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SEC is too easy on Wall Street, says retiring agency lawyer

Friday, April 25, 2014 by: J. D. Heyes
Tags: SEC, Wall Street, stock exchange

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(NaturalNews) A newly retired trial attorney with the federal Securities and Exchange Commission (SEC) said bosses at the agency were too "tentative and fearful" to bring a number of Wall Street heavy hitters to heel following the 2008 credit crisis, an after effect of the 2007 Great Recession.

The criticism by James Kidney, who joined the agency in 1986 and retired in late March, is the same as what has been leveled by critics outside the regulatory agency. He offered some insight into the agency's behavior at his retirement party, which was a hit with many in the crowd of SEC lawyers and alumni. That's due in large part to something on his resume that isn't known publicly: He campaigned internally to bring charges against more Wall Street and banking execs during the SEC's case against the Goldman Sachs Group, Inc., in 2010.

The agency has become one "that polices the broken windows on the street level and rarely goes to the penthouse floors," said Kidney, according to a copy of his remarks that were obtained by Bloomberg News. "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."

He went on to say that bosses at the regulator were lenient -- and overly so -- because they focused more on life after the SEC and, in particular, much higher-paying jobs on Wall Street. As such, the SEC's penalties have become "at most a tollbooth on the bankster turnpike."

'The SEC has taken a beating from critics'

His remarks reportedly drew great applause from the crowd of about 70, witnesses said. In an interview with Bloomberg News, Kidney said he had not gotten any blowback from SEC officials.

A spokesman for the agency, John Nester, would not comment to Bloomberg.

Kidney, 66, had worked at the SEC since 1986, save for a four-year hitch at Aetna, Inc. While at the SEC, he won about a half-dozen insider-trading trials. In his retirement speech, he complained about the lack of agency enforcers who "believe in afflicting the comfortable and powerful."

As Bloomberg News reported:

The SEC has taken a beating from critics including lawmakers, judges and advocacy groups who say the agency has been too easy on the banks that helped fuel the 2008 crisis by peddling mortgage-backed securities of questionable value to unwary investors. No senior executive at a major financial firm has gone to jail and the SEC has brought civil charges against only a handful.

During his speech, Kidney also lashed out at his agency for using misleading statistics to embellish its enforcement efforts. The SEC should focus on the quality of its actions instead of trying to file as many as possible in order to tout its record to lawmakers and the media.

"It is a cancer," Kidney said of the agency's use of numbers. "It should be changed."

'We should be pushing the envelope a bit'

In his interview with Bloomberg, Kidney said that he will always be an SEC loyalist and that he was merely offering constructive criticism that he believes would help the agency improve. And he said he was not singling out any particular officials or cases.

"I don't think we did a very aggressive job with all the major players in the crash of '08," he said, adding that, as a civil enforcement agency, the SEC does not have to prove cases beyond a reasonable doubt like the Justice Department. "The SEC has a lower burden of proof and we should be pushing the envelope a bit."

The suit against Goldman Sachs was one of the highest-profile SEC actions that arose from the credit crisis. In order to settle claims that it misled investors when it packaged and sold a complex security known in the industry as a collateralized debt obligation that wound up being linked to subprime mortgages, the bank agreed to pay $550 million.






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