SEC unblasted on Goldman

October 14, 2010
Remember the WSJ front-page headline saying “SEC Blasted on Goldman“?

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Remember the WSJ front-page headline saying “SEC Blasted on Goldman“? It was based on a few comments from the SEC inspector general, David Kotz, who has now released his official report on Goldman. And there ain’t no blasting here:

The OIG investigation did not find that the SEC’s investigation of, or its action against, Goldman was intended to influence, or was influenced by, financial regulatory reform legislation. The OIG found that the investigation’s procedural path and timing was governed primarily by decisions relating to the case itself, as well as concern about facts about the investigation’s subject matter being publicized prior to the SEC filing an action and concerns about press coverage and maintaining a relationship with the NY AG.

The OIG also did not find that the settlement between the SEC and Goldman was intended to influence, or was influenced by, financial regulatory reform legislation. The settlement’s timing was driven primarily by factors relating to the civil action against Goldman and Goldman’s quarterly earnings release.

The OIG did not find that anyone at the SEC shared information about its Goldman investigation with any journalists or members of the media prior to the filing of its action against Goldman on April 16, 2010.

In fact, pretty much the only negative thing that the OIG did find was that the SEC, according to its own rules, should have given Goldman a heads-up before announcing the suit. As a result, the OIG recommends that the SEC… take another look at those rules.

The report isn’t wholly believable. Of course the New York Times had a heads-up about the case: you can’t read a complaint, write a long, detailed story about it and publish that story, all within five minutes of the SEC press release going out. But then again, the OIG somehow wasn’t able to get his hands on that story:

The New York Times Company represented that it was unable to retrieve the version of its article about the SEC’s action against Goldman as it was first published at 10:38 a.m. As a result, the level of detail concerning the SEC’s action contained in this first iteration of the article could not be reviewed by the OIG.

Well, you can see the final version of the story here; it doesn’t differ substantially from the story as first published and it’s over 1,700 words long. It clearly wasn’t written in five minutes.

I’m also unsure how much of this to take at face value:

Chairman Schapiro testified that she was “quite surprised” at how much media coverage the Goldman action received… Cohen testified that he and others at the SEC were surprised at the attention given to the Goldman case once it was announced… Many other witnesses in this investigation testified that they were surprised or “shocked” at the extent of the media attention given to the Goldman action.

Certainly there was a lot of press coverage given to the case and Goldman’s share price went down more than I think anybody at the SEC or even Goldman would have expected. In hindsight, it’s easy to see why the case got so much attention, but at the same time I can maybe believe that the SEC didn’t anticipate the full extent of the media firestorm. (Here’s one datapoint: it’s the only occasion I’ve been asked to write an op-ed for the Washington Post.)

But all those are quibbles. The OIG report is clear and it’s a full exoneration of the SEC both in terms of whether the case was political from the start and even in terms of whether its timing was political. Kotz concludes in both cases that it wasn’t. I’ll be fascinated to see how much prominence the WSJ gives this story.

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