Corporate Governance

SEC v. Goldman: A Divided Commission and an Unfortunate Leak

By J Robert Brown Jr.

By now it should be assumed that in controversial cases, what happens at the closed meeting of the Commission will unfortunately leak to the press.  This has been the case with SEC v. Goldman.  It turns out that the decision to approve the case was made on a 3-2 vote, at least according to the WSJ.  Moreover, the division was political.  The three democrats (Aguiglar, Walter and Schapiro, who is sometimes characterized as an independent) voted in favor and the two republicans (Casey and Paredes) voted against. 

It is a reminder both of the nature of independent agencies.  They typically have to have representation of both policital parties and have multi-year terms.  See 15 USC 78d ("Not more than three of such commissioners shall be members of the same political party, and in making appointments members of different political parties shall be appointed alternately as nearly as may be practicable."  They also have multi-year terms.  As a result, the prior administration retains residual influence.  In fact, four of the current commissioners were appointed by President Bush, including Paredes and Casey.

In some ways, the division is not unexpected.  As we have noted, this Commission has seen its share of divisiveness, invariably along political lines.  But mostly what is unfortunate about the news is the leak itself.  Commission meetings dealing with enforcement proceedings are closed to the public.  Confidentiality can protect the private parties involved (particularly when a case is turned down) and encourages open debate among the Commission and staff.

Leaking the content of closed meetings is unprofessional and damaging.  It is perhaps inevitable, given the high profile nature of the case.  It may also be an inevitable consequence of technology.  Before the new millennium, only those who physically attended the closed meetings could observe the Commission in action.  In the Internet era, however, all regional offices can observe the meetings via video link.  In other words, the leak about the meeting could have come from almost anyone in the agency.

Perhaps for controversial cases with a propensity to leak to the press, the Agency should consider meetings that are closed to most of the staff and shutting off the cameras.  This was done for example during the investigation of Michael Milikin when the Commission regularly held executive sessions attended by only those with a need to know justification.  As more of these unfortunate leaks occur, the Commission should consider greater use of these sessions.

Full post as published by The Race to the Bottom on April 20, 2010 (boomark / email).