Reduced to bare essentials, the SEC alleged a garden variety securities fraud, but for the elements listed above. It claims Goldman sold synthetic securities but didn’t disclose the package was structured by an investor intending to short it, and affirmatively misrepresented who structured it. If the SEC prevails, it might reassert its position as a player in the current financial regulatory scene. But the lawsuit carries big stakes if the SEC loses—among other things, this case will influence the reputations of both Chairman Mary Schapiro, and Enforcement Division chief, Rob Khuzami.
The problem with litigation is losing. But even if the SEC prevails, its reward may prove ephemeral. After all, there aren’t any widows or orphans in the immediate vicinity of the central transaction, and even victory could be tarnished by questions about its potential motivations regarding the manner and timing of the SEC’s decision to sue. Is that worth the potential risk? The question answers itself.
To recap, Pitt argues that after the SEC under Bush did nothing and a massive financial meltdown then occured that threw the country into the worst recession in decades, that if the SEC actually tries to exercise regulatory power over a bank, they might damage their reputation.
So they should of course just leave Goldman Sachs alone before, what, anything unfortunate might happen?
Let's also keep in mind that Harvey Pitt was SEC chairman under Dubya from 2001-2003. We're actually watching the former head of a regulatory agency tell the SEC that after arguably the agency's largest regulatory failure that its reputation might take some damage if it dares to go after one of the financial firms on Wall Street that it's supposed to regulate.
That's comedy gold, that is. What was Pitt actually thinking his job was as SEC chairman, to be the banks' friend? To make sure that banks didn't need regulation at all?
That worked out well, didn't it?
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