NEW YORK ( TheStreet) -- We have it from no better source than Mary Schapiro: The Securities and Exchange Commission is doing a whiz-bang job of rounding up wrongdoers in the financial crisis. In smug, self-congratulatory-to-the-point-of-delusion testimony before a House subcommittee the other day, Schapiro said the much-criticized Goldman Sachs ( GS) settlement is not the end. Yes, sir, there will be other cases!I'm looking forward to them. Since I expect the SEC to continue to behave like the SEC, and not miss an opportunity to miss an opportunity (hat tip: Abba Eban), I eagerly await the other scalps that we will soon be seeing on the Schapiro belt. Other cases mean other settlements, other wrists turned red from vigorous and self-congratulatory slapping, other companies offering up penalties they can easily afford, and admitting to the deep humiliation of having made "mistakes." Ooh! That must hurt. But when you consider that the biggest mistake of all was Barack Obama appointing Mary Schapiro to be chairperson of the SEC, all other mistakes pale in comparison. What I don't understand is this: How can the SEC say with a straight face that it is avidly pursuing other malefactors in the financial crisis when it couldn't even get the Goldman extravaganza right? Now, I'm not referring to the glaringly obvious question of whether Goldman was let off too easily. Both sides of that question have been eloquently expressed by two of my favorite financial commentators, with Barry Ritholtz taking the position that Goldman was appropriately punished, while Jeff Matthews set forth the case that Goldman was fined chump change. Though I've seen it mentioned in one of the class actions against Goldman, what I'm not seeing in the debate over the Goldman victory, er, settlement is a less obvious issue. It arose briefly at the time the charges were filed in April, and was dealt with recently by only one commentator on my radar screen, my favorite white-collar crime blogger, Sam Antar of Crazy Eddie fame. Sam points out a gaping hole in the Goldman settlement: The famously "surprising" SEC lawsuit, which stunned investors and caused Goldman shares to plunge, was really no surprise at all. Even though Goldman co-general counsel Greg Palm told analysts at an April conference call that "nobody told us in advance," Goldman, in fact, had formal notice that charges were pending.
Goldman received a "Wells notice" of the SEC's intent to file civil charges in July, 2009 -- nine months in advance. Some surprise. The Wells notice has a long and sordid history, dating back to the Nixon administration, and has its roots in an era when the markets were much smaller, and the SEC did a proportionally less undistinguished job of regulating public companies. To ensure that the SEC did a more undistinguished job, the agency adopted the findings of a committee headed by a guy named Wells. It had recommended that SEC enforcement targets get a privilege accorded to no other defendants in the land: an opportunity to rebut charges against them before they are actually brought. On page iii, Wells, et al., said "the Commission should as a general practice give a party against whom the staff proposes to recommend proceedings the opportunity to present its own version of the facts by affidavit or testimony under oath." Goldman, having been granted this heads-up, then moved heaven and Earth to try to get the SEC to go away, filing lengthy documents. All the while, it kept word of the Wells notice a closely guarded secret -- in the not-unreasonable hope that it would be able to talk the SEC into maintaining its accustomed state of paralysis. Now, apparently the law is hazy on whether Goldman had to disclose the Wells notice. Goldman is such a giant vampire squid of a company that it might well be argued that nothing the SEC could ever throw at it could ever possibly be material enough to disclose in its SEC filings. (I wonder if a nuclear holocaust would be "material" to those universe-masters.) Still, there is the matter of co-general counsel Palm's comments that the charges were "somewhat surprising" and that Goldman didn't get prior word of the suit? Weren't they just a wee bit misleading? Are corporate officials allowed to be a wee bit misleading in conference calls? Just asking. Despite all the empty words from SEC enforcement chief Robert Khuzami about the need for Goldman to "increase transparency," it's obvious that the SEC just doesn't give a hoot about this big kahuna of an opacity. Indeed, you might say that it has given a green light for other megabanks to be equally tight-lipped under similar circumstances. Evidently, in the eyes of the SEC, the Citigroups ( C), JPMorgans ( JPM), Bank of Americas ( BAC) and Morgan Stanleys ( MS) of this world are "too big to disclose."
That just doesn't seem fair. Smaller companies (even smaller companies that are pretty big) tend to disclose Wells notices, as Moody's ( MCO) did in May, seeing its shares collapse as a result. Other, ordinary, smaller-fry companies do the same. Just search under "Wells notice" on the Edgar Web site and you can see thousands of companies expound on their Wells notices. If the SEC's Schapiro really wants the megabanks to be transparent, and isn't just saying that kind of stuff because it sounds nice, I have a suggestion: She should push a regulation requiring that all companies, not just the non-mega ones, must disclose Wells notices. Then maybe her self-congratulations won't seem so blatantly phony.