GREED FILES - The Gun Shy SEC

"Why Haven't Bankers Been Punished?  Just Read These Insider SEC Emails" by Jesse Eisinger, ProPublica 4/21/2016

Right after the financial crisis, an SEC lawyer fought a lonely struggle to get his agency to crackdown harder on Goldman bankers.  He lost.

This story was co-published with The New Yorker.  It is not subject to our Creative Commons license.

In the late summer of 2009, lawyers at the Securities and Exchange Commission were preparing to bring charges in what they expected would be their first big crackdown coming out of the financial crisis.  The investigators had been looking into Goldman Sachs' mortgage-securities business, and were preparing to take on the bank over a complex deal, known as Abacus, that it had arranged with a hedge fund.  They believed that Goldman had committed securities violations in developing Abacus, and were ready to charge the firm.

James Kidney, a longtime SEC lawyer, was assigned to take the completed investigation and bring the case to trial.  Right away, something seemed amiss.  He thought that the staff had assembled enough evidence to support charging individuals.  At the very least, he felt, the agency should continue to investigate more senior executives at Goldman and John Paulson & Co., the hedge fund run by John Paulson that made about a billion dollars from the Abacus deal.  In his view, the SEC staff was more worried about the effect the case would have on Wall Street executives, a fear that deepened when he read an email from Reid Muoio, the head of the SEC's team looking into complex mortgage securities.  Muoio, who had worked at the agency for years, told colleagues that he had seen the “devasting [sic] impact our little ol' civil actions reap on real people more often than I care to remember.  It is the least favorite part of the job.  Most of our civil defendants are good people who have done one bad thing.”  This attitude agitated Kidney, and he felt that it held his agency back from pursuing the people who made the decisions that led to the financial collapse.

While the SEC, as well as federal prosecutors, eventually wrenched billions of dollars from the big banks, a vexing question remains:  Why did no top bankers go to prison?  Some have pointed out that statutes weren't strong enough in some areas and resources were scarce, and while there is truth in those arguments, subtler reasons were also at play.  During a year spent researching for a book on this subject, I've come across case after case in which regulators were reluctant to use the laws and resources available to them.  Members of the public don't have a full sense of the issue because they rarely get to see how such decisions are made inside government agencies.

Kidney was on the inside at a crucial moment.  Now retired after decades of service to the SEC, Kidney recently provided me with a cache of internal documents and emails about the Abacus investigation.  The agency holds the case up as a success, and in some ways it was:  Goldman had to pay a $550 million fine, and a low-ranking trader was found liable for violating securities laws.  But the documents provided by Kidney show that SEC officials considered and rejected a much broader case against Goldman and John Paulson & Co.

Kidney has criticized the SEC publicly in the past, and the agency's handling of the Abacus case has been previously described, most thoroughly in a piece by Susan Beck, in The American Lawyer, but the documents provided by Kidney offer new details about how the SEC handled its case against Goldman.  The SEC declined to comment on the emails or the Abacus investigation, citing its policies not to comment on individual probes.  In a recent interview with me, Muoio stood by the agency's investigation and its case.  “Results matter.  It was a clear win against a company and culpable individual.  We put it to a jury and won,” he said.

Kidney, for his part, came to believe that the big banks had “captured” his agency — that is, that the SEC, which is charged with keeping financial institutions in line, had become overly cautious to the point of cowardice.

The Abacus investigation traces to a moment in late 2006 when the hedge fund Paulson & Co. asked Goldman to create an investment that would pay off if U.S. housing prices fell. Paulson was hoping to place a bet on what we now know as “the big short”: the notion that the real-estate market was inflated by an epic bubble and would soon collapse.  To facilitate Paulson's short position, Goldman created Abacus, an investment composed of what amounted to side bets on mortgage bonds.  Abacus would pay off big if people began defaulting on their mortgages.  Goldman marketed the investment to a bank in Germany that was willing to take the opposite side of the bet — that housing prices would remain stable.  The bank, IKB, was cautious enough to ask that Goldman hire an independent manager to assemble the deal and look out for its interests.

