While Republicans were quick to note that the timing of the SEC’s suit against Goldman Sachs was perfect for Democrats, it was even more propitious for the agency itself. The charges against Goldman shunted from the headlines a scathing report by the SEC’s inspector general on the agency’s failure to act on suspicions that Texas financier Allen Stanford was running a Ponzi scheme. The inspector general, David Kotz – who also reported on the agency’s botched investigations into Bernie Madoff’s scam – said the SEC’s Fort Worth branch turned up red flags as early as 1997, yet failed to take action until 2005.
Meanwhile, while most Americans were trying to wrap their minds around the market for synthetic CDOs and debating the merits of the Goldman charges, the SEC took a battering on Capitol Hill on Tuesday, when a court-appointed investigator testified before the House Financial Services Committee about the SEC’s lax oversight of Lehman. In his written testimony, examiner Anton Valukas contends:
“The S.E.C.’s role was not to simply absorb and acquiesce to Lehman’s decisions; the S.E.C.’s role was to supervise and regulate to protect investors and the markets.”
“The S.E.C. made a few recommendations or directions here and there, but in general it simply collected data; it did not direct action, it did not regulate,” he wrote in his testimony.
Now comes word of another embarrassing flap. The AP’s headline: “SEC staffers watched porn as economy crashed.”
Senior staffers at the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system, an agency watchdog says.
The SEC’s inspector general conducted 33 probes of employees looking at explicit images in the past five years, according to a memo obtained by The Associated Press.
The memo says 31 of those probes occurred in the 2 1/2 years since the financial system teetered and nearly crashed.
As Steven Gandel notes in this week’s magazine piece on the Goldman case, bringing charges against Wall Street’s leading bank was meant, in part, to mark a new dawn for the embattled regulatory agency. Few of us, it seems, realized how dark the night was.