Yesterday SEC Inspector General David Kotz called the timing of the SEC’s recent lawsuit against the infamous Goldman Sachs “suspicious,” but this statement should be viewed in context (see WSJ story). Yes, it coincided with the release of Kotz’s “scathing” report about the Commission’s handling of the Stanford Ponzi scheme. And yes, I have been critical of my former colleagues at the Commission in the past. From my recent experience they can be plodding and overstaff even the smallest of matters (it’s not hard to see how they missed Madoff and Stanford). But this most recent claim of “suspicion” is really rather petty and belies the facts.
First, the case against Goldman was bold and creative. Perhaps it was akin to a makeup call by a sports referee. (Missing Goldman’s more flagrant fouls over years, they frustratingly called a foul for a rather convoluted deal that touched on Goldman’s often duplicitous conduct that has made it the most powerful player on Wall Street). But the result was swift and decisive. Goldman quickly agreed to pay $550 million. Over a half a billion dollars – even by Goldman standards that is nothing to sneeze at. So I say: so what that the case was brought on the eve of another “scathing” report by Mr. Kotz?
Second, the new enforcement chief, Robert Khuzami, is a tough former federal prosecutor who needs more time to assemble his team and begin changing the culture of the enforcement staff.
Third, and most importantly, the SEC alone cannot both police and set the ethical tone for the entire financial sector. Let’s not forget the role of the banks (who provided safe havens and substantial assistance for Ponzi schemes), accountants (signing off on the value of worthless assets to the tune of many, many billions), and the rating agencies (AAA ratings for Subprime Debt – how wrong were they?).
So Mr. Jonathan Kotz, Inspector General, let’s not issue reports merely to conclude conduct was “suspicious,” which simply undermines the progress of the Commission. If you have something bring it on, otherwise let your colleagues focus on the hard work ahead.
Assisted by David Martin