This is where things got dodgy.  Unbeknownst to IKB, the hedge fund Paulson & Co. improved its odds of success by inducing the manager, a company called ACA Capital, to include the diciest possible housing bonds in the deal.  Paulson wasn't just betting on the horse race.  The fund was secretly slipping Quaaludes to the favorite.  ACA did not understand that Paulson was betting against the security.  Goldman knew, but didn't give either ACA or IKB the full picture.  (For its part, Paulson & Co. contended that ACA was free to reject its suggestions and said that it never misled anyone in the deal.)

When SEC officials discovered this in 2009, they decided that Goldman Sachs had misled both the German bank and ACA by making false statements and omitting what the law terms “material details” — and that these actions constituted a violation of securities law.  (The SEC oversees civil enforcement of U.S. securities law and can charge both companies and individuals with violations.  Its work can often be a precursor to criminal cases, which are handled by prosecutors at the Justice Department.)

Kidney was a trial attorney with two decades of experience at the SEC, and had won his share of courtroom battles.  But the stakes in this case were particularly high.  Politically, it was a delicate moment.  The global financial system was only just recovering, millions of Americans had lost their jobs, and there was growing public anger about the bailout of the banks and car companies in Detroit.  When Kidney looked at the work that had been done on the case, he found what he saw as serious shortcomings.  For one, SEC investigators had not interviewed enough executives.  For another, the staff decided to charge only the lowest man on the totem pole, a midlevel Goldman trader named Fabrice Tourre, a French citizen who lived in London, and who was in his late twenties when the deal came together.  Tourre had joked about selling the doomed deal to “widows and orphans,” and had referred to himself as “Fabulous Fab,'' a sobriquet that probably would not endear him to a jury.  He was an easy target, but charging him was not likely to send a signal that Washington was serious about cracking down on Wall Street's excesses.

Kidney could not understand why SEC staffers were reluctant to investigate Tourre's bosses at Goldman or anyone at Paulson & Co. Charging only Goldman, he said, would send exactly the wrong message to Wall Street.  “This appears to be an unbelievable fraud,” he wrote to his boss, Luis Mejia.  “I don't think we should bring it without naming all those we believe to be liable.”

Kidney came to work at the SEC in 1986.  He was thirty-nine at the time, having first worked a stint as a journalist.  The “steam was elevated” at the agency when he started there, he said.  Young lawyers were expected to go after the big names, and they did: the junk-bond king Michael Milken, the insider trader Ivan Boesky, the investment banker Martin A. Siegel.

As a trial lawyer, Kidney's job was to develop a compelling narrative that could be presented to a jury of laymen unfamiliar with the intricacies of finance.  “Jim was a great attorney.  A lawyer's lawyer.  Sound legal mind, excellent writer, and a true trial lawyer,” said Terence Healy, the vice-chair of securities enforcement practice at Hughes Hubbard and a former colleague of Kidney's at the SEC.  But Kidney also exasperated some staffers who thought he wasn't detail-oriented and didn't grasp nuances.

Soon after he joined the case, Kidney believed that the evidence the SEC staff had assembled justified charges against more people and he argued for, at the very least, an investigation of higher-level executives.  The SEC team had not interviewed Tourre's direct superior, Jonathan Egol.  Nor had they questioned top bankers in Goldman's mortgage businesses or any of the bank's senior executives.  Even more surprising to Kidney, the agency had not taken testimony from John Paulson, the key figure at his eponymous hedge fund.  It seemed to Kidney, as he reviewed the case materials, that the agency had spent more time and effort investigating much smaller insider-trading cases.  Just two weeks after he joined the case, on August 14th, Kidney urged the team to broaden its investigation and issue key participants in the Abacus deal what are known as Wells notices — official notification that the SEC is considering charges.

