SEC Calls Timing Of Goldman Investigation "Suspicious", But It Doesn't Matter

The SEC Inspector General said the the timing of a fraud case against Goldman Sachs Group was “suspicious” and may have been used to cover its mistakes in failing to discover a Ponzi scheme by Allen Stanford.  SEC Inspector General H. David Kotz said in testimony before Congress that “It would strain credulity to think it was coincidental. I can’t give you a conclusion right now, but it was suspicious.”

The report from the Inspector General’s office indicated that the SEC suspected as early as 1997 that Stanford was running a Ponzi scheme but did nothing to stop it until late 2005. The agency filed civil charges against Sanford early in 2009

It really does not matter. The charges against Goldman seem to have been legitimate, and their timing, although ill-chosen, do not take away from that. Goldman itself must have agreed that the case had merit because it paid $550 million to settle it. Some observers believe that the payment was simply to mollify the SEC so that the publicity around the case would eventually disappear, but that seems unlikely. If the investment bank believed that it had a strong case, Goldman would have humiliated the agency in court.

The SEC’s decision to pursue Goldman aroused suspicions because the agency’s Commissioners voted along party lines with the Democratic appointees voting 3 to 2 in favor of the decision. It has also been alleged that the agency acted just before financial reform legislation was to be voted on in Congress. Goldman Sachs, if that is true, was a scapegoat meant to make it seem that Wall Street needed to be more heavily regulated.

Kotz really asked the wrong question and investigated the wrong issue. Was Goldman innocent? If so, what was the source and reason for the charges against it?

Douglas A. McIntyre