The SEC’s Director of Enforcement, Robert Khuzami, has announced he is retiring.  He and his allies and supporters claim he’s done an outstanding job, as is mostly the point of this New York Times piece.

But the SEC has not seriously gone after any of the big Wall Street banks or any of their executives or officers for their conduct in creating, selling and shorting hundreds of billions of worthless mortgage derivatives and causing the collapse of the financial system, requiring trillions in taxpayer bailouts and bringing the country to the brink of another Great Depression.  This and the economic crisis it caused will cost the US tens of trillions of dollars by the time all the economic wreckage Wall St created is added up.  (See our report here.) 

But, the SEC has largely let it all go, particularly when it comes to the biggest, richest, powerful and well-connected banks on Wall Street.  There has been virtually no accountability at all on Wall St.  Sure, the SEC has announced some big settlements with those banks and put out glowing press releases, but even minimal scrutiny reveals their claims of toughness to be empty.  For example, the SEC settled it’s case against Goldman Sachs for $550 million.  That’s a lot of money, but not to Goldman and not to Wall Street.  That amount isn’t even a rounding error and the bank gets to pay the settlement with shareholder money.  And not one senior executive charged.  The SEC only went after one junior guy because he bragged in emails to his girlfriend. 

Another example, is the SEC’s settlement with Citigroup for a total of $265 million.  Again, sounds like a lot of money, but the SEC disclosed nothing about how much money Citigroup made, how much investors lost or hardly any other facts that would be necessary to evaluate the settlement – all detailed here.  Moreover, Citi had more than $20 billion in revenue and more than $4 billion in profits in just the three months of the quarter the $265 million settlement was announced, proving beyond doubt that it was less than a slap on the wrist.  And, again, the SEC didn’t charge any senior executives, just a junior banker who was acquitted by a jury because it viewed the case as the SEC scapegoating junior people while letting the senior executives get off — as jurors made clear here.  (Better Markets went to court challenging the settlement as not fair, adequate, reasonable or in the public interest, as set forth here.)

Contrary to facts, logic and history, Khuzami nevertheless stated that the $95 million fine (which was part of the $265 million settlement) was so large and significant that it would deter not only Citigroup, but all of Wall Street.  Wall Street’s executives, their lawyers and various other enablers had to be laughing at such a benighted misstatement.  Such baseless over the top claims –widely reported uncritically in the media — may fool the public, but you can be sure that it doesn’t fool Wall Street.  They understand such braggadocio very well:  it means they have nothing to fear and the SEC won’t threaten business as usual.

As if that wasn’t bad enough, Khuzami has made all of this much worse:  when he has been trying to defend his indefensible record of not going after Wall Street, his excuses have provided Wall Street executives and their lawyers with a road map of how to avoid getting prosecuted by the SEC in  the future.  He has said repeatedly that he couldn’t find one Wall Street executive that was sufficiently involved in the details of the deals and had a duty to disclose them — this dodge is only available to him because the SEC charges minimal nondisclosures rather than the much more serious substantive crime of fraud.  But, more importantly, he has telegraphed Wall Street to make sure that there are enough layers of people between the big dogs and the little dogs so that the SEC will rarely if ever be able to satisfy the very, very high standard they have announced that they have to meet before they charge executives.

In summary, not only hasn’t he prosecuted the crimes of the past on Wall Street, he’s made it tougher to prosecute them in the future as well.  

These actions have incentivized and rewarded crime, as further detailed here.  Wall Street is a high crime area and it’s likely to stay that way.