Kidney's view of the case put him at odds with Muoio, who was widely respected at the agency for his analytical abilities.  Kidney said that he was aghast when, in an email sent a month later congratulating his team on their work investigating Tourre, Muoio described potential targets of SEC charges as “good people who had done one bad thing,'' and he did little to hide his irritation.

“I am in full agreement that when we sue it can be devastating, and that we have sued little guys way too often on flimsy charges or when they have been punished enough,'' he wrote back.  “But I'm not at all convinced that Tourre alone is sufficient here.”

Kidney later explained to Muoio that he was pushing for a more assertive approach because he believed that the SEC had grown too passive in its oversight of Wall Street.  “The damage to the reputation of the [SEC] in the last few years and the decline of the institution are very troubling to me,” he wrote.

Kidney and Muoio battled for months.  Kidney felt that the agency was overly dependent on the kind of direct evidence it had against Tourre.  Part of the problem was that high-level Goldman executives had been savvier in how they communicated: when topics broached sensitive territory in emails, they would often write “LDL” — let's discuss live.

Kidney pressed the team to take what he thought were obvious investigative steps.  He had been told by a staff attorney in the group that Muoio had vetoed the idea of calling Paulson to testify, and the agency hadn't subpoenaed Paulson's emails initially, relying mainly on the voluntary disclosure of documents.  “We didn't get subpoena power until late in the investigation,” a staff attorney acknowledged to Kidney in an email sent late in August of 2009.

As the year ended, Muoio remained opposed to bringing charges against anyone but Tourre.  In a December 30th email, sent to the entire group investigating the deal, Muoio offered an explanation for what had happened during the bubble years:  “Now that we are gearing up to bring a handful of cases in this area, I suggest that we keep in mind that the vast majority of the losses suffered had nothing to do with fraud and the like and are more fairly attributable to lesser human failings of greed, arrogance and stupidity of which we are all guilty from time to time.”

Several days later, Kidney sent an email to Lorin Reisner, the SEC's deputy director of enforcement, in which he warned, “We must be on guard against any risk that we adopt the thinking of those sponsoring these structures and join the Wall Street Elders, if you will.”

Kidney also continued to push the agency to bring charges against Egol, Tourre's superior at Goldman, arguing that the SEC should at least interview him.  According to Kidney, Muoio dismissed the idea, saying that the agency knew what Egol would say.

“That's a cardinal sin in an investigation,'' Kidney said that he told Muoio.  “You can't assume what somebody will say.”

One reason for the reluctance from Muoio and others at the SEC was that they wanted to make the case about misleading statements and they didn't have that sort of evidence from Paulson & Co. employees or high-level Goldman executives.

Kidney told me that he thought the SEC could avail itself of a broader interpretation of securities law.  He argued that the agency should file civil actions against top players at both the bank and the hedge fund under a concept called “scheme liability” — a doctrine of securities law that makes it illegal to sell financial products whose main purpose is to deceive investors.

In late October of 2009, Kidney circulated a long memo arguing that the SEC should consider charging Paulson & Co., John Paulson himself, and Paolo Pellegrini, who was the hedge fund executive who worked on the Abacus deal.

“Each of them knowingly participated, as did Goldman and Tourre, in a scheme to sell a product which, in blunt but accurate terms, was designed to fail,” Kidney's memo said.  “In other words, the current pre-discovery evidence suggests they should be sued for securities fraud because they are liable for securities fraud.”

John Paulson and Pellegrini declined to comment for this article.  Paulson & Co. and Goldman dispute that the deal was fraudulent.  A spokesman for the Paulson hedge fund said that “there was no ‘scheme' nor was Abacus ‘designed to fail'” and that the hedge fund neither told Goldman what to disclose to investors nor knew anything about what the bank was telling investors.  A Goldman spokesman said that the bank never created mortgage-related products that were designed to fail.  He said the precipitous collapse in the value of Abacus, which fell to zero several months after it had been created, resulted from the broad decline in the housing market that afflicted all securities related to real estate, not because of flaws in the product.

