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Why the S.E.C. Didn’t Hit Goldman Sachs Harder
BY JESSE EISINGER
In the late summer of 2009, lawyers at the Securities and Exchange Commission were preparing to bring charges in what they expected would be their first big crackdown coming out of the financial crisis. The investigators had been looking into Goldman Sachss mortgage-securities business, and were preparing to take on the bank over a complex deal, known as Abacus, that it had arranged with a hedge fund. They believed that Goldman had committed securities violations in developing Abacus, and were ready to charge the firm.
James Kidney, a longtime S.E.C. lawyer, was assigned to take the completed investigation and bring the case to trial. Right away, something seemed amiss. He thought that the staff had assembled enough evidence to support charging individuals. At the very least, he felt, the agency should continue to investigate more senior executives at Goldman and John Paulson & Company, the hedge fund run by John Paulson that made about a billion dollars from the Abacus deal. In his view, the S.E.C. staff was worried about the effect the case would have on Wall Street executives, a fear that deepened when he read an e-mail from Reid Muoio, the head of the S.E.C.s team looking into complex mortgage securities. Muoio, who had worked at the agency for years, told colleagues that he had seen the devasting [sic] impact our little ol civil actions reap on real people more often than I care to remember. It is the least favorite part of the job. Most of our civil defendants are good people who have done one bad thing. This attitude agitated Kidney, and he felt that it held his agency back from pursuing the people who made the decisions that led to the financial collapse.
While the S.E.C., as well as federal prosecutors, eventually wrenched billions of dollars from the big banks, a vexing question remains: Why did no top bankers go to prison? Some have pointed out that statutes werent strong enough in some areas and resources were scarce, and while there is truth in those arguments, subtler reasons were also at play. During a year spent researching for a book on this subject, Ive come across case after case in which regulators were reluctant to use the laws and resources available to them. Members of the public dont have a full sense of the issue, because they rarely get to see how such decisions are made inside government agencies.
Kidney was on the inside at a crucial moment. Now retired after decades of service to the S.E.C., Kidney recently provided me with a cache of internal documents and e-mails about the Abacus investigation. The agency holds the case up as a success, and in some ways it was: Goldman had to pay a five-hundred-and-fifty-million-dollar fine, and a low-ranking trader was found liable for violating securities laws. But the documents provided by Kidney show that S.E.C. officials considered and rejected a much broader case against Goldman and John Paulson & Company.
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http://www.newyorker.com/business/currency/why-the-s-e-c-didnt-hit-goldman-sachs-harder
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Why the S.E.C. Didn’t Hit Goldman Sachs Harder (Original Post)
n2doc
Apr 2016
OP
BillZBubb
(10,650 posts)1. Too many people in regulatory agencies and elected office look the other way.
Why, because they know they can get a highly lucrative spot inside industry once they leave government. Don't make waves, play ball with industry, and you'll make a fortune.
If not a job, maybe even well rewarded speeches.