Morning Must-Read: Felix Salmon: Yes, the SEC Was Colluding with Banks on CDO Prosecutions

Felix Salmon: Yes, the SEC Was Colluding with Banks on CDO Prosecutions: “Back in 2011, I asked whether…

the SEC was colluding with banks on CDO prosecutions. And now, thanks to an American Lawyer Freedom of Information Request, we have the answer: yes, they were. This comes as little surprise: it beggared belief, after all, that every bank would end up being prosecuted for one and only one CDO. But now we have chapter and verse…. It’s quite impressive how quickly and accurately Goldman nailed the amount of money that it would have to pay the SEC to settle the case: when it took three months to come to the $550 million settlement, I for one assumed that Goldman had to be dragged kicking and screaming to that point. In fact, however, Goldman was happy to offer half a billion dollars right off the bat. The tough part of the negotiation was… over the question of whether the SEC, with the Abacus prosecution successfully under its belt, would then go after Goldman for a dozen other deals which were functionally equivalent. The answer was a clear no… the SEC quietly assured Goldman–but not the public at large–that none of those deals would result in any charges. And with the Goldman deal now public knowledge, we can assume that the same nod-and-a-wink deal was struck with all the other one-and-only-one CDO bank prosecutions: Citigroup, JP Morgan, Merrill Lynch (which evidently included Bank of America), Mizuho Securities, Wachovia, Wells Fargo, UBS…. Basically, there’s a CDO lottery, and, thanks to the way in which the SEC cozied up to the big banks, the average CDO investor has a very small chance of having won it…