Some of Kidney's colleagues initially supported his idea to pursue scheme liability, but Muoio seemed to think that doing so would hurt the agency's solid but narrower case against Goldman.  “I continue to have serious reservations about charging Paulson on our facts,'' Muoio wrote.  “And I worry that doing so could severely undermine and delay our solid case against Goldman.” Muoio's viewpoint, again, prevailed.

Muoio, in a recent interview with me, dismissed Kidney's complaints.  “I cannot imagine any basis for claiming ‘regulatory capture,' given that I have never worked in industry or finance and given the cases I have made, including very significant cases against banks, auditing firms, companies and senior executives," he said.

Even after he lost the debate over scheme liability, Kidney continued to argue for charging Jonathan Egol with securities-law violations.  One staffer wrote that the SEC had testimony, but little documentary evidence, proving that Egol had reviewed the Abacus documents.  “The law surely imposes liability on others besides the literal scrivenor [sic], or we are in big trouble,” Kidney shot back in an email.  “Why are we working so hard to defend a guy who is now a managing director at Goldman so we can limit the case to the French guy in London?”

“I am sure you are not suggesting we charge Egol because of his position within the company,” Muoio replied.  “Nationality is also clearly irrelevant and I hope that's the last we hear from you on that subject.  Tourre admits he was principally responsible for the problematic disclosures.”

Members of the SEC staff finally interviewed Egol in January.  Muoio would later tell the SEC inspector general:  “We didn't lay a glove on him.” But Kidney felt differently.  As he saw it, Egol had acknowledged reviewing all the documents that the SEC had deemed misleading.

On January 29, 2010, after months of investigation and debate, the SEC provided a Wells notice to Jonathan Egol.  Neither Egol nor his lawyers responded to repeated calls and emails seeking comment.

Things dragged on.  In March, Muoio wrote an email arguing against charging Egol, saying that, among other reasons, he “will strike most jurors as nice, likable, down-to-earth family man.”  On the afternoon of March 22nd, the team gathered in the office of Robert Khuzami, the SEC's director of enforcement, for a meeting.  Kidney, Lorin Reisner, and one other lawyer present were in favor of suing Egol; Muoio remained implacably against, as did others.  Most of the lower-level staffers stayed quiet.

The following day, Khuzami emailed the group with his decision: “I am a no on Egol.  An extremely difficult call,” he wrote.  “The lack of consensus among our group is itself, for me, confirmation of this conclusion.” Khuzami did not respond to a request for comment for this article.

Kidney had lost.  He was offered the job of handling the expert witnesses for the trial but knew what that meant — that he was getting demoted.  He declined.

On Friday, April 16, 2010, the SEC stunned the markets, suing Goldman Sachs and charging the firm with omitting information that would have been crucial to investors in Abacus.  The agency brought a charge against Tourre, as well.  Goldman's stock dropped thirteen per cent that day, erasing $10 billion of its market capitalization.

A couple of months later, on July 15, 2010, the SEC settled with Goldman for $550 million.  Goldman Sachs did not admit any wrongdoing.  The SEC wrung an apology out of the bank, which the agency perceived as scoring a victory that critics called inadequate.

It would be the only SEC action brought against the bank for its actions in this corner of the mortgage securities markets just before the meltdown, although a Senate investigation uncovered questionable behavior related to other Goldman mortgage securities.  The Justice Department recently settled a case with Goldman that charged that the bank had misrepresented mortgage-backed securities.  The bank had to pay on the order of $5 billion.  The Justice Department did not charge any individuals.

In 2013, Fabrice Tourre was found liable in a civil trial and ordered to pay more than $850,000.  He is now a Ph.D. candidate at the University of Chicago.

Kidney became disillusioned.  Upon retiring, in 2014, he gave an impassioned going-away speech, in which he called the SEC “an agency that polices the broken windows on the street level and rarely goes to the penthouse floors.”

