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.
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.