The U.S. Securities and Exchange Commission’s courtroom victory over ex-Goldman Sachs Group Inc. employee Fabrice Tourre is helping the agency turn the page on years of criticism that it isn’t holding Wall Street to account.
The win adds weight to pledges by SEC Chairman Mary Jo White to reinvigorate the regulator, seeking more onerous settlements in some cases and, if necessary, taking them to trial. It also could bolster support for a 27 percent budget increase for the agency that Congress is considering.
“To take on cases that are low-hanging fruit and pound its chest in front of Congress is not the same as winning a high- profile trial,” said Jacob Frenkel, a former SEC lawyer and now partner at Shulman Rogers Gandal Pordy & Ecker PA in Potomac, Maryland. “It’s a tremendous shot in the arm for an agency that has come under criticism for its enforcement program.”
The SEC has struggled to repair its image after a decade of debacles that began with accounting fraud at Enron Corp. and ended with an unprecedented taxpayer bailout of Wall Street amid a credit crisis. The intervening years included analyst and mutual-fund scandals unearthed by New York’s attorney general, and Bernard Madoff’s multibillion-dollar ponzi scheme, which the SEC missed despite repeated warnings.
Judges and lawmakers criticized the regulator’s policing of Wall Street after 2008’s market meltdown, saying investigators reached expedient settlements with firms that hurt shareholders and didn’t hold senior executives accountable for wrongdoing. The agency never brought claims tied to the collapse of Lehman Brothers Holdings Inc. or the events that led to the bailout of American International Group Inc.
‘Be Prepared’
While the trial could be a bellwether for a more aggressive SEC, the agency is still struggling to build a stronger bench of litigators to strengthen its hand in settlement negotiations. White, who became the regulator’s chairman in April, told lawmakers last week that she’s seeking additional resources to hire trial attorneys.
“We can’t judge at this point how many additional trials we’re going to have, but we already don’t have enough,” White said in a July 30 hearing before the Senate Banking Committee. “We have to be prepared to go to trial.”
The case against Tourre, 34, stemmed from one of the SEC’s highest-profile fights related to the crisis. In 2010, the agency sued New York-based Goldman Sachs, alleging it misled investors in a 2007 deal known as Abacus about the role played by John Paulson’s hedge fund, Paulson & Co. The SEC claimed Tourre, then a Goldman Sachs vice president, hid that Paulson helped choose the portfolio of subprime mortgage-backed securities underlying Abacus while betting it would fail.
Lost Fights