The SEC lawsuit accusing Goldman Sachs Group of fraud tied to collateralized debt obligations may bolster Democratic lawmakers’ efforts to pass new rules for the financial industry.
The SEC’s civil claims come a week before the Senate is scheduled to debate overhaul legislation and the same day President Barack Obama is meeting with an advisory panel to discuss strengthening oversight of the over-the-counter derivatives market.
“The SEC’s action against Goldman will give those who believe regulatory reform hasn’t gone far enough a platform to stand (on) and make their case even stronger,” said Kevin Petrasic, an attorney at Paul, Hastings, Janofsky & Walker and former counsel at the Office of Thrift Supervision. “It will be used as an example for those lawmakers who believe that there has been inappropriate conduct on Wall Street.”
All 41 Senate Republicans have signed a letter telling Senate Majority Leader Harry Reid, D-Nev., that they oppose the overhaul bill drafted by Senate Banking Committee Chairman Christopher Dodd, D-Conn. Democratic leaders, who need at least 60 votes to overcome opposition in the 100-member Senate, said on Thursday that the measure will be debated next week.
The SEC announcement “was a well-timed, and perhaps not coincidental, effort to sway some on-the-fence Republicans to support a tougher financials bill that the White House has been lobbying for,” Roger Freeman, an analyst at Barclays Capital, wrote in a note to clients. “Targeting Goldman Sachs, given the flurry of anti-Wall Street press that has centered around that firm, offers the publicity that the administration needs at this critical juncture.”
Jen Psaki, deputy White House communications director, declined to comment on the Goldman case.
“One of the problems that led to this crisis is an SEC that was asleep,” said Bill Isaac, chairman of the global financial services unit of LECG Corp., an economic and financial consulting firm in Emeryville, Calif., and former chairman of the Federal Deposit Insurance Corp. “I don’t see anything in this bill that really fixes the SEC.”