Last Friday, the same day that the government unexpectedly announced its Goldman lawsuit, the SEC's inspector general released his exhaustive, 151-page report on the agency's failure to investigate alleged fraudster R. Allen Stanford. Mr. Stanford was indicted last June for operating a Ponzi scheme that bilked investors out of $8 billion. He has pleaded not guilty.
Guess which of these two stories was pushed to the back pages? The SEC did its part by publishing the Stanford report so deep in its Web site that more than a few of our readers had trouble finding it. Yesterday, the SEC management's response to the report was available on the agency's homepage, yet it provided no links to the report itself.
Little wonder. The report is damning for an SEC that wants the public to believe it has turned the corner after the Bernie Madoff disaster. The commission has made young Fabrice Tourre of Goldman Sachs a household name for his debatable disclosures to institutional investors. But many individual investors will be more interested in learning the story of Spencer Barasch. He's the SEC enforcement official who sat on various referrals to investigate Allen Stanford and then, after leaving the SEC, performed legal work for . . . Allen Stanford.
So not political maneuvering, but agency butt-covering. This sounds suspiciously plausible. And even if the SEC didn't plan this, reporters would do well to counter this unfortunate accident of timing by resurrecting the story.
Meanwhile, the counter-leaks have begun, and as I thought they might, they make the SEC's case sound a bit weaker.
In one part of Pellegrini's testimony, a government official asked him: "Did you tell (Schwartz) that you were interested in taking a short position in Abacus?"
"Yes, that was the purpose of the meeting," Pellegrini responded.
"How did you explain that to her?" the government official said.
"That we wanted to buy protection on traunches of a synthetic RMBS portfolio." Pellegrini said.
As Felix Salmon says, "if Pellegrini's testimony turns out to be reliable, it surely constitutes a simple disproof of the SEC statement"--yet it somehow didn't make it into the complaint. But as he also notes, this is a selective quote, not the full testimony. I'd love to know who leaked it--Republican appointees on the SEC who are pissed at getting slimed for their votes, or someone on the defense side? Either way, this is shaping up to be one hell of a PR battle.
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