Retiring SEC Attorney Takes Parting Shot At Agency

In his goodbye speech, James Kidney said the SEC didn't do enough to take down Wall Street during the Great Recession. David Greene talks to Kidney about his candid speech and his years at the SEC.

DAVID GREENE, HOST:

Now usually, retirement speeches don't make a whole lot of news. But that was not the case when James Kidney bid farewell to a group of 70 co-workers. Kidney just retired from the Securities and Exchange Commission after nearly 30 years. At his going-away party, he decided to speak his mind about the SEC's, quote, "tentative and fearful actions" against Wall Street after the financial crisis of 2008.

We brought him in to read a part of his speech, one that has gotten the whole lot of attention.

JAMES KIDNEY: (Reading) It's no surprise that we lose our best and brightest, as they see no place to go in the agency and eventually decide they are going to get their own ticket to a law firm or corporate job punched. They see an agency that polices the broken windows on the street level, and rarely goes to the penthouse floors. On the rare occasions when enforcement does go to the penthouse, good manners are paramount. Tough enforcement - risky enforcement - is subject to extensive negotiation and weakening.

GREENE: When you were reading those words at your retirement party, describe to me what the room was like, and the mood.

KIDNEY: The mood was respectful. I got a large round of applause from the people there, and I think that they saw it as a breath of fresh air. And I think that the farewell addresses that several people gave at my party made me very proud, sometimes made me think I'd stepped into the wrong retirement party.

(LAUGHTER)

KIDNEY: And since this speech has inadvertently become public, I definitely want to make it clear that a lot of the vitriol that's been on the Internet is undeserved.

GREENE: This is vitriol, you're saying, people who are sort of using the news of your speech as an opportunity to attack the SEC.

KIDNEY: Yes. And I've seen some people take some of the words out of my speech and suggest that I somehow was saying that there was a plot organized between the White House and the Department of Justice and the SEC, and other regulators, to go easy on Wall Street. I have no knowledge of any such thing. These are difficult and complicated cases, in many instances. The one I was involved in, I thought that the agency didn't even engage in its usual aggressive investigative tactics before bringing an action, and that troubled me very much.

GREENE: What case are you talking about?

KIDNEY: Well, it's the Goldman Sachs case involving Abacus.

GREENE: Mm-hmm.

KIDNEY: It was the first of the big-bank cases brought, and it was my feeling that there was a desire to bring that case out quickly so that the agency would look like it was doing an aggressive job. But instead, I think that came at a cost of doing a thorough investigation.

GREENE: When the agency at moments like this is not as aggressive as you think they should be, why is that happening?

KIDNEY: Well, there are a lot of reasons, and they are not I think for the most part unique of the Securities and Exchange Commission. I mentioned in my speech specifically the revolving door. For some reason some people think you can work in a particular culture for years and then suddenly change hats and go over and be effective in a completely different culture. For some reason though, if you work on Wall Street, you can immediately do a 180 and turn around and become the enforcer. When I first got there in 1986, the SEC in those days used to be considered a tough, aggressive enforcer. There used to be TV and movie shows where people would say, I'm getting a subpoena from the SEC and that was intended to be a scary thing.

GREENE: Mm-hmm.

KIDNEY: I don't think that would happen today. Washington has become - and I think everybody knows it - a bathtub full of cash. As long as you just go in the bathtub you're going to come out with cash stuck on you - if you're at least a certain, have certain jobs and have certain roles. And that's why the revolving doors such a problem. It's cultural, it's the culture of Washington, it's the culture of Wall Street and it hollows out the civil service.

GREENE: I wonder, you know, you talk about families struggling in this economic environment, a lot of people having to work to keep their families together. I mean isn't an agency like the SEC also struggling? I mean there are limited resources. Congress cannot give as much money as those who lead the SEC would like. That means not as much staff, not as much money for enforcement. I mean might those be some of the reasons that the agency can't be as aggressive as you would like them to be?

KIDNEY: I'm not too familiar with exactly how the SEC spends its money but one thing I pointed out was changing the metric of the division of enforcement; that instead of just the raw number of cases we bring, that it's important to weigh cases based on what impact they would have on the markets. Right now, the SEC does not formally do that. They just simply count up the cases.

GREENE: There have been successful cases at the SEC. I mean the agency got Goldman Sachs to settle. I mean it was one of the highest profile SEC actions arising from the whole credit crisis. The bank agreed to pay more than a half a billion dollars to settle claims that it misled investors. I mean are you suggesting that there are a lot more cases that high-profile that could be brought but aren't?

KIDNEY: Well, that's a chicken and egg question. If you're going to spend a lot of your resources going after auditors in China, and you're going to spend a lot of your resources going after the guy who got a hot stock tip on the golf course, it's hard to know whether there are other bigger cases. The remarks I made at my retirement party, which I never intended to have go out on the Internet and then be the subject of all this discussion...

GREENE: Coming in and talking to us.

KIDNEY: Coming in and talking to you - although, it's very nice to come in here - was just prescriptive, trying to improve the agency. And I would hope that now that it has gotten all this attention, that maybe some of that will be taken to heart.

GREENE: James Kidney, thank you so much for coming in and talking to us. We really appreciate the time. It's been a pleasure.

KIDNEY: Been a pleasure for me too, David. Thank you.

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