My Comment To Wall St Journal About SEC And Goldman Facebook Offering Disclosures

A comment I posted on The Wall Street Journal to an opinion piece, "What Really Merits Disclosure? Goldman clients are the ones who should be ticked off" by Holman W. Jenkins, Jr:

The SEC thinks the only way a stock can go down is due to fraud or misreporting of financial data. The SEC measures it success by the number of legal actions it takes against companies or investment firms and it is not measured by key positive indicators important to the US economy, such as the number of IPOs, the amount of company market debt financings, the liquidity of the market, the costs of transactions, etc. Imagine running a manufacturing firm and giving bonuses for poor quality instead of good quality goods. The SEC is rewarded for market and investment failures with more staff and more money. Instead, it should be rewarded for more of the positive things markets do, such as IPOs, etc.

If it viewed the markets positively instead of negatively and was measured by indicators of success in the market instead of the few failures, the SEC would have worked with Goldman to find a way to make the Facebook domestic private offering happen. Instead, the SEC comes in looking for ways to find a guilty party before the deal ever takes place. The SEC should be penalized for preventing sophisticated US investors from participating in a domestic stock offering.

There was occasional fraud and misreporting in the stock market before the SEC was established 75 years ago and there is no indication that there is any less fraud and misreporting since the SEC began.

The SEC only real goal always seems to be to complain that it needs more staff and more funding to do its work.

If I remember correctly, there are more financial experts and economists at the Department of Agriculture than there are at the SEC. The SEC is overstaffed with inexperienced young lawyers and government bureaucrats who know little, if any, about finance, investing, starting a company or taking a business or investment risk. The SEC should be abolished and replaced. A new agency that is more pro-business, pro-markets, pro-investment measured by positive economic, and market attributes should replace the SEC.

Excellent Legal Risk Analysis Of Goldman Sachs' Decision To Cancel Facebook 's Domestic Share Offering

The New York Times Dealbook has an excellent discussion of Goldman Sachs' legal risks in the Facebook private equity offering, "Why Did Goldman Blink?" by Steven M. Davidoff:

Goldman Sachs’s decision to offer shares of Facebook only to offshore investors is simple risk management. The risk here can be attributable to the scrutiny that this transaction, and Goldman Sachs generally, are now under.

Read the complete New York Times article here.

Video: Improving SEC Performance: Senate Banking Hearing

The archived video (1 and 1/2 hour) of the Senate Banking Hearing, "Oversight of the SEC Inspector General’s Report on the ‘Investigation of the SEC’s Response to Concerns Regarding Robert Allen Stanford’s Alleged Ponzi Scheme’ and Improving SEC Performance" Wednesday, September 22, 2010, 10:00 AM - 12:30 PM.

The full 1 and 1/2 half hour Senate hearing video is available here.

Weblinks to the written prepared testimony are available here.

The Wall Street Journal is reporting that the SEC Inspector General H. David Kotz testified about the SEC's timing of the Goldman Sachs' lawsuit:

On the same day [as the Goldman Sachs' lawsuit], the SEC released a scathing report by Mr. Kotz that concluded the agency had repeatedly missed chances to detect an alleged $7 billion fraud run by R. Allen Stanford, a money manager indicted by a federal grand jury last year. Mr. Stanford denies wrongdoing.

At a Senate Banking Committee hearing Wednesday, Mr. Kotz was questioned about the timing of the Goldman suit. He responded: "It would strain credulity to think it was coincidental." He added: "I can't give you a conclusion right now, but it was suspicious."

The full Wall Street Journal article, "SEC Blasted on Goldman: Suit's Timing 'Suspicious,' Watchdog Says; Heat on Agencies as Crisis Cases Lag" is available here.

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• Timing of Goldman case "suspicious": SEC watchdog (reuters.com)
• SEC's Khuzami Says Stanford Missteps Won't Be Repeated (businessweek.com)
• UPDATE 3-Timing of Goldman case "suspicious" - SEC watchdog (reuters.com)
• SEC Official Pressed on Delays in Ponzi Case (nytimes.com)
• SEC too focused on stats, inspector says (marketwatch.com)
• SEC Blasted on Goldman Probe (online.wsj.com)
• Senate Hears Crazy Tale Of Incompetence And Sleaze In SEC Inspector General Report (observer.com)
• SEC Has Improved Since Botched Stanford Investigation, SEC Official Says (observer.com)

Is The Goldman Sachs-SEC Settlement In Trouble?

A federal judge has refused to approve the Citigroup settlement with the SEC without more information. See "Judge won't approve SEC-Citigroup settlement over risky mortgages without fuller information" by Marcy Gordon, AP Business reporter. Also see The Wall Street Journal article, "Judge Won't Approve Citi-SEC Pact" by Kara Scannell.

From Scannell's article:

The judge, striking a frustrated tone, fired several questions at the SEC, among them why it pursued only two individuals in the case and why Citigroup shareholders should have to pay for the alleged sins of bank executives.

The judge's refusal to rubber stamp the The Citigroup-SEC settlement is a recent reminder of the things that are wrong with the SEC-Goldman Sachs settlement. ACA was never charged. There is no admission of guilt or wrongdoing by Goldman. The penalty is far in excess of the alleged or admitted harm.

See my earlier post, "Fair Analysis Of SEC Goldman Settlement: Will The Court Accept It?"

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• Judge Rejects Citigroup-SEC Settlement, Asks For More Information (huffingtonpost.com)
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• Judge asks SEC, Citi for more information (sfgate.com)
• Judge Asks SEC, Citi for More Information (abcnews.go.com)
• Judge asks SEC, Citi for more information (seattletimes.nwsource.com)