SEC Steps Up Crisis Action

(August 27, 2010) — In the wake of the financial crisis, the Securities and Exchange Commission (SEC) has disclosed that it is working on heightening enforcement actions against major Wall Street firms.

The announcement by the regulator comes on the heals of the SEC’s recently reached $550 million settlement with Goldman Sachs in a civil fraud case after the banking giant failed to disclose conflicts of interest in mortgage investments it sold as the housing market was waning. The bank did not admit to any wrongdoing.

The SEC’s complaint, filed in the U.S. District Court for the Southern District of New York, stated that Goldman failed to disclose that one of its clients — Paulson & Co. — helped create and then bet against subprime mortgage securities that the New York-based firm sold to investors. Paulson & Co., one of the world’s largest hedge funds run by the billionaire John Paulson, paid Goldman about $15 million for structuring the deals in 2007.

The SEC has being widely criticized for not enforcing greater oversight after the 2008 financial crisis. The regulator now asserts that high-profile cases similar to the Goldman suit are ongoing, handled by the agency’s enforcement division.

“Deterrence works in the white-collar world. Financial institutions look at cases like Goldman and review their own practices and risk-tolerance and think about how risky behavior affects their brand,” Robert Khuzami, SEC director of enforcement, told the Financial Times.