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SEC's Abacus Cop Resigns In Middle of Signature Trial

Stocks in this article: GS JPM C WFC

NEW YORK ( TheStreet) -- Couldn't he have at least waited until the trial was over?

Kenneth R. Lench, head of the Securities and Exchange Commission's enforcement division on structured products, will leave the agency at the end of July for the private sector after 23 years of service, the regulator said Tuesday. SEC spokesman Kevin Callahan wrote in an email Lench's next job is "still undecided."

Lench sure picked an odd time to leave, considering the SEC is in the middle of one of the few major trials to come out of the financial crisis, and one that just happens to be all about--you guessed it-- structured products.

This week, former Goldman Sachs (GS) vice president Fabrice Tourre began defending himself in court against the SEC's allegations that he defrauded investors in the packaging and sale of mortgage securities.

The SEC's Callahan says Lench isn't involved in the trial and the timing of his departure won't have any bearing on it. Lench, however , was quoted in the SEC's April 16, 2010 announcement of fraud charges against the storied investment bank. Those charges are part of the basis for the SEC's case against Tourre.

A Goldman collateralized debt obligation (CDO) known as Abacus continues to stand out as the SEC's most prominent work in attempting to hold Wall Street accountable for what it argues was fraudulent activity at the heart of the mortgage meltdown.

The case included Goldman traders referring to their own products as "crap," and, in another instance, a "shitty deal."

Goldman settled for a record $550 million without admitting or denying guilt. Tourre, maybe better known as the 'Fabulous Fab,' is currently in court trying to clear his name from fraud allegations brought against him by the SEC.

Lench, who headed a 45-person team, was at the center of the SEC's Abacus case and many similar ones across Wall Street.

The structured products enforcement unit has collected $1.7 billion in fines for faulty CDO and residential mortgage-backed securities (RMBS) products pedaled on Wall Street. Fines have come from the nation's largest banks such as Goldman, JPMorgan (JPM), Citigroup (C) and Wells Fargo (WFC), in addition to international players such as Credit Suisse (CS), Mizuho and RBC Capital Markets (RBC), the SEC said in a statement.

As an assistant director in the enforcement division, Lench spearheaded the SEC's major auction rates securities settlements with Wall Street that led to over $60 billion in fines and investor payouts.

"Ken's determination to always seek the right answers and his devotion to protecting investors by working tirelessly with his staff and colleagues made everyone around him better," George S. Canellos, Co-Director of the SEC's Division of Enforcement, said in a statement.

Whether or not the public sees the legacy of Lench and other regulators similarly is a point of contention across the financial sector in the wake of the financial crisis. No top executive at a major bank has faced criminal prosecution, and some have complained fines and a probe into insider trading are a sideshow from actual enforcement of the products at the heart of Wall Street's bailout.

Lench's resignation also could also renew discussion of the so-called 'revolving door' between regulators such as the SEC and Wall Street. Many top regulatory officials in recent years such as Commodity Futures Trading Commission head Gary Gensler had ties to prominent Wall Street investment banks like Goldman Sachs before heading to Washington.

When leaving regulatory jobs, officials such as former SEC chair Mary Schapiro have also been criticized for taking high paying jobs within the industry.

A call to Lench wasn't returned.

-- Written by Antoine Gara in New York

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