01/09/2012 03:20 pm ET Updated Mar 10, 2012

SEC Alters Enforcement Policy. Too Late for Goldman Sachs and the Nation

One of the most grievous mishandlings by our government's oversight agencies was the botched July 2010 consent judgment of the S.E.C. v Goldman Sachs & Co... an action brought by the SEC as part of its statutory oversight responsibilities. The judgment permitting Goldman Sachs to enter a consent decree without admitting or denying the allegations of the complaint was an unbridled sop viewed by too many as a ploy of the old boys network looking after each other. The "Abacus" instruments Goldman created and then bet against cost their clients hundreds of million more than the $550 million fine assessed against them in their consent judgment with the SEC, this while setting aside a bonus pool of $23 billion seemingly derived in part from profits of actions incorporated under the consent decree.

Why touch on this issue now. Because at long last the SEC -- which for too long has served as a vassal of powerful Wall Street interests -- was denied approval of the proposed Consent Judgment between the SEC and Citigroup in late November under the stern and scolding ruling delivered by that ever wise Judge J.E. Rakoff. The insightful ruling has shamed them into declaring that they would henceforth no longer permit companies that admit criminal wrongdoing to deny the allegations in a parallel civil settlement under a new Securities and Exchange Commission Enforcement rules. This in a case that had all the earmarks of the SEC vs. Goldman settlement just over a year and a half ago.

To quote from Judge Rakoff's 'Opinion and Order':

"And, most obviously, the proposed Consent Judgment does not serve the public interest, because it asks the Court to employ its power and assert its authority when it does not know the facts.

An application of judicial powers that does not rest on facts is worse than mindless, it is inherently dangerous. The injunctive power of the judiciary is not a free-roving remedy to be involved at the whim of a regulatory agency, even with the consent of the regulated. Finally, in any case like this that touched the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation apologists for suppressing or obscuring the truth may always be found. But the SEC, of all agencies, has a duty, inherent in its statuary mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances."

Had these words been entered a year and a half ago when Goldman Sachs reached a 'settlement' with the SEC, much of the anger, much of the frustration of ordinary Americans at the perceived connivance of government and Wall Street would have been dissipated. To have brought Goldman to the judgment of its citizen peers in a court of law would have been calmingly therapeutic for the nation as a whole, no matter the outcome. But what transpired seemed like a rigged extravaganza, only throwing more fuel on the cauldron of the nation's discontent.