In our conversations, Kidney reflected on why that might be.  The oft-cited explanations — campaign contributions and the allure of private-sector jobs to low-paid government lawyers — have certainly played a role.  But to Kidney, the driving force was something subtler.  Over the course of three decades, the concept of the government as an active player had been tarnished in the minds of the public and the civil servants inside working inside the agency.  In his view, regulatory capture is a psychological process in which officials become increasingly gun shy in the face of criticism from their bosses, Congress, and the industry the agency is supposed to oversee.  Leads aren't pursued.  Cases are never opened.  Wall Street executives are not forced to explain their actions.

Kidney still rues the Goldman case as a missed chance to learn the lessons of the financial crisis.  “The answers to unasked questions are now lost to history as well as to law enforcement,“ he said.  ”It is a shame.”

WALL STREET - New Rules for High-Frequency Trading?

"SEC seeks to rein in unfair practices of high-frequency trading" PBS NewsHour 6/5/2014

Excerpt

JUDY WOODRUFF (Newshour):  ...... A federal agency is proposing new rules for financial markets to help them address changes in the way the majority of trading takes place today, dizzying changes in technology and a lessening of transparency.

There’s been mounting concern among some experts in particular about computer-driven high-frequency trading after a one-day market crash in 2010 and a recent high-profile book on the subject.

Mary Jo White, who is the chair of the Securities and Exchange Commission, laid out new proposals to regulate the market during a speech today.

Reporter Keri Geiger of Bloomberg News is here to fill us in.

WALL STREET - Bull in Economic China Shop, JP Morgan

"Regulators Charge JP Morgan With More Than $1 Billion in Penalties" PBS Newshour 9/19/2013

Excerpt

SUMMARY:  Investment bank J.P. Morgan got hit with two sets of penalties that total over a billion dollars in fines and refunds.  Judy Woodruff talks to Dawn Kopecki of Bloomberg News for details on the charges, the ongoing investigations and the larger consequences for the company.

JUDY WOODRUFF (Newshour):  And we return to J.P. Morgan, the huge investment bank hit with two sets of penalties today.  First, SEC officials criticized the bank's top leaders for how they handled trading losses last year that eventually topped $6 billion.

The SEC said -- quote -- "Senior management broke a cardinal rule of corporate governance.  Inform your board of directors of matters that call into question the truth of what the company is disclosing to investors."

No top executives were charged.

For more on this and another federal penalty, we turn to Dawn Kopecki with Bloomberg News.  And she joins us from New York.

POLITICS - The SEC and Corporate Donation Disclosure

Even more push to government by big-business.  It's not enough that our U.S. Supreme Court was bought-out by corporations and gave these entities the right to buy our elections.

I should not have to say, but Republican fascists will do everything to block this since corporations finance the GOP.

"S.E.C. Gets Plea: Force Companies to Disclose Donations" by NICHOLAS CONFESSORE, New York Times 4/23/2013

Excerpt

A loose coalition of Democratic elected officials, shareholder activists and pension funds has flooded the Securities and Exchange Commission with calls to require publicly traded corporations to disclose to shareholders all of their political donations, a move that could transform the growing world of secret campaign spending.

S.E.C. officials have indicated that they could propose a new disclosure rule by the end of April, setting up a major battle with business groups that oppose the proposal and are preparing for a fierce counterattack if the agency’s staff moves ahead.  Two S.E.C. commissioners have taken the unusual step of weighing in already, with Daniel Gallagher, a Republican, saying in a speech that the commission had been “led astray” by “politically charged issues.”

A petition to the S.E.C. asking it to issue the rule has already garnered close to half a million comments, far more than any petition or rule in the agency’s history, with the vast majority in favor of it.  While relatively few petitions result in action by the S.E.C., the commission staff filed a notice late last year indicating that it was considering recommending a rule.

In response to the growing pressure, House Republicans introduced legislation last Thursday that would make it illegal for the commission to issue any political disclosure regulations applying to companies under its jurisdiction.  Earlier this month, the leaders of three of Washington’s most powerful trade associations — the U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable — issued a rare joint letter to the chief executives of Fortune 200 companies, encouraging them to stand against proxy resolutions and other proposals from shareholder activists demanding more disclosure of political spending.

