Bloomberg reported today that the U.S. Securities and Exchange Commission issued an internal agency memo stating, “The staff has concluded its investigation and determined that charges will likely not be recommended.”
It appears the SEC determined Lehman had questionable conduct, but not illegal conduct in respect to the now infamous REPO 105 transactions. “The SEC would have to prove that the accounting wasn’t correct under GAAP, and sometimes that’s subjective,” said Joseph Dever, a former SEC attorney who is now at law firm Cozen O’Connor in New York. “When you have a subjective analysis like that, it’s hard to prove to a judge or jury that they intentionally got the numbers wrong.” We are not pursuing justice because it is hard to prove? Of course this requires subjective analysis ~ anything of any importance in life does. I thought that the whole point of a judge and/or jury court case was to make a subjective judgment about wrongdoing. This injustice speaks volumes about our society.
Original Post on May 9, 2012:
As mentioned in The Lehman Lynching In 60 Minutes, Anton Valukas, the investigator appointed by the federal bankruptcy court to determine what caused the Lehman Brothers bankruptcy, submitted a 2,200 page report two years ago stating that there was enough evidence for a prosecutor to bring a case against top Lehman officials and the Ernst & Young accounting firm for misleading government regulators and investors. During the CBS 60 Minutes show, the question debated was why there haven’t been any prosecutions. Unbelievably, the answer was that the SEC and the Federal Reserve may have compromised such prosecutions by their own participation in the cover-up because regulators were on site.
After that show aired, there was a meeting between the House financial service committee and SEC chair Mary Schapiro. New Jersey Congressman Scott Garrett stated that constituents called his office to ask “Should [the SEC] have caught something and didn’t?” and if the SEC was going to take any legal action against top executives at Lehman related to the firm’s demise. “We [got] calls from the district … [about] the lack of civil actions,” Garrett said. Many kudos to the constituents! We must never forget. This complete lack of justice stabs the heart and soul of our society. At this point, the regulators who were actually inside Lehman for months before the collapse should also be prosecuted for their role in the crime.
Where is the SEC watchdog? Absent. The SEC Inspector General position has been vacant since January. Actually there are IG leadership vacancies at many key agencies. Just this week there was an announcement about an outside investigator being hired to investigate the Office of the Inspector General for the SEC. OK, so we have regulators at the SEC who didn’t regulate, we have inspectors at the IG who didn’t inspect and we are adding an outside investigator to investigate. The only conclusion I can make of this three-ring circus is that we, the taxpayers, are funding an expensive boondoggle while any resemblence of justice is stripped out of our society. Any investigation of the SEC must include a thorough and exhaustive review as to what SEC officials were doing inside Lehman, Bear, and Merrill as these firms collapsed in 2008 – yes, FOUR years ago! I recommend that the outside investigator be a world-renown blood hound to successfully track this very old scent.
While the SEC is not pursuing justice, it is quite interesting to see what the agency is up to. A couple of weeks ago, the agency brought a civil case against a ratings agency called Egan-Jones. Have you ever heard of it? The agency is not as big or as powerful as Moody’s Investors Service or Standard & Poor’s. Certainly Egan-Jones’s ratings didn’t cripple the global economy, as the other two ratings agencies did. As a matter of fact, there was a whistle-blower — Eric Kolchinsky, a former Moody’s executive who oversaw the firm’s collateralized debt obligation ratings. He claimed that Moody’s fraudulently inflated ratings on a loan deal called Nine Grade Funding in January 2008 because it had already made a decision that it was going to downgrade the assets that were going into the deal. Some three years after that allegation was dropped at the door of the SEC, there’s been no action. The inescapable conclusion is that the SEC is letting Moody’s and S&P officials walk free while pursuing Mr. Egan on minor technicalities.