ISSUES OF POLITICAL TIMING AND PR: THE SEC’S IG REPORTS ON GOLDMAN

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 politically timed.

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 Issa.

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.