Tax-exempt groups and trade associations spent hundreds of millions of dollars on political advertising during 2012 elections, but they are not required to disclose their donors.  Evidence has mounted that a significant portion of the money came from companies seeking to intervene in campaigns without fear of offending their customers, their shareholders — or the lawmakers they target for defeat.

BANKS - Wall Street Firms Given Powerful Advantages by SEC Laxity

"S.E.C. Is Avoiding Tough Sanctions for Large Banks" by EDWARD WYATT, New York Times 2/3/2012

Excerpt

Even as the Securities and Exchange Commission has stepped up its investigations of Wall Street in the last decade, the agency has repeatedly allowed the biggest firms to avoid punishments specifically meant to apply to fraud cases.

By granting exemptions to laws and regulations that act as a deterrent to securities fraud, the S.E.C. has let financial giants like JPMorganChase, Goldman Sachs and Bank of America continue to have advantages reserved for the most dependable companies, making it easier for them to raise money from investors, for example, and to avoid liability from lawsuits if their financial forecasts turn out to be wrong.

An analysis by The New York Times of S.E.C. investigations over the last decade found nearly 350 instances where the agency has given big Wall Street institutions and other financial companies a pass on those or other sanctions. Those instances also include waivers permitting firms to underwrite certain stock and bond sales and manage mutual fund portfolios.

JPMorganChase, for example, has settled six fraud cases in the last 13 years, including one with a $228 million settlement last summer, but it has obtained at least 22 waivers, in part by arguing that it has “a strong record of compliance with securities laws.” Bank of America and Merrill Lynch, which merged in 2009, have settled 15 fraud cases and received at least 39 waivers.

Only about a dozen companies — Dell, General Electric and United Rentals among them — have felt the full force of the law after issuing misleading information about their businesses. Citigroup was the only major Wall Street bank among them. In 11 years, it settled six fraud cases and received 25 waivers before it lost most of its privileges in 2010.

By granting those waivers, the S.E.C. allowed Wall Street firms to have powerful advantages, securities experts and former regulators say. The institutions remained protected under the Private Securities Litigation Reform Act of 1995, which makes it easier to avoid class-action shareholder lawsuits.

And the companies continue to use rules that let them instantly raise money publicly, without waiting weeks for government approvals. Without the waivers, the companies could not move as quickly as rivals that had not settled fraud charges to sell stocks or bonds when market conditions were most favorable.

Other waivers allowed Wall Street firms that had settled fraud or lesser charges to continue managing mutual funds and to help small, private companies raise money from investors — two types of business from which they otherwise would be excluded.

“The ramifications of losing those exemptions are enormous to these firms,” David S. Ruder, a former S.E.C. chairman, said in an interview. Without the waivers, agreeing to settle charges of securities fraud “might have vast repercussions affecting the ability of a firm to continue to stay in business,” he said.

S.E.C. officials say that they grant the waivers to keep stock and bond markets open to companies with legitimate capital-raising needs. Ensuring such access is as important to its mission as protecting investors, regulators said.

Sorry, S.E.C., you are WRONG. It is much more important to protect investors, that is your primary job.

WALL STREET - The Goldman Sachs Scapegoat

"S.E.C. Case Stands Out Because It Stands Alone" by LOUISE STORY and GRETCHEN MORGENSON, New York Times 5/31/2011

Excerpt

At the height of the housing boom, the 26th floor of Goldman Sachs’s former headquarters on Broad Street in Lower Manhattan was the nerve center of Goldman’s fast-growing mortgage trading business.

Hundreds of employees worked closely in teams, devising mortgage-based securities — billions of dollars’ worth — that were examined by lawyers, approved by management, then sold to investors like hedge funds, commercial banks and insurance companies.

