As the great
baseball umpire Bill Klem said, about whether a pitch was a ball or a strike:
“It
ain’t nothin’ ‘til I call it.”
Which, as a lesson
in political science, is being taken to heart by only some of those holding
forth on the April 16 charges of fraud lodged by the Securities and Exchange
Commission against Goldman Sachs and one of its employees (here), alleging
misstatements and omissions in the structure and marketing of a synthetic
collateralized debt obligation tied to residential mortgage-backed securities.
The SEC’s
enforcement director, Robert Khuzami, dealt a high fastball -- avoiding
complexity in packaging his advocacy for public soundbite-scaled consumption
(here):
“The
product was new and complex but the deception and conflicts are old and
simple.”
Goldman itself
played its defensive position the same way, but to different effect (here). Its terse
one-liner fouled off the pitch: “We are disappointed that the SEC would bring
this action related to a single transaction in the face of an extensive record
which establishes that the accusations are unfounded in law and fact.”
Give Goldman points
for a sense of reality, recognizing both that the judicial process will be
unaffected by public posturing, and that the court of public opinion itself
will not be in a mood for hand-wringing.
For it remains a
mystery what inspires any claim to credibility by the typical spinners of
over-played corporate protestations, when initial impassioned pleas of
innocence give their inevitable way to plea bargains and outsized settlements
to “put it all behind.”
Meanwhile, the
purple clouds of “I told you so” commentary from the bloggerati are as noxious as the volcanic spews from Iceland, and
should only be dispersed as rapidly into inconsequence.
Not least, the
self-righteous are – as customary – conflating an initial law enforcement
complaint with an adjudicated conclusion. Consider:
- ·
Much as
public opinion had convicted O.J. Simpson of his wife’s murder, before his
trial, the jury found otherwise – and he remained at large until the outbreak
of his predictable recidivism.
- ·
It was
financial and structural weakness that felled Arthur Andersen, not its
indictment – remembering that procedural flaws in its conviction led to the
Supreme Court’s reversal, but with no element of vindication or rehabilitation.
- ·
Even
the now-jailed Bernie Madoff was presumed innocent (although charged) until the
entry of his guilty plea, and entitled to bail and at least a measure of his
liberty.
Respect for due
process requires a measured recognition that the SEC case is at the top of the
first inning – though there may well be further cases, additional claimants and
private claims as well (see Kevin LaCroix’s always helpful D&O Diary).
But Charlie Green
also has it right, at Trust Matters. That is, if as Charlie suggests, the SEC’s
case “resonates easily with Main Street as also being unethical,” and as corrosive
to credibility, motives and trust, then the capital markets community will hold
Goldman accountable for the state of its franchise in ways that the judicial
process can never address.
A final constituency
is yet to be heard from, about we should worry. Eight years ago, when the
collapse of Enron was trailed by WorldCom, a stampeded Congress inflicted
Sarbanes/Oxley and its massive demonstration of the law of unintended
consequences.
Given its head, a
legislature bent on retribution against the financial services sector is
capable of twinning up the bankruptcy examiner’s report on Lehman Brothers (see
here) with the SEC’s complaint against Goldman.
In which case,
anxiety should run very high.
Because the result,
in Bill Klem’s terms, will most likely be a wild pitch.
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