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August 3, 2013

SEC Should be Embarrassed, Not Elated by Jury Verdict

The FT reports today that the SEC is “elated after claiming Tourre’s scalp.”  Indeed, the way they are acting, you would think the SEC convicted the Al Capone of Wall Street, rather than merely scapegoat a single mid-level Goldman Sachs’ trader who bragged in emails to his girlfriend.

As we said, the jury verdict finding former Goldman Sachs’ trader Fabrice Tourre liable in connection with a single derivatives deal is nothing for the SEC to brag about.  Wall Street crashed the global financial system and almost caused a second Great Depression.  This is going to cost the US more than $12.8 trillion.  Yet, the SEC failed to go after Wall Street’s bonus-bloated executives who ran the banks that sold trillions of dollars of worthless securities.

In this case, the SEC let the dozens of other Goldman Sachs executives and employees get away with everything they did in connection with this particular deal (and, indeed, the entire financial crisis).  If you want to see what a small cog Mr. Tourre was, read the report of the Senate Permanent Subcommittee on Investigations into this deal and Goldman Sachs’ role in the financial crisis.  Yet, the SEC talked about Mr. Tourre as if he was “Mr. Goldman Sachs” so much so that the lead SEC lawyer told the jury “not to follow Mr. Tourre into a ‘Goldman Sachs land of make-believe.'”  If there is such a thing, according to the SEC only Mr. Tourre lived the “Goldman Sachs land of make-believe.”  

While this individual may be liable, may have broken the law and may have gotten what he deserved, this one case should fool no one: the SEC has an embarrassing record of non-enforcement on Wall Street, which is a high crime area and has been on a crime spree for years.  No one should be allowed to break the law, but the SEC must stop chasing minnows while letting the whales of Wall Street go free. 

The SEC is rewarding and incentivizing more crime.  Knowing the SEC will not go after them, the rich, powerful and well connected executives of Wall Street’s too big to fail banks are laughing at the SEC’s show trial.  The American people deserve better.

The head of the SEC’s nationwide trial division, Matthew Martens, personally tried the case.  The SEC spared no expense, including footing a big bill for a jury consultant, and no energy to nail this minnow.  Indeed, the FT reported that Mr. Martens has spent 90% of his time since January (8 months ago) on this one case.

Now that they’ve nailed the nobody and effusively congratulated themselves for this great victory, the American people can only hope he and the SEC go back to work and go after the rich, powerful, well-connected whales of Wall Street rather than just scapegoating mid-level employees, which will deter no one. 



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