On Sunday, the New York Times ran an article titled “Inside the End of the U.S. Bid to Punish Lehman Executives” by Ben Protess and Susanne Craig.
The article reports on the inner workings of the Enforcement Division at the Securities and Exchange Commission (SEC) and the SEC’s failure to bring charges against Lehman executives despite being handed a 2,200 page road map by Lehman bankruptcy court examiner Anton Valukas.
The Times’ article portrays the SEC in a generally favorable light, quoting the SEC enforcement chief George Canellos, a key decision maker in the Lehman case, as telling his colleagues that they could not bring a case if they didn’t have the evidence and that “our job is to seek justice.”
William Black calls the Times’ article “propaganda” for the SEC.
Black is an associate professor at the University of Missouri Kansas City School of Law.
“The entire piece is one extended leak by the SEC’s enforcement leadership which has been severely criticized for its failure to recover the fraudulent profits that elite Wall Street bankers obtained by running the control frauds,” Black writes in a post on the New Economics Perspectives web site.
“In the New York Times’ account, a pathetic failure of competence, integrity, and courage at the SEC is reimagined as a fantastic triumph of vigor and ethics on the part of the SEC enforcement attorney who refused to seek to hold Lehman’s senior officers accountable for their violations but otherwise became the scourge of elite frauds,” Black writes. “In the end, he is promoted for his dedication to ‘justice’ and is now the anti-enforcement leader of the SEC’s enforcement group.”
The Times reports that the SEC “has brought civil cases against 66 senior officers in cases linked to the financial crisis,” that the agency “extracted nine-figure settlements from banks like Goldman Sachs” and that “according to new research by Stanford University’s Securities Litigation Analytics, the SEC has declined to charge individual employees in only 7 percent of its securities fraud cases.”
But Black says the SEC has brought suits against only a dozen of the elite firms whose frauds drove the crisis.
“In five of the cases it sued no individuals,” he writes. “In four of the cases it sued no C-suite officers. In nine of the twelve cases involving elite financial institutions it sued no senior officers.”
“The Stanford study of all closed SEC actions filed since 2000 that the reporters cite indicates that only 7 percent of overall SEC cases failed to sue an individual, but for the elite banks that the SEC says contributed to the crisis that percentage is 42 percent – six times the normal rate,” Black writes.
“In sum, the SEC data prove the opposite of what the SEC propagandists and their allied reporters sought to convey. The pattern of SEC action with regard to elite banks and elite fraudulent bankers demonstrates that they are treated far differently than smaller, non-financial corporations. (Note that this ignores the most important differences – the elite banksters’ frauds are far less likely to be investigated or sued by the SEC and enjoy de facto immunity from prosecution.) The Stanford study does not include cases that the SEC failed to investigate or bring.”
Black says that the SEC “focuses its enforcement on non-elite corporations where it is far easier for its enforcers to rack up higher numbers of ‘successes.’
“The ‘66 senior’ individual defendants were overwhelmingly employed by non-elite banks,” Black writes. “The SEC’s own data demonstrate that it is a paper tiger when it comes to the elite banksters who grew wealthy by leading the frauds that caused the mortgage fraud crisis.”