Departing SEC lawyer blasts agency

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Retirement speeches rarely make the news, but a speech given at the end of March by a lawyer with the Securities and Exchange Commission, or SEC, has been making waves this week.

In his farewell to the agency where he’s worked since 1986, lawyer James Kidney criticized the SEC’s revolving door with Wall Street, the priorities of high-ranking officials and the general timidity with which Wall Street criminals are handled.

Worked on infamous Goldman Sachs case

Kidney worked on the Goldman Sachs case with the SEC and pushed for more prosecutions in the ABACUS scandal. Recall, that was the situation in which soon-to-be-downgraded mortgage-backed securities picked by Henry Paulson’s hedge fund, Paulson and Co., were piled into an investment that was then sold to Goldman clients. Meanwhile, Paulson and Co. bet against the securities in the investment, a collateralized debt obligation. In the end Goldman settled for $550 million and just one vice president was held personally responsible: Fabrice Tourre.

If you ever wondered why the enforcement of existing securities regulations seemed so toothless and impotent following the financial crisis, here you go.

The speech is available on the website of the SEC workers union. Hat tip to Jonathan Weil at Bloomberg View for linking to the speech.

Some bon mots:

It’s my own fault that my career here has been so filled with frustration. There are three major reasons for my misanthropy at the SEC. They are the bureaucracy, the incredible overpleading of minutiae and picking on the little guys.


The revolving door is a very serious problem. I have had bosses, and bosses of my bosses, whose names we all know, who made little secret that they were here to punch their ticket. They mouthed serious regard for the mission of the Commission, but their actions were tentative and fearful in many instances. You can get back to Wall Street by acting tough, by using the SEC publicity apparatus to promote yourself as tough, and maybe even on a few occasions being tough, if you pick your targets carefully. But don’t appear to fail. Don’t take risks where risk would count.


The attitude trickles down the ranks. Combined with the negative views of the civil service promoted by politicians and the beatings we take from the public, it is no surprise that we lose our best and brightest as they see no place to go in the agency and eventually decide they are just going to get their own ticket to a law firm or corporate job punched. They see an agency that polices the broken windows on the street level and rarely goes to the penthouse floors. On the rare occasions when Enforcement does go to the penthouse, good manners are paramount. Tough enforcement — risky enforcement — is subject to extensive negotiation and weakening.


…We all see cases frequently to which we offer a head-scratching response. Really? The SEC spent time and money on that? These cases have no significant impact and the conduct is of minimal or no harm to the investing public. But the investigation has been intense and expensive. Could no one in management exercise judgment and call the investigation to a halt? Of course not! Bringing the case is a stat!

Extra reading

If you’re interested in the particulars of the Goldman Sachs case, the website American Lawyer published a thorough account of how the decisions to prosecute came down. It’s called “The SEC’s internal battles over Goldman Sachs probe.” After reading it, Felix Salmon over at Reuters concluded that “The SEC was colluding with banks over CDO prosecutions.”

It boggles the mind, but it’s somewhat heartening to realize that someone at the SEC says exactly what outsiders have been wondering about for years. Too bad he doesn’t work there anymore — but surely others at the agency think that as well.

This isn’t the first time that the cozy relationship between the SEC and Wall Street has gotten attention.

Would it be better for investors if the SEC stopped policing the relatively minor offenses and bit players and took the battle upstairs?

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Senior investing reporter Sheyna Steiner is a co-author of “Future Millionaires’ Guidebook,” an e-book written by Bankrate editors and reporters. It’s available at all the major e-book retailers.