Over the weekend, I received several very informative emails from a former SEC attorney. “C” just gave me permission to reproduce it here.
It is a little “inside baseball” as to the process of how the SEC decides to bring an action versus any company, more or less something as large and important as GS. Some of the language has been changed to maintain C’s anonymity.
C’s initial email.
I am an a avid reader of your blog although I don’t often comment. I spent some time at the SEC, and thought I could add a couple of points to your effort against the overwhelming stupidity in the MSM about this Goldman action by the agency.
After sitting in on every closed meeting of the Commission during my time there, it sure does seem that politics can (and often does) derail an investigation.
But, it doesn’t work the other way.
As you know, it’s up to the lower-level enforcement attorneys to decide when to bring the case to the Commissioners. It is possible that these attorneys saw that it was politically convenient to bring their action now — actually, 8 months ago when they got approval for the Wells notice — but their motivation was not political: It helps their careers (and mental well being) to get their cases approved.
Attorneys are unwilling to put a case up for a commission vote if they didn’t think it was strong enough. These attorneys are judged on the success of the actions they bring and wouldn’t jeopardize that to appease the politicians that are currently serving on the Commission. The senior people who make promotion decisions will see Commissioners and Presidents come and go but senior staff outlasts them all.
The Commissioners power is wielded not to instigate investigations but to kill them by not approving them — this was rampant during the Bush administration.
The other thing I was surprised about when I started at the SEC was how concerned the staff and (usually) the Commission is with precedent on punishment. I guarantee some low level staffer already has a memo prepared: Settlements, administrative decisions and court decisions from similar 10b-5 cases, including how they relate to the seriousness of what Goldman has done, the amount of money involved, etc. (I wrote a number of these when I first started at there).
One of the biggest goals of the enforcement division is to have consistent punishments so that the market players can act appropriately. It helps control behavior in the market and the side benefit is it makes the SEC’s job easier — defendants know when to settle and what punishment to accept. Unless they’re stupid, Goldman will eventually settle, and it will be consistent with other cases with similar circumstances. Goldman may have already made things more difficult for themselves because they’ve decided to play this up in the media. (That gets factored into any settlement as well).
If you’re wondering why I emailed this to you instead of just posting it 1) I didn’t think it was a great idea to publicize talking about closed commission meetings and 2) I don’t like to post anonymously. Anything I mentioned here is not confidential but I didn’t feel comfortable posting it with my name attached.
Keep up the great work on the blog.
And of course, I adore the PS:
PS: I should also add that I first found your blog while at the SEC. It was on an SEC list of recommended websites to read.
Lastly, here is C’s email granting permission to republish:
Feel free to use what I sent. I’d prefer if you didn’t identify me, but as I said nothing in there is confidential.
To add a little nuance to what I wrote regarding the Commissioners killing investigations: Not surprisingly the reasons given are never overtly political but veteran enforcement attorneys were well aware of certain Commissioners “tendencies” on certain types of investigations and certain types of defendants (if you know what I mean). With these types of investigations it was always easy enough for a Commissioner to find something in the evidence or assumptions that “concerned” them enough to not approve going forward with a Wells notice or the filing of a case.