Does the SEC Play Favorites?

By
Vikram Pandit, chief executive officer of Citigroup Inc. Photo: Bloomberg/2011 Bloomberg

The SEC might not be cutting Wall Street, as a whole, as much slack as it used to, but at least in certain quarters of the industry, it's not so very terrifying. The New York Times reports that the organization doesn't go after the big banks — Goldman, JP Morgan, Bank of America — quite as hard. Or, rather, it lets those large banks off the hook far more often if they're found to be noncompliant with certain regulations — at least 350 times in the last ten years. But there's one bank that's the redheaded stepchild:

JPMorganChase, for example, has settled six fraud cases in the last 13 years, including one with a $228 million settlement last summer, but it has obtained at least 22 waivers, in part by arguing that it has “a strong record of compliance with securities laws.” Bank of America and Merrill Lynch, which merged in 2009, have settled 15 fraud cases and received at least 39 waivers.

Only about a dozen companies — Dell, General Electric and United Rentals among them — have felt the full force of the law after issuing misleading information about their businesses. Citigroup was the only major Wall Street bank among them. In 11 years, it settled six fraud cases and received 25 waivers before it lost most of its privileges in 2010.

Those privileges can include waivers that allow them to raise money without waiting for government approval (which offers a crucial competitive advantage) — it's the financial world's equivalent of getting your curfew extended after you've broken it enough times that your parents give up. And it's existentially that they keep getting these waivers, says a former SEC chairman who told the Times that stopping them "might have vast repercussions affecting the ability of a firm to continue to stay in business." But that doesn't mean the agency will let them get away with murder.

The agency usually revokes the privileges when a case involves false or misleading statements about a company’s own business. It does not do so when the commission has charged a Wall Street firm with lying about, say, a specific mortgage security that it created and is selling to investors, a charge Goldman Sachs settled in 2010.

Just fraud! Sometimes.