Regulator typically announces charges amid great fanfare but tends to bury its losers
When the Securities and Exchange Commission sued Edward Steffelin last year, the agency issued a press release telling the world it had accused him of fraud. So how did the world first learn that the SEC had dropped its claims against him?
Not from the SEC. New York Times columnist James Stewart broke the story.
As of midafternoon, there still was no mention on the SEC's website of the fact that the case against Steffelin had been dismissed on Nov. 16. Every document on the website that mentions his name makes him out to be a fraudster. (Steffelin, 43, a former GSC Capital Corp. executive, was sued in June 2011 over his work on a JPMorgan Chase & Co. (JPM) collateralized debt obligation that defaulted.)
The SEC is more than happy to issue unflattering public statements when it sues people or reaches settlements with them. When the defendants win, however, the SEC tends to keep quiet.
In May, for instance, a federal judge in California dismissed all of the SEC's claims against Scott Keys, the former chief financial officer of the failed thrift IndyMac Bancorp. In February 2011, the agency's public affairs office issued a press release trumpeting the securities-fraud allegations against him. The SEC's enforcement division issued a separate release saying he “participated in the filing of false and misleading disclosures.” The case against Keys has been closed for almost six months. Yet the SEC still hasn't updated its statements about him on its website.
Similarly, the SEC didn't post a release on its website when it lost a jury trial this summer against former Citigroup Inc. (C) executive Brian Stoker. The SEC enforcement's division and public-affairs office both issued releases when the SEC sued him in October 2011, saying that he had been accused of fraud. The agency hasn't updated its website to show that he was cleared.
Same with Bruce Bent Sr., the former manager of the Reserve Primary money-market fund, who took the SEC to court and won a jury trial this month. The SEC thumped its chest when it sued him in 2009, the year after the fund “broke the buck” following Lehman Brothers' collapse. The SEC didn't update the press-release or litigation-release sections of its website when Bent was absolved in court. (His son, Bruce Bent II, was found liable for negligence at the same trial.)
Money managers can go to jail for burying their losers and telling investors only about their winners. When the SEC does the same thing, it's par for the course.
An SEC spokesman, John Nester, provided Stewart a statement for his New York Times column last week, although the statement was not posted on the SEC's website. “Our duty in all cases is to achieve a just and appropriate outcome,” Nester said. “Our decision here appropriately reflects information that came to light as the litigation progressed.”
I began asking Nester on Friday why the SEC hadn't made a public announcement itself of the dismissal in the Steffelin case. The document in which the SEC agreed to dismiss its case against him is dated Nov. 8, more than a week before Stewart's column was published. In an e-mail this morning, Nester said an update would be posted on the SEC's website later today. We'll see about the other cases, and whether the SEC changes its practice.
--Bloomberg News--
(Jonathan Weil is a Bloomberg View columnist. The opinions expressed are his own.)
