SEC watchdog blunts accusations on Goldman timing

AP News
Posted: Oct 13, 2010 10:21 PM
SEC watchdog blunts accusations on Goldman timing

The watchdog of the Securities and Exchange Commission has found no hard evidence that the SEC timed the announcement of its fraud case against Goldman Sachs to eclipse negative news about a separate case.

Inspector General David Kotz's report Wednesday was a response to demands from congressional Republicans who had questioned the timing of the Goldman charges. The SEC announced the charges on April 16, the same day it released Kotz's blistering report on the agency's failure to catch R. Allen Stanford's alleged Ponzi scheme.

But the report says that the way the SEC managed the Goldman case showed it was trying to maximize positive press coverage. Kotz's report says the agency didn't want a congressional panel to break the news first.

Kotz found that the SEC's timing of its Goldman announcement was delayed a day so as not to overshadow its announcement of a settlement with investment firm Quadrangle Group. He said the SEC wanted to maintain a positive relationship with New York Attorney General Andrew Cuomo, who was announcing his own settlement with Quadrangle that day.

Kotz's investigation also found no evidence that SEC officials coordinated the timing of actions on Goldman with anyone in the Obama administration or Congress to help speed passage of the financial overhaul law.

In his investigation of the agency's handling of the Stanford case, Kotz found that SEC staff had known since 1997 that the billionaire was likely operating a Ponzi scheme but didn't charge him until February 2009. The charges came a few months after the massive Bernard Madoff pyramid scheme surfaced.

At a Senate hearing last month, Kotz had termed "suspicious" the timing of the agency's civil fraud charges against Goldman.

The SEC has said the announcement that day of charges against Goldman, which followed a monthslong investigation, was unrelated to any other factors. The agency alleged in its civil lawsuit that Goldman misled investors about securities backed by high-risk mortgages. It said the Wall Street giant concocted mortgage investments without telling buyers they had been crafted with help from a client that was betting the investments would fail.

In July, Goldman agreed in a settlement with the SEC to pay $550 million. It was one of the largest fines in SEC history.

Lucas van Praag, a spokesman for New York-based Goldman, declined to comment on Kotz's new report.

SEC spokesman John Nester said the report "reaffirms that the case was brought on the merits, and only on the merits."

The report, though, details some SEC officials' apparently joking references to the "coincidental" timing of the Goldman suit and Stanford report. A senior enforcement official wrote in an e-mail that SEC leaders "had better be careful" about denying the connection "because they may get asked for e-mail" by Congress or under open records law.

But Kotz said his investigation turned up no "concrete or tangible evidence" that the SEC's timing was intended to mute the negative effect of the Stanford report.

The report details the SEC's history of releasing watchdog reports that criticize the agency when they are least likely to generate much negative press.

A report on the SEC's failure to catch Madoff's scheme was released after-hours on the Friday before Labor Day. Related documents came out late on the Friday before Halloween. Reports noting its failure to pursue Bear Stearns & Co. and W. Holding Company Inc. also came out after the work week was over.

And on the same day of the Goldman and Stanford news, the SEC released a report it had held for two months, about its failure to investigate fraud allegations against Metromedia International Group.