Corporate Governance

The Goldman Case and the Inspector General: The Costs

By J Robert Brown Jr.

We are dicussing the 77 page report issued by the Inspector General on the SEC's timing of the Goldman case and the settlement.  The report entirely exonerated the SEC. 

What are the costs of this type of investigation?  There are two.  The first is to moral and the human reaction that this type of investigation generates from the staff.  The second are the resources that went into the investigation.  But the precedent set is a bad one.  It encourages others to make serious allegations with little or no meaningful support. 

The exoneration notwithstanding, the staff of the SEC know that anytime there is a leak or a case might coincide with an external development, they may be subject to investigation.  It means that at least subsconciously they will need to take these factors into acccount.  This will be particulalry true with high profile cases like the one against Steven Rattner.  Either way, it's a set of concerns the staff ought not to have. 

In addition, this investigation used up an extraordinary amount of time and energy, both from the highest levels of the Commission and the OIG itself.  Examples?  According to the report:

The Inspector General's Office "issued an agency-wide document retention notice, instructing employees to preserve all documents related to the complaint filed against Goldman on April 16, 2010, and the Division of Enforcement's related investigation of Goldman."

The Office requested and received " the e-mails of current and former SEC employees for various periods of time pertinent to the investigation."  Emails were received from 64 current or former employees, including:

• 11 employees of the Office of the Chairman, 17 employees of the Offices of the Commissioners, 14 Headquarters Division of Enforcement ("Enforcement") employees, four Headquarters Office of Legislative Affairs employees, eight Headquarters Office of Public Affairs employees, four Office of the General Counsel employees, one Office of the Secretary employee, four Fort Worth Regional Office employees, and one New York Regional Office employee.

The total number of emails received?  Over 3.4 million.  See Report at 2.

Documents were also reviewed.  Some were requested from "The New York Times Company and Bloomberg Media concerning whether, when, and how these organizations first learned about the SEC's action against Goldman." It is unclear what, if anything, these outside entities provided. 

Who were some of the 32 witnesses interviewed under oath?  Pretty much everyone in the Chairman's office (Kayla Gillan, Deputy Chief of Staff, Office of the Chairman, Didem Nisanci, Chief of Staff, Office of the Chairman, Ricardo Delfm, Special Counsel to the Chairman, Stephen Cohen, Senior Advisor to the Chairman) not to mention all of the Commissioners and the Chairman.  So was Robert Khuzarni, Director, Division of Enforcement.  In other words, despite the extraordinary amount of pressing business that consumes the time of the commissioners, division directors, and the chairman, they were forced to reorient their efforts to an internal investigation of questionable importance.

Similarly, the Inspector General, despite an apparently full load of investigations, devoted considerable personal attention to this case.  As the report noted:  "SEC Inspector General H. David Kotz personally led the questioning in all of the sworn testimony ofwitnesses in the investigation."

For the right case, no stone should be unturned.  But the costs involved, including the time spent by top management on the matter rather than other matters, needs to be considered.  Many more of these types of investigations and the Commission could grind to a halt.  

Full post as published by The Race to the Bottom on October 20, 2010 (boomark / email).