The SEC, Porn, and Alleged Insider Trading at Goldman Sachs. What’s Next?

It won't be a relaxed Friday for federal regulators today. Two big stories—one a business bombshell, the other potentially involving bombshells—shed light on the government's struggle to regulate finance.

The inspector general of the already beleaguered Securities and Exchange Commission released a report saying that 33 of their employees viewed "pornographic, sexually explicit or sexually suggestive images using government computer resources and official time," most of them over the last two and a half years. The news came in a summary of the inspection requested by Republican Iowa Sen. Charles Grassley, a staunch transparency advocate. Employees painstakingly worked around tools used to prevent them from looking at porn; one overfilled his hard drive and had to store images on discs in his office. Several employees were in the agency's upper pay grades—between $99,000 and $222,000. The Washington Times also reported on SEC employees' porn use last month, but as The Washington Post's Ed O'Keefe points out, federal employees looking at naughty pictures is nothing new—similar incidents have dogged other agencies.

The SEC has been battered for, um, being caught with its pants down in a number of cases of financial misdeeds—most notably the Bernie Madoff Ponzi scheme. But the agency has been more aggressive of late. The Wall Street Journal reports this morning on an SEC investigation into insider-trading allegations that link the investment bank Goldman Sachs and a hedge-fund manager who's already under investigation. Galleon Group, a $3.7 billion fund, closed in October after founder Raj Rajaratnam was arrested on allegations of securities fraud, conspiracy, and insider trading. According to the paper, the government now believes a Goldman director, Rajat Gupta, may have tipped Rajaratnam off to a pending investment in Goldman by Warren Buffett's Berkshire Hathaway in September 2008. The $5 billion infusion propped up a vulnerable Goldman at the height of the financial crisis and calmed fears of total collapse (Buffett, Berkshire's chairman and CEO, is also a member of the board of The Washington Post Company, which owns NEWSWEEK). No charges have been filed against Gupta. It's another blow for Goldman, which emerged from the economic collapse in better shape than any competitor, but which was charged with fraud by the SEC last week.

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