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The SEC's Inspector General found that there is no
evidence the filing and settlement of the enforcement action against Goldman
Sachs (here) was politically
timed or that there were leaks to the media. The Report, made available
yesterday, concludes there is no evidence that the SEC's enforcement action
against Goldman was "intended to influence, or was influenced by, financial
regulatory reform legislation. The OIG found that the investigation's
procedural path and timing was governed primarily by decisions relating to the
case itself . . ." There also was no evidence that the settlement was timed to
influence reform legislation or that there were leaks to the media according to
the report. The IG did find that SEC Enforcement should have notified Goldman
and the NYSE prior to filing the action.
Mr. Kotz launched his investigation shortly after
Commission filed its enforcement action against Goldman on April 16, 2010. By
the next Friday, Mr. Kotz had received a request from "United States
Representative Darrell Issa and other members of the House of Representatives .
. ." to investigate "allegations by Representative Issa and other members of
the House of Representatives . . ." that the SEC had coordinated with the White
House, Members of Congress, or the Democratic political committees concerning
bringing the enforcement action against Goldman Sachs to influence financial
reform legislation. Congressman Issa also claimed that there may have been
improper communications between the SEC and the media about the case. The IG's
investigation, which has long been reported in the press, was launched.
Later, the Congressman requested that Mr. Kotz expand his
inquiry to "examine whether the timing of the Commission's proposed settlement
with Goldman related to either the financial regulatory reform legislation
passed by the United States Senate the same day or to the minimization of leaks
of information to the media concerning the proposed settlement." The
investigation was expanded, a fact reported in the media.
In his report, the SEC Inspector General details the
progress of the investigation into Goldman. That chronology reveals a
carefully conducted inquiry and repeated efforts by the staff to ensure that
that the matter was fully investigated before any action was brought. The facts
developed from the 32 witnesses who testified and the 5 that were interviewed
by the IG and his staff, along with all of the documents accumulated, are consistent
with the conclusion that the filing and settlement of the case was not
The single deviation from the chronology of the Goldman
case is the IG's decision to investigate whether the complaint was filed on
April 16 in order to mute publicity about his report on the Stanford Ponzi
scheme investigations. This question prompted a sojourn through speculation
that earlier IG reports on Madoff and other topics were released to the pubic
in a manner designed to minimize publicity. The reason Mr. Kotz details what he
admits is little more than supposition is not stated. It is clear, however,
that this detour was not within the request he received from Representative
Throughout the report certain names and other small
passages have been redacted. Some of these are designated "LF" which, according
to the code, means "Law Enforcement Privilege/Potentially Harmful to Ongoing
Litigation." This is more than curious in view of the fact that the Goldman
litigation had just been filed when the IG launched his investigation. That
case is of course still on-going and may be heading for trial. None of this
stopped Mr. Kotz from conducting this inquiry or discussing it in public. Yet
it seems apparent that any possible negative impact the IG inquiry may have
caused could have been avoided by waiting until after the Goldman case
had concluded - that is, any "LF" could have been avoided. It was not. The
reason was not stated.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.