high frequency trading to gain information on the trading activities of other entities, thereby front-running them
* Collecting collateral on CDSs from institutions that were failing, jumping ahead of all other creditors
* Hiding losses from shareholders by avoiding marking present assets to market, while paying themselves large bonuses.
* A quantitative easing program where the Fed mainly buys bank assets rather than distributes the money to the American people.
* Massive re-risking after the too-big-to-fail principle has been established.
* Risking up between reporting periods and scaling back just in time for reporting in a manner that while probably legal is deeply deceptive.

In terms of dodging charges, Goldman is batting nearly 1000.

Posted by DanHess | Report as abusive
 

Well there are a number of things that Goldman and other banks aren’t facing charges for that have been very ethically questionable:

* Bailouts of AIG CDSs at 100 cents on the dollar
* Ability to borrow from the Fed nearly interest free, which amounts to outright theft from American taxpayers since this money can be lent right back to taxpayers at great profit.
* Use of high frequency trading to gain information on the trading activities of other entities, thereby front-running them
* Collecting collateral on CDSs from institutions that were failing, jumping ahead of all other creditors
* Hiding losses from shareholders by avoiding marking present assets to market, while paying themselves large bonuses.
* A quantitative easing program where the Fed mainly buys bank assets rather than distributes the money to the American people.
* Massive re-risking after the too-big-to-fail principle has been established.
* Risking up between reporting periods and scaling back just in time for reporting in a manner that while probably legal is deeply deceptive.

In terms of dodging charges, Goldman is batting nearly 1000.

Posted by DanHess | Report as abusive
 

Something really doesn’t add up here. Quite aside from the questionable timing – as Mr. P noted – of the charges against Goldman, it now appears that two other politicians facing difficult elections or by-elections in the coming weeks are now piling onto this bandwagon. Gordon Brown, facing near-certain defeat in the UK general elections, is reportedly ‘shocked, shocked’ over this whole business and has renewed his call for increased taxation and regulation of the world’s banks, while Angela Merkel of Germany, facing an awkward by-election so close that it compelled her to nearly scuttle an aid package for Greece, is now demanding an investigation of Goldman’s actions in Germany. This is all quite aside from Mr. Obama’s trying to get his stalled financial regulation package through the Senate, so it does seem awfully convenient for a number of embattled politicians. Perhaps I’m wrong, and maybe Goldie is indeed guilty of these allegations, but given the SEC’s track record and apparent turf-defending in recent months, as outlined by Mr. P, it’s hard not to be somewhat sceptical of this whole Goldman business.

Posted by Gotthardbahn | Report as abusive
 

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