Not surprisingly, the SEC attack on Goldman Sachs got the most coverage of all stories in today’s Wall Street Journal. In “Vital Legal Concept Key to Case” we learn how materiality plays a vital role in the government’s case [recall how I’ve blogged on this topic relative to GIPS]. In “Bank Wages Battle to Save Reputation” we read what I basically suggested on Saturday, when I first blogged on this topic: from a Goldman spokesman that “As normal business practice, Goldman does not disclose the identities of a buyer to a seller and vice versa.”  And in  “Role of Little Bond Insurer” we hear from Leslie Rahl who stated “If ACA performed an independent analysis and concluded that the [Abacus] portfolio met ACA’s criteria, I’m not sure what the issue is.” AMEN!

And again, back to my Saturday post and echoed in the last article cited, “Goldman on Friday said it has no obligation to disclose the identities of buyers to sellers and vice versa.” Yes, where is this rule written again?

I learned of the SEC’s creativity in coming up with new rules following their “performance sweep” a few years ago, when some firms were criticized for not informing their existing and prospective clients that they didn’t revalue portfolios for large cash flows. I asked an SEC examiner where this rule existed that they were supposed to do this; of course no such rule exists. And while the Global Investment Performance Standards (GIPS(R)) at the time recommended that firms revalue for large flows, there was no obligation to do so nor a requirement that the failure to do so needed to be disclosed. And so why did firms need to disclose when they didn’t revalue?

I learned a lesson ten years ago: if you want to get sued, become an elected official. As then mayor of the Township of North Brunswick (NJ), I managed to get sued several times; and in each case, we did nothing wrong. But, in each case, we settled. And why exactly if we weren’t in the wrong? Two reasons: #1 cost; #2, you never know what a jury will do (think about the woman who left the McDonald’s window with a hot coffee cup positioned between her legs). Unfortunately, Goldman now has to spend thousands (and perhaps millions) of dollars in legal fees to fend off the SEC.

As I suggested on Friday and stated in a WSJ’s front page article today, “The move [to not inform Goldman in advance of their intent to sue, which is fairly standard practice] showed a combative streak from the SEC, which has been under mounting pressure after letting slip through its fingers early probes into the Ponzi scheme of Bernard Madoff.” A new SEC that is tough, even on folks who didn’t do anything wrong!

Recall how [now disgraced; then NY Attorney General; eventually NY Governor] Eliot Spitzer went after AIG’s chairman Hank Greenberg, forcing him to resign, and yet nothing has ever resulted from this other than a lot of publicity and expense; looks like the same may be happening here.