I find the Goldman Sachs/SEC affair to be an intriguing affair. In a very public display the SEC alleges Goldman Sachs of fraud. Here are some of the more interesting facts I have collected so far:

1. Although the information released by the SEC is impressive the SEC opts for a civil fraud case.
2. Despite lots of former Goldman Sachs employees in the Obama administration and large Democratic campaign contributions, Goldman Sachs is blind sided by the announcement.
3. Steve Liesman of CNBC appears to have identified significant exculpatory information in SEC testimony that weakens the SEC case.
4. The primary victim of the fraud case is a German bank, IKB. The Business Insider highlights the facts that this bank thought they were an expert in the CDO market. From 2000 this bank had been successfully selling these risky investments to its clients. In a trial currently underway in Germany, IKB’s former chief executive Stefan Ortseifen, stands accused of misleading investors about the perilous state of IKB’s finances in the summer of 2007.

What was the SEC doing?

The SEC was arguably asleep at the wheel in both the Madoff scandal and the Stanford scandal. This week we find out that the SEC had an attorney who spent most of the day watching porn. For an organization that is bereft of positive publicity, this news story should have been a shining light of good government in action. However, this story seems to have avoided the high road, too.

1. As Ben Stein remarked on a recent Wealthtrack episode, the SEC has all of the laws it needs to prosecute fraud as a criminal case. Yet the SEC chose to pursue a civil case. Shouldn’t it be IKB pursuing the civil fraud case?
2. The timing of the SEC disclosures appears to be politically motivated. A finance reform bill is pending in the Senate and these disclosures and the subsequent public outrage appear to be a political gambit designed to raise political pressure on the bill’s opponents and to expedite the bill’s passage.
3. As the Washington Post and Rush Limbaugh pointed out, The White House appears to have successfully used “insider information” on the Goldman Sachs news release to raise campaign contributions via targeted web searches.

My theory is that Goldman Sachs and the SEC are involved in a deadly embrace. Despite this being a lose-lose proposition, I am afraid they won’t settle any time soon. Although the Democratic pundits will claim a major victory when the Senate passes the finance reform bill, there is bad blood brewing on Wall Street over the handling of this affair. I doubt the voter cares too much about a civil fraud case involving a German bank heavily involved in speculating on US real estate.