Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, October 14, 2010

SEC's Inspector General Did Not Find Timing of Goldman Suit Influenced by Reform Legislation

The SEC's Office of Inspector General released its report on its investigation into the timing of the SEC's enforcement action against Goldman Sachs.  As the executive summary relates:

On April 23, 2010, the SEC OIG, in response to a written request from United States Representative Darrell Issa and other members of the House ofRepresentatives, opened an investigation into allegations that SEC employees communicated or coordinated with the White House, Members of Congress, or Democratic political committees concerning the bringing, or the timing of bringing, an action against Goldman, in order to affect debate of the financial regulatory reform legislation pending before the United States Senate. Congressman Issa and other members of Congress also alleged that SEC employees may have had communications with the New York Times concerning its complaint against Goldman prior to the filing ofthe complaint.

On July 22,2010, Congressman Issa requested that the OIG broaden its investigation 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 was an effort to avoid further criticism in the press concerning the proposed settlement. The OIG expanded its investigation to examine these issues as well.

The OIG did not found evidence indicating that the SEC's investigation of, or its action against, Goldman was intended to influence, or was influenced by, financial regulatory reform legislation.  Rather,

The OIG found that the investigation's procedural path and timing was governed primarily by decisions relating to the case itself, as well as concerns about: (1) facts surrounding the investigation's subj ect matter being publicized prior to the SEC filing its action; (2) maintaining a relationship with the New York State Attorney General ("NY AG"); and (3) maximizing and shaping positive press coverage.

The OIG did find that the SEC staff did not fully comply with an SEC administrative regulation that states that staff should make "every effort" to notify Goldman ofthe SEC's action prior to filing the action.   The report also notes that staff attorneys in Enforcement had differing views on whether notice should be given to a defendant in advance of an SEC enforcement action.  

Allegations of Improper Coordination Between the SEC and Other Governmental Entities Concerning the SEC's Enforcement Action Against Goldman Sachs & Co.

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