SEC let Wall Street off the hook, says ex-enforcer

An outgoing financial enforcement attorney at the Securities and Exchange Commission went out with a bang, chiding the regulator as being beholden to the titans of finance.

SEC veteran James Kidney charged in a farewell speech that the agency shied away from pursuing cases against Wall Street executives following the 2008 economic crisis.

“I have had bosses, and bosses of my bosses, whose names we all know, who made little secret that they were here to punch their ticket,” Kidney said in a March 27 speech, according to a copy of the remarks from that were obtained by Bloomberg. “They mouthed serious regard for the mission of the commission, but their actions were tentative and fearful in many instances.”

Kidney said the SEC has become “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,” he said, according to the remarks.

Kidney worked for the SEC from 1986 onwards, leaving only for a four-year stint at Aetna in the 1990s.

His comments echo what critics have long  said of the potential effects of the revolving door between government and the private sector — that senior officials are soft on big banks, in hopes of landing cushy jobs after leaving public service.

Craig Holman, a government affairs lobbyist for Public Citizen, has condemned the money awarded to former government officials.

“You have to wonder how impartial and fair these people are when they are in government service, when their retirement plan essentially depends on that industry,” he told The Hill last month. “Are they going to throw softballs at the industry in order to get a very well-paying job with that industry?”

The SEC’s former head of enforcement, Robert Khuzami is reportedly earning a $5 million-per-year paycheck from white-shoe firm Kirkland & Ellis, where he is a partner in its government, regulatory, and internal investigations practice. Khuzami left the agency last summer.

The division that Khuzami led, which Kidney worked in, levied $550 million worth of fines against Goldman Sachs in 2010 to settle charges that it misled investors about products containing subprime mortgages. At the time, it was the largest fine ever paid by a Wall Street firm.

However, in last week’s remarks, Kidney called fines like those “a tollbooth on the bankster turnpike.”

About 70 people were in the audience, and his comments drew applause, attendees told Bloomberg. One witness, Kidney’s former colleague who is now with K&L Gates, said that the “high-ranking people in the room … took it in stride,” according to the report.

“Everyone respected that,” Stephen Crimmins, a partner at K&L Gates, said.

The SEC did not respond to a request for comment.

He will always be a “loyalist” to his former employer, Kidney told Bloomberg, and said he was just trying to “offer constructive criticism.”