At one trading desk sat Fabrice Tourre, a midlevel 28-year-old Frenchman who was little known not just outside Goldman but even inside the firm. That changed three years later, in 2010, when he achieved the dubious distinction of becoming the only individual at Goldman and across Wall Street sued by the Securities and Exchange Commission for helping to sell a mortgage-securities investment, in one of the hundreds of mortgage deals created during the bubble years.

How Mr. Tourre alone came to be the face of mortgage-securities fraud has raised questions among former prosecutors and Congressional officials about how aggressive and thorough the government’s investigations have been into Wall Street’s role in the mortgage crisis.

Across the industry, “it’s impossible that only one person was involved with fraudulent activities in connection to the sales of these mortgage securities,” said G. Oliver Koppell, a New York attorney general in the 1990s and now a New York City councilman.

In the fall of 2009, when Mr. Tourre learned that he had become a target of investigators for helping to sell a mortgage security called Abacus, he protested that he had not acted alone.

That fall, his lawyers drafted private responses to the S.E.C., maintaining that Mr. Tourre was part of a “collaborative effort” at Goldman, according to documents obtained by The New York Times. The lawyer added that the commission’s view of his role “would have Mr. Tourre engaged in a grand deception of practically everyone” involved in the mortgage deal.

Indeed, numerous other colleagues also worked on that mortgage security. And that deal was just one of nearly two dozen similar deals totaling $10.9 billion that Goldman devised from 2004 to 2007 — which in turn were similar to more than $100 billion of such securities deals created by other Wall Street firms during that period.

While Goldman paid $550 million last year to settle accusations that it had misled investors who bought the Abacus mortgage security, no other individuals at the bank have been named. Now, however, as criticism has grown about the lack of cases brought by regulators, the scope of the inquiries appears to be widening. The United States attorney general, Eric H. Holder Jr., has said publicly that his lawyers were reviewing possible charges against other Goldman officials in the wake of a Senate investigation that produced reams of documents detailing other questionable decisions that were made in the firm’s mortgage unit.

Humm.... the word "scapegoat" comes to mind.

POLITICS - Emperor Bush Decrees, Ignore Law, Again

"Intelligence Czar Can Waive SEC Rules" from Business Week

President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.

Unbeknownst to almost all of Washington and the financial world, Bush and every other President since Jimmy Carter have had the authority to exempt companies working on certain top-secret defense projects from portions of the 1934 Securities Exchange Act. Administration officials told BusinessWeek that they believe this is the first time a President has ever delegated the authority to someone outside the Oval Office. It couldn't be immediately determined whether any company has received a waiver under this provision.

In addition to refusing to explain why Bush decided to delegate this authority to Negroponte, the White House declined to say whether Bush or any other President has ever exercised the authority and allowed a company to avoid standard securities disclosure and accounting requirements. The White House wouldn't comment on whether Negroponte has granted such a waiver, and BusinessWeek so far hasn't identified any companies affected by the provision. Negroponte's office did not respond to requests for comment.

Securities-law experts said they were unfamiliar with the May 5 memo and the underlying Presidential authority at issue. John C. Coffee, a securities-law professor at Columbia University, speculated that defense contractors might want to use such an exemption to mask secret assignments for the Pentagon or CIA. "What you might hide is investments: You've spent umpteen million dollars that comes out of your working capital to build a plant in Iraq," which the government wants to keep secret. "That's the kind of scenario that would be plausible," Coffee said.

William McLucas, the Securities & Exchange Commission's former enforcement chief, suggested that the ability to conceal financial information in the name of national security could lead some companies "to play fast and loose with their numbers." McLucas, a partner at the law firm Wilmer Cutler Pickering Hale & Dorr in Washington, added: "It could be that you have a bunch of books and records out there that no one knows about."

Hay folks! In the name of "protecting" America, by all means, lets give big companies an easy way to "to play fast and loose with their numbers." Just the ticket, hide information from regulators, after all they are not there to protect the American people's interests.

'So Caesar decrees, so let it be done. Hail Caesar, hail Caesar,.....'