When news of the Goldman Sachs scandal broke last week, some rightie bloggers had a question for which I did not have a ready answer. If what Goldman Sachs did was so bad, they asked, why did the SEC file a civil suit instead of criminal charges?
The answer seems to be that what Goldman Sachs did probably isn’t criminal — not because it wasn’t really, really bad, mind you, but because no U.S. law exists to cover exactly what Goldman Sachs appears to have done. Richard Adams writes at The Guardian, “the real scandal here isn’t what’s illegal but what’s legal.”
Zachary A. Goldfarb and Tomoeh Murakami Tse write for the Washington Post that Goldman Sachs and the SEC for months “had been involved in secret talks over allegations that the Wall Street bank defrauded customers in selling them investments designed to fail.” Last month the two sides reached some kind of impasse, and the SEC filed the suit to break the impasse.
Further, the SEC had notified Goldman Sachs last summer that it might file the suit. So this has been going on for a while. It’s not clear to me precisely what was being negotiated, however.