Sometimes the SEC is an aggressive market regulator and at other times it appears to be the gang that cannot shoot straight. In filing the Goldman case, discussed here, it not only brought the most significant enforcement action in years, but also responded to critics who claim the agency cannot take on the Wall Street giants, but only the little guys. At the same time that case was filed, however, the SEC inspector general issue a report skewering the enforcement staff for its repeated failure to uncover the Stanford Ponzi scheme, (discussed here) years earlier and save investors millions of dollars. That report has been followed by headlines that some members of the staff spend more time on porn sites than case analysis.

Critics such as The Wall Street Journal have used, or perhaps misused, the Commission’s shortcomings as a kind of back handed defense of Goldman Sachs, suggesting that perhaps the case should not have been filed or was brought now to cover up the IG’s report. In an editorial on April 20, 2010, the WSJ recounted the failures cited by the SEC IG in his report on the failed Stanford inquiries and then concluded: “In other words, the SEC is a dreadful failure in fulfilling its core mission of protecting individual investors, as the Stanford and Madoff cases show. But the SEC is very good at nailing politically correct targets such as Goldman . . . In the cases of Stanford and Madoff, thousands of small investors lost their life savings. In the case of Goldman, some masters of the financial universe lost money . . .”

The WSJ’s defense of Goldman is more than misguided, it is simply wrong. The mission of the SEC is to protect all investors and safeguard the nation’s capital markets. That means protecting the soccer mom on Main Street, the day trader at home and the small business person struggling to create a retirement plan for his or her employees. It means protecting the large sophisticated investor who may in fact need less protection than others, but are still entitled to a fair shake in the U.S. markets. It means ensuring that the U.S. capital markets remain deep, transparent, liquid and fair for every investor. It also means that any investor, large, small, sophisticated, uneducated, from this country or from abroad should be able to rely on the fact that the U.S. markets are fair because the SEC is standing guard. That applies to the victims of Madoff and Stanford, as well as those in the Goldman transaction.

To be sure, the SEC has had some spectacular failures. The Madoff debacle need not be revisited – it was a complete failure. While many thought that failure could not be eclipsed, the report by Inspector General Kotz makes it clear that Stanford is worse. The report details failure after failure by the enforcement staff to follow-up on inspection reports suggesting Stanford was running a Ponzi scheme. Such failures clearly cannot be tolerated.

The Madoff and Stanford failures are not, however, a defense for Goldman. It is the statutory obligation of the SEC to bring an enforcement action if it has the evidence. If the SEC has the evidence it claims to have in its complaint against the bank, then it has an obligation to bring that action. The fact that Goldman is an icon of Wall Street or that the victims were sophisticated or foreign based has nothing to do with the obligation of the Commission to bring its case. For the WSJ to even suggest otherwise only demonstrates a fundamental misconception of the SEC’s mission and obligations. The paper needs to revisit its understanding of the markets and the role of the Commission.